TK posted 1H23 revenue/NP decline of 12%/6% YoY, mainly due to demand weakness across segments (except automotive), partly offset by improved GPM to 23.3% (vs. 18.7% in 1H22) on easing cost pressure and enhanced efficiency.

Looking ahead, mgmt. is positive on new client orders, capacity ramp-up in Shenzhen/Vietnam/Huizhou plants and business opportunities in automotive/ medical device/e-cigarette. Following a weak 2023, we expect net profit to grow 33%/16% YoY in FY24/25E, backed by order wins from VR/e-cigarette/medical device, GPM recovery and better cost control. We adjusted TP to HK$3.09 based on same 8.2x FY24E P/E. Trading at 3.5x FY24E P/E with 17% FY22- 25E EPS CAGR and 9% dividend yield, we think the stock is attractive. Maintain BUY.

1H23 weakness well expected dragged by weak consumer electronics /communications demand. 1H23 revenue/net income dropped 11.7%/ 6.4% YoY, largely in-line with earlier guidance. By segment, 1) mobile & wearable (Apple, Otterbox, Jabra) dropped 24% YoY, 2) communications (Polycom) dropped 31% YoY, 3) smart home (Google, Amazon) dropped 39% YoY, 4) medical device dropped 18% YoY, 5) automobile segment grew 21% YoY, and 6) other products segment revenue grew 41% YoY driven by 93% YoY growth of e-cigarette product. Projects-on-hand in 1H23 amounted to HK$ 858.1mn (+5% YoY). Weakness in communications was mainly due to product call-back of key customer, while automotive segment benefited from easing shortage of automotive supply chain.

2H23/2024 Outlook: earnings growth set to resume backed by order wins, capacity ramp-up and cost control. Backed by new order wins in VR/medical device/e-cigarette/automotive, we expect TK to enjoy utilization recovery in 2H23/FY24E for its Huizhou & Vietnam plants. TK implemented stricter cost control measures in FY22/23, resulting in improving operating efficiency and cost savings. We expect TK's revenue/net profit to post -9% /+7% YoY backed by higher GPM of 25.4% in 2H23E (vs 23.3% in 1H23).

TK maintained high interim dividend payout ratio at 42.7% in 1H23.

Attractive valuation at 3.5x FY24E P/E and 9% yield; Maintain Buy. We adjusted our TP to HK$3.09 based on rollovered 8.2x FY24E P/E, in-line with 5-year historical forward P/E. Trading at 3.5x FY24E P/E, we think the stock is attractive considering 9% yield. Maintain BUY. Catalysts include Meta/Google/Amazon product launches, order ramp-up of medical device/e-cigarette customers and margin recovery in 2H23/FY24E.