20140618-吉隆坡万信证券-OSK-EVA_Precision_Industrial__838.HK_-140618_12页_574kb

EVA Precision Industrial (838 HK) Summary

Core Content

EVA Precision Industrial is a leading manufacturer of precision moulds and components for office automation (OA) equipment, such as professional-grade printers. It offers a one-stop solution, including design, mould manufacturing, and mass production of components. The company is also expanding into new markets, including auto parts and consumer electronics.

Key Business Highlights

• Core Business:

  • Precision moulds and components for OA equipment
  • Vertical integration of services from mould design to component assembly

• Key Customers:

  • Kyocera Mita, Fuji Xerox, Konica Minolta, Toshiba, Samsung

• New Growth Drivers:

  • Auto parts: Completed Wuhan factory in 4Q13, expected to reach HKD200m in FY14 at 50% utilization
  • Consumer electronics: Received small orders for tablet and smartphone casings from Samsung and a Chinese brand

• Market Position:

  • Serves global customers, with competitive advantages over Japanese peers who focus on either moulds or components
  • Provides a vertically integrated service, differentiating itself in the market

Financial Performance

• Market Cap: USD360m
• Current Price: HKD1.66
• Avg Turnover (HKD/USD): 10.7m / 1.38m
• 52-Week Price Range (HKD): 0.91 - 1.74
• Free Float (%): 50
• Shares Outstanding (m): 1,680
• Shareholders:
  • Mr Zhang Hwo Jie: 41.9%
  • Capital Group: 8.0%

Earnings Forecasts and Valuation

• FY13 Net Profit: HKD55m
• 4M14 Earnings: Exceeded FY13 net profit
• Consensus FY14F Earnings: HKD147m (considered too low)
• Management Forecast:
  • FY14 Recurring Earnings: HKD200m (+138% y-o-y)
  • FY15 Recurring Earnings: HKD280m (+40% y-o-y)
• P/E Ratio:
  • FY14: 14x
  • FY15: 10x
• Global Peer Average P/E:
  • FY14: 13x
  • FY15: 11x
• EPS Growth:
  • FY14: 138% y-o-y
  • FY15: 40% y-o-y
• GPM (Gross Margin):
  • FY14: Expected to improve slightly
  • High-end OA components: 26-27%
  • Low-end OA components: 11-12%
  • Auto parts and consumer electronics: 20% (expected to increase with higher utilization)

Key Risks

• Slower recovery of OA demand
• Slow ramp-up in auto parts business
• Potential threat from 3D printing technology

Strategic Insights

• Cost Plus Pricing Model: Prices are determined by cost plus, with raw materials and labor as main cost components
• Operating Leverage: Opex-to-sales ratio expected to improve significantly in FY14 due to the commencement of auto parts business
• Mould Sales and Component Sales Correlation: Positive correlation (0.24) between mould sales growth and 12-month lagged component sales growth

Financial Exhibits

• Profit & Loss:

  • Total turnover (HKDm): 1,026 (Dec-09) to 2,656 (Dec-13)
  • Gross profit (HKDm): 204 (Dec-09) to 640 (Dec-13)
  • Recurring net profit (HKDm): 34 (Dec-09) to 84 (Dec-13)
  • Net profit margin: 3.1% (Dec-09) to 2.1% (Dec-13)

• Cash Flow:

  • Operating cash flow (HKDm): 243 (Dec-13)
  • Cash flow from investing activities: -74 (Dec-09) to -207 (Dec-13)
  • Cash flow from financing activities: -196 (Dec-09) to 125 (Dec-13)

• Balance Sheet:

  • Total cash and equivalents (HKDm): 226 (Dec-09) to 1,017 (Dec-13)
  • Total assets (HKDm): 1,555 (Dec-09) to 4,349 (Dec-13)
  • Total liabilities (HKDm): 658 (Dec-09) to 2,179 (Dec-13)
  • Shareholders' equity (HKDm): 897 (Dec-09) to 2,170 (Dec-13)

• Key Ratios:

  • Revenue growth (%): -5.4% (Dec-09) to 12.2% (Dec-13)
  • Operating margin (%): 4.8% (Dec-09) to 3.5% (Dec-13)
  • Net profit margin (%): 3.1% (Dec-09) to 2.1% (Dec-13)
  • Return on average equity (%): 3.4% (Dec-09) to 2.7% (Dec-13)
  • Net debt to equity (%): 18.7% (Dec-09) to 17.1% (Dec-13)

Earnings Drivers for FY14-16

• OA Component Sales: Expected to accelerate from FY13's 12% y-o-y growth
• Auto Parts Business: Expected to reach HKD200m in FY14 with 50% utilization
• Consumer Electronics: Expected to contribute to growth in the long term

Valuation Comparison

• Peer Comparison:
  • EVA Precision Industrial (838 HK): P/E (FY14: 14x, FY15: 10x)
  • HK-listed average: P/E (FY14: 7.6x, FY15: 6.2x)
  • Non-HK listed average: P/E (FY14: 15.3x, FY15: 12.3x)
  • Global average: P/E (FY14: 12.8x, FY15: 10.5x)

Investment Recommendation

• Rating: Not Rated
• Target Price: Not specified
• Price: HKD1.66
• Recommendation Chart:
  • Includes Buy, Trading Buy, Neutral, Sell, and Not Rated categories

Summary

EVA Precision Industrial is a precision manufacturing company with a strong presence in the OA equipment market. Its expansion into auto parts and consumer electronics offers new growth opportunities. Despite a strong FY13 performance and higher-than-expected earnings in FY14, the company is currently undervalued relative to its growth prospects. The company's P/E ratio is close to the global peer average, but its EPS growth is significantly higher. The company's financials show a positive trend, with improved operating leverage and potential for margin expansion. However, it faces key risks including slower OA demand recovery and the impact of 3D printing technology. The company's strategic positioning and recent milestones indicate a promising outlook for the future.