TK Group announced a positive profit alert for 1H24 with 40%+ YoY earnings growth. After speaking with TK's mgmt., we reiterate our positive view on TK's 2H24 outlook, driven by strong order pipelines, new client wins, and revenue/margin recovery across most segments. Following challenging business environment in 2022 and 2023, we believe TK is on track to deliver 38%/19% YoY earnings growth in FY24/25E, backed by client demand recovery (e.g. Jabra, Polycom), new order ramp-up (e.g. Meta, SONOS, Dyson), utilization improvement and operating leverage. We slightly adjust forecasts, and maintain TP of HK$2.79 based on 8.2x FY24E P/E. Trading at 5.6x FY24E P/E with 8% yield, we think the stock offers attractive risk/reward. Maintain BUY.

1H24E strong recovery boosted by order recovery in smartphone & wearables/communications. TK announced a positive profit alert for 1H24 with 40%+ YoY earnings growth. We believe the upbeat results are mainly due to strong orders in smartphone & wearables (Meta, SONOS, Jabra, Insta360) and communication (Polycom) segments, partly offset by weaker auto segment. Projects-on-hand is expected to grow significantly due to new client orders ramp-up. We also expect GPM to improve to 24.3% in 1H24 (vs 23.3% in 1H23) due to better mix and utilization improvement.

2H24 Outlook: CE recovery, new order wins and better utilization. Backed by new order wins in earphones/wearables/smart home segments, CE recovery, better utilization and operating efficiency, we expect TK to deliver 20%/38% sales/earnings YoY growth in FY24E. In addition, we believe TK is well-positioned to capture more opportunities through M&A, backed by substantial cash on hand after paying back most bank loans in FY23. TK also issued special dividend in FY23 and expected to maintain high level of dividend payout if no major investment takes place in FY24E.

Attractive valuation at 5.6x FY24E P/E and 8% yield; Maintain BUY. We maintain our TP of HK$2.79 based on 8.2x FY24E P/E, in-line with 5-year historical forward P/E. Trading at 5.6x FY24E P/E, we think the stock offers attractive risk-rewards considering 38%/19% EPS growth and 8%/10% yield in FY24/25E. Catalysts include Meta/Google/Amazon product launches, order ramp-up of earphones/wearables customers and margin recovery.