1H22 performance is in line with our and market expectations
Hongteng announced 1H22 results: revenue rose 6 per cent year-on-year to $2.101 billion and net profit increased 819 per cent year-on-year to $85 million, in line with the company's previously announced profit forecast range of $0.8-90 million and in line with our and market expectations. We believe that the recovery of the company's performance in the first half of the year is mainly due to:
1) the company's product portfolio has improved, and the proportion of high-margin products has increased; 2) the one-time impact of the overseas epidemic on the company's production capacity has been basically alleviated in the same period last year.
Trend of development
The business situation gradually improved in the first half of the year, and the profitability for the whole year rebounded steadily. Looking back on the same period last year, the company's 1H21 net interest rate fell to 0.5%, the lowest level since 2016, affected by the overseas epidemic. With the gradual mitigation of the one-off impact, the company's net interest rate gradually climbed, and 1H22 rebounded to 4.1%. However, due to the disturbance of consumer electronics demand from the macro environment, we are still cautious about the company's annual profit level. we expect the company's net interest rate to reach 3.4% in 2022, and it will take some time to return to a more healthy net interest rate.
The arrival of the peak season of traditional mobile phones is expected to contribute to the healthy growth of the terminal product line. 1H22's terminal product line generated revenue of $552 million, up 16.5% from a year earlier, mainly due to the company's increase in Bluetooth headset sales. With the start of the peak season of traditional mobile phones and the resumption of overseas offline activities in the second half of the year, we are optimistic that Belkin, the company's internal accessories brand, will achieve better revenue growth in 3Q22, relying on good sales channels and stable relationship with major customers in North America. Looking forward to the whole year, we predict that the company's end-of-year products will grow by 25% year-on-year to $1.08 billion at the end of 2022, becoming one of the main drivers of revenue growth.
Smart car products open the second growth curve; follow the progress of Ebike introduction. Hongteng is one of the main suppliers of charging cable control and protection devices (CPD) for new energy customers in North America, and has successfully cut into a number of mainstream models. based on the company's excellent precision manufacturing capability in the consumer electronics field and the intelligent transformation trend of the automotive industry, we believe that smart cars will become the company's second growth curve after consumer electronics. In addition, we see that the company's Ebike products won the "German Red Dot Design Award" in 2022, and we believe that the company has better reused its manufacturing experience in automotive products and focused on developing the whole field of "automobile + Ebike" intelligent travel.
Profit forecast and valuation
The company's current share price corresponds to 6.5 times 2022 and 5.4 times 2023 earnings. Considering that the company's operating conditions are gradually returning to normal, we raise the company's profit forecasts for 2022 and 2023 by 76% and 35% to 1.62 and 196 million US dollars, but we expect the net interest rate to be 3.4% in 2022. There is still a gap from the 5.4% net interest rate level before the 2019 epidemic. Considering that it will take some time for the company's earnings to recover, we maintain our neutral rating and target price of HK $1.35, corresponding to 7.6 times 2022 and 6.3 times 2023 earnings, which is 16.4% upside from the current share price.
Risk.
The overseas epidemic lasted longer than expected, and Belkin's offline channels recovered less than expected.