Tue, 08 Nov 2016

Equi ty Research Tongda (698 HK) TMT/ China

Riding on the ramp of smartphone metal casing with 3D Glass and waterproof components Well-positioned to reap the increasing metal casing penetration in China

smartphones market from FY16E onwards and potential upside on 3D glass casing from FY17E onwards

Successfully tap into US client supply chain via waterproof featured components from 3Q16 onwards

Margin expansion by metal casing and waterproof component orders Initiate BUY with TP HK$2.75 based on 15x FY17E PE

Market leader in China smartphone metal casing, 3D glass casing a new earnings growth driver. Tongda is the primary metal casing supplier for leading China smartphone vendor such as OPPO, Huawei and Xiaomi. Given metal casing penetration in global smartphone market is expected to improve from 25% in 2015 to 54% in 2018E, we expect Tongda to ship 44mn/55mn/63mn units of metal casing in FY16/17/18E from 20mn/11mn units in 1H16/FY15 and metal casing revenue to reach HK$4.0bn/HK$5.6bn/HK$5.9bn in FY16/17/18E, representing 55%/63%/62% of total revenue and 65% 3 year sales CAGR. Tongda also completed the R&D on 3D glass casing and is currently in discussion with leading China smartphone vendor. We expect 3D glass casing sales to materialize in 2H17E as Apple’s next generation iPhone 8 is likely to adopt 3D glass casing for better outlook and wireless charging efficiency. We estimate HK$25mn/HK$247mn revenue from 3D glass casing in FY17/18E, representing 0.3%/2.6% total revenue in FY17/18E.

Penetrating into new US client’s supply chain in waterproof featured component. Tongda successfully tapped into a leading US client’s supply chain from 3Q16 by shipping waterproof featured components, comprising 2 LSR and 4 O-rings and 10-15% order allocation from this new US client. We forecast 12mn/45mn units shipment in FY16/17E with ASP US$1.3, thus we forecast revenue from waterproof feature component to reach HK$117mn/HK$456mn in FY16/17E, representing 2%/5% of total revenue. Tongda will set up a new plant in Xiamen to assure the waterproof components to that US client.

Margin expansion driven by increasing metal casing penetration, pick up in high margin waterproof component sales growth Metal casing, 3D glass casing, and waterproof components all enjoy 30% GPM, higher than company blended 24% GPM in 1H16. Ramping up of these products sales are likely to drive up margin from FY16E onward and we estimate GPM to improve from 24.9% in FY15 to 25.5%/26.5%/26.6% in FY16/17/18E respectively.

Initial BUY. We initiate our BUY rating on Tongda with target price HK$2.75 based on 15x FY17E PE. We expect Tongda to deliver 21% earnings CAGR, as it is well positioned to reap the new technology trend in smartphones, including metal casing, 3D glass casing and waterproof components.

Risks: 1) lower than expected smartphone shipment growth, especially china smartphone; 2) ASP erosion and margin squeeze of metal casing, 3D glass casing and waterproof component; 3) lower than expected 3D glass casing and waterproof components adoption.

Chloe Liu

+852 2135 0209

chloe.liu@oriental-patron.com.hk

Yuji Fung

+852 2135 0236

yuji.fung@oriental-patron.com.hk

Initial Coverage

BUY

Close price: HK$2.09

Target Price: HK$2.75 (+31.6%)

Key Data

HKEx code 698

12 Months High (HK$) 2.15

12 Month Low (HK$) 1.18

3M Avg Dail Vol. (mn) 24.60

Issue Share (mn) 5,743.45

Market Cap (HK$mn) 12,003.81

Fiscal Year 12/2015

Major shareholder (s) Landmark worldwide (30.13%)

Source: Company data, Bloomberg, OP Research

Closing price are as of 07/11/2016

Price Chart

1mth 3mth 6mth

Absolute % 8.9 29.7 33.0

Rel. MSCI CHINA % 14.7 27.3 20.2

PE

Company Profile

Tongda Group Holdings Ltd is a one-stop

service provider of consumer electronics

casing products. The Group has established

a solid presence in handset, notebook

computer casings, electrical appliances, and

related products.,

Exhibit 1: Forecast and Valuation Year to Dec (HK$ mn) FY14A FY15A FY16E FY17E FY18E

Revenue 4,791 6,074 7,162 8,982 9,552

Growth (%) 32.1 26.8 17.9 25.4 6.3

Net Profit 501.7 702.8 826.9 1,178.5 1,262.7

Growth (%) 39.3 40.1 17.6 42.5 7.1

Diluted EPS (HK$) 0.093 0.119 0.129 0.184 0.197

EPS growth (%) 26.4 27.9 8.3 42.5 7.1

Change to previous EPS (%)

0.0 0.0 0.0

Consensus EPS (HK$)

0.169 0.203 0.232

ROE (%) 16.2 18.3 19.1 23.0 20.8

P/E (x)

17.6 16.2 11.4 10.6

P/B (x) 3.1 2.9 2.6 2.1 1.8

Yield (%) 1.4 1.8 1.8 2.6 2.8

DPS (HK$) 0.030 0.037 0.039 0.055 0.059

Source: Bloomberg, OP Research

0.0

0.5

1.0

1.5

2.0

2.5

Nov/15 Feb/16 May/16 Aug/16

HK$698 HK MSCI CHINA

0

2

4

6

8

10

12

14

Dec/13 Jun/14 Dec/14 Jun/15 Dec/15 Jun/16

Forward P/E Ratio

+1std.

avg.

-1std.

Tue, 08 Nov 2016

Tongda (698 HK)

Page 2 of 24

Table of Contents

Table of Contents ......................................................................................................................................... 2

Riding on increasing metal casing penetration, 3D glass casing is a new growth driver ............................... 3

Penetrating leading US smartphone vendor’s supply chain in waterproof featured component .................... 9

Margin expansion driven by increasing metal casing penetration, pick up in high margin waterproof

component sales growth .............................................................................................................................13

Initiate BUY on promising earnings growth and successful penetration of US smartphone camp ................15

Investment risks ..........................................................................................................................................18

Management profiles ..................................................................................................................................19

Shareholding structure ................................................................................................................................20

Financial Summary .....................................................................................................................................21

Tue, 08 Nov 2016

Tongda (698 HK)

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411 438 464 492 522

891 995 992 1,031

1,088

1,302

1,433 1,456 1,523

1,610 28%

10%

2%5% 6%

7% 6%

6%6%

0%

10%

20%

30%

0

1,000

2,000

2014 2015 2016E 2017E 2018E

China Shipment Non-China Shipment Global yoy % China yoy %

(mn units)

182356

544725

871

1119

1077912

798739

1,302

1,433 1,456 1,523

1,610

14%

25%

37%

48%

54%

0%

10%

20%

30%

40%

50%

60%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2014 2015 2016E 2017E 2018E

Metal casing shipment Non-metal casing shipment Metal casing penetration

(mn units)(mn units)

Riding on increasing metal casing penetration, 3D glass casing is a new growth driver

Increasing metal casing penetration in smartphones

China smartphone shipment growth has outpaced global shipment growth. With

~6% yoy growth rate from FY15 to FY18E, and China smartphone vendors are

grabbing global market share aggressively, especially in China market, benefiting

upstream China smartphone component manufacturers.

Exhibit 2: Global/China smartphone shipments

Source: IDC, OP Research

Penetration of metal casing in global smartphone market is expected to improve

from 25% in 2015 to 54% in 2018E, to become the standard configuration of

smartphones at RMB1,000 level or above given that metal casing is lighter,

aesthetic with good heat dissipation. Metal casing ASP is US$6 – US$15, 0.5 to

3.0 times higher than plastic casing ASP.

Exhibit 3: Metal casing penetration in global smartphone market

Source: IDC, Apple, Samsung, Huawei, OPPO, vivo, Xiaomi, OP Research

Increasing global market share of

China smartphone vendors

benefiting upstream component

manufacturers

Penetration of metal casing in

global smartphone is expected to

improve from 25% in 2015 to 54%

in 2018E, becoming the standard

configuration of smartphones at

RMB1,000 level or above

Tue, 08 Nov 2016

Tongda (698 HK)

Page 4 of 24

Primary metal casing supplier for Huawei, OPPO and Xiaomi

Major handset metal manufacturers in China include BYD Electronic (285 HK),

Everwin Precision Technology (300115 SZ) and Tongda (698 HK), Tongda and

Everwin’s customers are mainly china smartphone vendors and BYD Electronic

supplies to Samsung and china smartphone vendors.

Tongda is the primary metal casing supplier for Huawei, OPPO and Xiaomi,

handset models include Huawei P9 Lite, Redmi Note3, and OPPO R9.

Exhibit 4: Major handset metal casing manufacturers in China

Company

FY16E handset metal

casing revenue

As % of FY16E

revenue Major customers

BYD Electronic (285 HK) RMB6.7bn 21% Samsung, Huawei, Xiaomi, LeEco

Everwin Precision Technology (300115 SZ) RMB4.0bn 67% Huawei, OPPO, vivo, Xiaomi, LeEco

Tongda (698 HK) RMB3.4bn 55%

Huawei, OPPO, Xiaomi, Coolpad,

Asus

Source: BYD Electronic, Everwin, Company, OP Research

Tongda masters three technologies of metal casing, including Metal 1.0, 2.0 and

3.0. In general ASP of Xiaomi’s metal casing is lower at ~US$6, as it needs

shorter CNC processing time, while OPPO’s and Huawei’s metal casing enjoys

higher ASP at ~US$15, as it requires 10-15 minutes CNC time per unit.

Exhibit 5: Tongda’s metal casing technology

Technology Metal 1.0: CNC Uni-body

Metal 2.0: Metal stamping + NMT

molding + CNC processing

Metal 3.0: Composite Die-casting

middle frame

Internal components

CNC lead time 15~20 mins 10~15mins 2~10 mins

Fixed asset investment High Lower Lowest

ASP US$15 ~ US$20 US$10 ~ US$15 US$6 ~ US$8

Yield rate Low Medium High

Major application Handset casing or middle frame Handset casing Handset middle frame, can match

different materials back covers

3D glass casing combinability ✓

Adopted smartphone models Huawei P9 Lite, OPPO R7,

Coolpad FengShang Max,

Qiku360 Flagship,

Asus Zenfone 3/ Deluxe/ Ultra

Maimang 5/ 4, Redmi Note3,

OPPO R9/ A59, Ivvi i3

Honor V8/ 5C, Redmi 3, Mi Max,

Mi 4C Meizu Pro6

Source: Company, OP Research

Tongda is one of the major

handset metal casing

manufacturers in China

Tongda is the primary metal

casing supplier for Huawei, OPPO

and Xiaomi

ASP of Xiaomi’s metal casing is

US$6, and OPPO and Huawei’s

metal casing ASP is US$15

Tue, 08 Nov 2016

Tongda (698 HK)

Page 5 of 24

7%

22%

55%

63% 62%

23.9%

24.9%

25.5%

26.5%26.6%

22%

24%

26%

28%

0%

20%

40%

60%

80%

FY14A FY15A FY16E FY17E FY18E

Metal casing revenue proportion(LHS) Blended GPM(RHS)

Order allocation gain from China No. 1 smartphone brand, OPPO,

from 2H16 onwards to drive up metal casing ASP

Top China smartphone vendors for 9M16, Huawei, OPPO and Xiaomi are all

Tongda’s clients. Both Xiaomi and Huawei account for 20% each of total revenue

respectively and OPPO accounts for 11% of total revenue in 1H16, from 3% in

FY15.

Exhibit 6: Chinese smartphone vendors

9M16

Ranking

Vendors 9M16 9M15 yoy% FY16E 1H16 as FY16E

1 Huawei 94.2 71.2 32% 140 67%

2 OPPO 59.9 26.2 129% 100 60%

3 Vivo 49.4 24 106% 80 62%

4 Xiaomi 40.5 48.1 -15.8% Not disclosed n.a.

Source: Company, OP Research

We expect OPPO’s revenue contribution to keep increasing given its 9M16

shipment growth up 129% yoy and market share gain in China and global market.

We forecast OPPO’s revenue contribution will increase to 15%-20% in 2H16E

from 11% in 1H16, thanks to the hot sale of its star model, R9, and launch of new

series R9S in Oct16. As OPPO’s metal casing enjoys higher ~US$15 ASP, we

believe it will drive up Tongda blended metal casing ASP in 2H16E.

Ramp up metal casing sales contribution to drive margin expansion

Metal casing GPM is ~30%, 7ppts higher than plastic casing GPM. Given ramp

up of metal casing sales contribution, we estimate Tongda blended GPM to

improve 0.6ppt/1ppt yoy to 25.5%/26.5% in FY16/17E.

Exhibit 7: Key assumptions

Metal Casing Plastic Casing

FY16E Shipment 44mn 17mn

FY16E ASP RMB90 RMB40

FY16E GPM 30% 23%

Source: OP Research

Exhibit 8: Metal casing revenue proportion and blended GPM

Source: Company, OP Research

Xiaomi, Huawei and OPPO are

Tongda’s top3 clients in 1H16

We expect OPPO’s revenue

contribution will increase to

15%-20% in 2H16E from 11% in

1H16, thanks to hot sale of R9 and

R9S, thus drive up blended metal

casing ASP

Metal casing GPM is 7 ppts higher

than plastic casing GPM, which

helps on margin expansion by

0.6ppt/1ppt yoy to 25.5%/26.5% in

FY16/17E

Tue, 08 Nov 2016

Tongda (698 HK)

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High-end smartphone begins to adopt 3D glass casing for

ergonomic and aesthetic reasons

3D glass is likely to become the new trend in smartphone spec as it adds a slight

curve to the normally straight edge and also use curved display, which is usually

flexible AMOLED display. 3D glass is suitable for OLED display, complicated

antenna designs of 4G and 5G handsets, and also can solve signal interference

issue in wireless charging. Currently, there are few models adopting 3D glass

casing from smartphone vendors including Samsung Galaxy S7 edge, Vivo

Xplay5 and Xiaomi Mi5 and Note2, and Huawei Mate9 Porsche Design.

Exhibit 9: Comparison table of 2D, 2.5D and 3D glass

2D glass casing 2.5D glass casing 3D glass casing

Difference Straight edge and display Curved edge and straight display Curved edge and display

Advantages Cheap and high yield rate Enhance touch screen

user experience

Aesthetic experience

Suitable for OLED display

Solve signal interference issue

of wireless charging

Suitable for complicated

antenna design of 4G and 5G

handsets

Light and thin

Current models iPhone5/5s iPhone6/6s, Samsung Note 5,

OPPO R9, Huawei P9, vivo X6S

Samsung Galaxy S7 edge, VivoXplay5,

Xiaomi Mi 5, Xiaomi Note2, Huawei Mate9

Porsche Design

Likely Upcoming models iPhone8, OPPO Find9, Mi Edge, Meizu

Pro6 Plus

ASP of glass RMB5-6 RMB20-30 RMB80

Source: Company, OP Research

BOM of 3D glass casing is relatively high at RMB80, ~3 times of 2.5D glass, and

~10 times of 2D glass. ASP of 3D glass casing is RMB80-RMB100 and, if

combined with metal frame, ASP can go up to RMB260+. The high BOM of 3D

glass casing, mainly 3D glass material cost, is a key issue in solving mass

adoption in mid-end smartphones.

Market rumor is that the next generation of Apple iPhone 8 will adopt 3D glass

casing in all models, we expect China smartphone vendors will likely follow in

launching more glass casing models from FY17E onwards, which will help lift 3D

glass casing adoption similar to iPhone7 Plus dual camera model. We currently

estimate that the penetration of 3D glass casing in China will improve from 5% in

2016E to 25% in 2018E.

3D glass is probability the new

trend of smartphone spec as it is

suitable for OLED display, and

solves signal interference issue

of wireless charging

BOM of 3D glass casing is RMB80,

three times of 2.5D glass, which is

a key issue in solving mass

adoption in mid-end smartphones

Market rumor is that iPhone8 will

all adopt 3D glass casing, which

helps lift 3D glass casing

adopting in China from 5% in

2016E to 25% in 2018E

Tue, 08 Nov 2016

Tongda (698 HK)

Page 7 of 24

25

58

159

0%

5%

10%

25%

0%

20%

40%

0

100

200

2015 2016E 2017E 2018E

Shipment Penetration

(mn units)

Glass substrate

Corning (GLW US)

Asahi Glass (5201 JP)

Upstream: basic materials and semi productsMidstream: 3D glass casing

End product:

smartphones

Sapphire

Monocrystal

Sapphire Tech

Aurora (600666 CH)

TDG (600330 CH)

Cover glass

Biel Crystal

Lens Tech (300433 CH)

G-tech (3149 TT)

Firstar

Chunghwa Picture Tube

(2475 TT)

Taiwan

Foxconn Tech (2354 TT)

Catcher (2474 TT)

Apple

Assembly/ODM

Hon Hai (2317 TT)

BYD-E (285 HK)

PRC

BYD-E (285 HK)

Tongda (698 HK)

Everwin Precision (300115 CH)

Samsung

Huawei

Oppo

Vivo

Xiaomi, etc

Downstream:

Assembly/ODM

Exhibit 10: Shipment and penetration of 3D glass casing in China

Source: OP Research

Major 3D glass casing manufacturers are located in Taiwan and China. We

expect Tongda will be the major 3D glass casing supplier for China smartphone

vendors from FY17E onwards, together with Everwin (300115 CH), BYDE (285

HK), and Foxconn Tech (2354 TT). iPhone8 3D glass casing is expected to be

mainly supplied by Foxconn Tech, and Samsung Galaxy S7 edge 3D glass

casing is supplied by BYDE. Tongda purchases cover glass mainly from

Chunghwa Picture Tube (2475 TT).

Exhibit 11: 3D glass casing value chain

Source: OP Research

We expect Tongda will be the

major 3D glass casing supplier

for China smartphone vendors

from FY17E onwards, and it

purchases cover glass mainly

from Chunghwa Picture

Tube(2475 TT)

Tue, 08 Nov 2016

Tongda (698 HK)

Page 8 of 24

Semi-finished

glass products

Double-sided

polishing

Curve surface

fitting

Chemical

hardening

Multi-

metallization

In-Mold

lamination (IML)

25 247

1,334

2,535

0%3%

12%

21%

0%

10%

20%

30%

0

1,000

2,000

3,000

FY17E FY18E FY19E FY20E

Revenue Revenue contribution

(HK$mn)

Exhibit 12: 3D glass casing manufacturing process of Tongda

Source: Company, OP Research

We have currently factored in HK$25mn/HK$247mn 3D glass casing revenue in

FY17/18E, and 367% revenue CAGR from FY17E to FY20E, and revenue

contribution ramp up from 0% in FY17E to 21% in FY20E.

Exhibit 13: 3D glass casing revenue from FY17E to FY20E

Source: Company, OP Research

3D glass casing revenue is

expected to deliver 367% CAGR

from HK$25mn in FY17E to

HK$2,535mn in FY20E

Tue, 08 Nov 2016

Tongda (698 HK)

Page 9 of 24

8%

15%

25%

30%

35%

0%

10%

20%

30%

40%

2016E 2017E 2018E 2019E 2020E

Penetrating leading US smartphone vendor’s supply chain in waterproof featured component

Waterproof smartphone models – the next trend

Waterproof is becoming a critical spec for mid-to-high-end smartphones, as

people’s increasing demand for photography in various locations, including

underwater, and to alleviate water damage. Currently, iPhone7/7 Plus, Galaxy

S7/S7 Edge, Galaxy S7 Active, and Sony Xperia X Performance are the

representatives models of waterproof smartphones.

Waterproof smartphones have certifications by IP rating, known as IP67 or IP68.

The first number refers to the protection against solids, such as dust and sand, 6

is the highest number for the smartphone that is dust-tight. The second number

designates protection against liquids. iPhone7/7 Plus is water-resistant with IP67,

which means that it is completely protected against dust, and can go underwater

down to 1 meter for up to 30 minutes, Samsung Galaxy S7 is water-resistant with

IP68, thus it is completely dust-resistant and can go 1-1.5 meters under water for

up to 30 minutes. It is expected that iPhone8 will upgrade from IP67 to IP68, and

we expect the China smartphone vendors will follow to launch water-proof models

from FY17E onwards. Hence, we estimate water-proof penetration in smartphone

to grow to 35% in 2020E from 8% in 2016E.

Exhibit 14: Penetration of waterproof in smartphones from 2016E to 2020E

Source: OP Research

Waterproof is becoming a critical

spec for mid-to-high-end

smartphones, representative

models include iPhone7/7 Plus,

Galaxy S7/S7 Edge

iPhone7/7 Plus is rated as IP67,

and Galaxy S7/S Edge is IP68, it is

expected that iPhone8 will be

upgraded to IP68, thus improving

the waterproof penetration in

smartphones from 8% in 2016E to

35% in 2020E

Tue, 08 Nov 2016

Tongda (698 HK)

Page 10 of 24

LSR between lighting

connector and microphones

LSR in the plastic SIM eject plug

LSR on the SIM tray

LSR on the left edge of display EMI shield

LSR on home button

LSR on the ring/silent switch

First waterproof component began shipment to US client in Aug

2016

According to iPhone7 Plus teardown of iFixit, Liquid Silicone Rubber (LSR) is

mainly used in six parts, connecting between lighting connector and microphones,

SIM eject plug, SIM tray, left edge of display EMI shield, home button and

right/silence switch, leading to the improved dust and water resistance with IP67

rating.

Exhibit 15:LSR used in iPhone 7 Plus

Source: iFixit, OP Research

Tongda began shipping the first waterproof components (home key) to a US

smartphone vendor in Aug 2016. One set of the waterproof products include 2

Liquid Silicone Rubber (LSR) and 4 O-rings, with ASP of US$1.3 per set. LSR is

the ideal material for rubber O-ring as it is resistant to compression, tears and

stress, and enjoys high stability and durability. LSR and O-ring are mainly applied

in the Home key of the new US client.

LSR is mainly used in six parts of

iPhone7 plus

Tongda began shipping

waterproof components (2 LSR+4

O-rings) to US client from Aug

2016, with ASP of US$1.3 per set,

which is mainly applied in the

Home Key

Tue, 08 Nov 2016

Tongda (698 HK)

Page 11 of 24

Exhibit 16: Liquid silicone rubber (LSR)

Source: Company, OP Research

Exhibit 17: Rubber compression molding

Source: Company, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 12 of 24

117

456 502

552

2%

5% 5% 5%

0%

5%

10%

0

200

400

600

FY16E FY17E FY18E FY19E

Revenue Revenue contribution

(HK$mn)

4 month contribution in FY16E and full year sales contribution in

FY17E with order allocation gain to drive up sales and blended

margin

We estimate 12mn units of water-proof component shipments to the new US

client in FY16E as Tongda commenced shipments from Aug 2016. In FY17E,

Tongda will set up a new plant in Xiamen to cater to the new US client’s orders,

and we expect the shipments will increase to 45mn in FY17E given full year

contribution. Thus, we expect waterproof components revenue will achieve

HK$117mn/HK$456mn in FY16/17E, representing 2%/5% of total revenue, and

hit 68% 3-year CAGR from FY16E to FY19E.

Besides the waterproof component for Home Key, Tongda is in discussions with

the new US client for other waterproof component parts in the smartphone. We

have only taken into account the waterproof component for Home Key in our

forecast in which we see upside risks on our current estimates if Tongda is able to

secure more order allocations and different waterproof parts from the new US

client.

Given waterproof components enjoy a higher GPM over 30%, which helps on

margin expansion, as blended GPM in 1H16 is 24%.

Exhibit 18: Revenue and revenue contribution of waterproof components

Source: OP Research

As 4 month/12month contribution

in FY16/17E, we estimate

12mn/45mn units shipments of

waterproof components in

FY16/17E, leading to

HK$117mn/HK$456mn revenue

High GPM of waterproof

components at 30% helps margin

expansion

Tue, 08 Nov 2016

Tongda (698 HK)

Page 13 of 24

Margin expansion driven by increasing metal casing penetration, pick up in high margin waterproof component sales growth

Margin expansion in FY16E driven by 3 times shipment growth of

metal casing

Metal casing shipment is expected to hit 44mn in FY16E from 11mn in FY15,

300% yoy growth, thanks to increasing penetration of metal casing in China

smartphones, and market share gain of Tongda’s top clients in China smartphone

market, such as OPPO and Huawei. As metal casing enjoys a higher GPM at

30%, compared to plastic metal casing GPM at 23%, we expect Tongda to

achieve 0.6ppt margin improvement in FY16E to 25.5% GPM.

Waterproof component contribution increase to drive up FY17E

margin

Waterproof component will be a key growth driver from FY17E onwards as

Tongda commenced shipments of waterproof components to new US client from

3Q16, we estimate 12mn/45mn units waterproof components in FY16/17E and

HK$117mn/HK$456mn revenue in FY16/17E, representing 2%/5% of total

revenue. Waterproof components enjoy high GPM pf over 30%, which also helps

in 1ppt margin expansion from FY17E onwards on top of increasing metal casing

sales.

3D glass casing to drive margin improvement as also automobile

decorations FY18E onwards

We expect 3D glass casing adoption to ramp up from 2H17E onwards given

iPhone 8 is likely to adopt 3D glass casing and China smartphone vendors are

expected to follow in FY17E. Moreover, 3D glass casing is suitable for AMOLED

display, and wireless charging hence we estimate a significant ramp up of 3D

glass casing shipments from FY18E onwards and driving Tongda margin

improvement given 3D glass casing enjoys 30% GPM

Tongda also manufactures automotive decorations, including door trims, steering

wheels, shift knobs, door handles, speedometers, lights panels. Tongda acquired

4 new automobile clients in 1H16, as automotive component has long life cycle of

5-10 years, it takes 2 years from tapping into supply chain to mass production,

therefore, significant sales is expected to commence from FY18E onwards. We

expect automotive decorations revenue will ramp up from HK$30mn in FY15 to

HK$100mn/HK$200mn/HK$315mn in FY16/17/18E, representing 8%/13%/18%

of communication facilities, automotive and others revenue and 1%/2%/3% of

total revenue. Since automotive decorations also enjoy high GPM of 30%, we see

a promising margin improvement trend in FY16E - FY18E.

3 times shipment growth of metal

casing in FY16E helps 0.6ppt

margin expansion to 25.5% in

FY16E

2%/5% revenue contribution from

waterproof components in

FY16/17E helps in margin

expansion to 26.5% in FY17E

3D glass casing adoption ramp

up from 2H17E helps margin

expansion in FY18E

Significant automotive

decorations revenue growth is

expected from FY18E onwards,

as new clients acquired in 1H16

and it takes 2 year for mass

production, thus driving up

blended GPM in FY18E

Tue, 08 Nov 2016

Tongda (698 HK)

Page 14 of 24

23.9%

24.9%

25.5%

26.5% 26.6%

22%

24%

26%

28%

30%

FY14A FY15A FY16E FY17E FY18E

Metal casing revenue ramp up from 22% of total revenue in FY15 to 55% in FY16E

Waterproof componentrevenue ramp up from 2% of total revenue in FY16E to 5% in FY17E

3D glass cover /automotivedecoration revenue ramp up from 0%/2% of total revenue in FY17E to 3%/3% in FY18E

Exhibit 19: Blended GPM from FY14 to FY18E

Source: Company, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 15 of 24

4,791 6,074

7,162

8,982 9,552

502 703 827 1,178 1,263

0

2,000

4,000

6,000

8,000

10,000

12,000

FY14A FY15A FY16E FY17E FY18E

Revenue Net profit

(HK$mn)

7%

22%

55%63% 62%

44%

39%

9%4% 3%

3%2%5% 5%

12%

10%8%

6% 6%

13%8% 5%

1%14% 8% 4% 3% 3%

10% 14% 17% 17% 19%

0%

20%

40%

60%

80%

100%

FY14A FY15A FY16E FY17E FY18E

Metal casings Non-metal casings3D glass cover Waterproof componentsElectrical appliances NotebookIronware parts Communication facilities and others

Initiate BUY on promising earnings growth and successful penetration of US smartphone camp

We initiate our BUY rating on Tongda with TP HK$2.75 based on 15x FY17E PE

given: 1) ramp up metal casing shipments to drive up ASP and revenue from

FY16E onwards, and potential upside on 3D glass casing, as iPhone8 is

expected to adopt 3D glass casing and China smartphone vendors are likely to

follow in FY17E; 2) penetrate into non-China based smartphone vendor supply

chain via waterproof component from 3Q16 onwards and full year contribution in

FY17E; and 3) margin expansion driven by increasing sales of high margin metal

casing, 3D glass casing, waterproof components and automotive decorations all

of which enjoy higher GPM at 30%. Tongda currently trades at 11x FY17E PE and

3% yield.

Exhibit 20: Revenue and Net profit from FY14 to FY18E

Source: Company, OP Research

Exhibit 21: Revenue contribution from FY14 to FY18E

Source: Company, OP Research

Initiate BUY rating on Tongda

with TP HK$2.75 based on 15x

FY17E PE, Tongda currently

trades at 11x FY17E PE with 3%

yield

Tue, 08 Nov 2016

Tongda (698 HK)

Page 16 of 24

Exhibit 22: Key assumptions of metal casing, waterproof components and

3D glass casing

FY16E FY17E FY18E

Metal Casing

Shipment(mn units) 44 55 63

ASP(HK$) 90 103 93

Revenue(HK$mn) 3,960 5,643 5,905

Waterproof

Shipment(mn units) 12 45 50

ASP(HK$) 10 10 10

Revenue(HK$mn) 117 456 502

3D Glass Casing

Shipment(mn units) 0 0 1

ASP(HK$) 250 250 225

Revenue(HK$mn) 0 25 247

Source: Company, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 17 of 24

Exhibit 23: Result summary

HK$ mn 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16E

Revenue 1,690 1,937 2,101 2,690 2,881 3,193 3,239 3,924

COGS (1,334) (1,495) (1,619) (2,029) (2,204) (2,358) (2,449) (2,937)

Gross profit 356 442 482 661 678 834 790 987

Other income & gains 15 32 0 26 18 8 11 23

Selling exp (40) (39) (43) (69) (75) (73) (61) (120)

Admin exp (129) (149) (177) (153) (176) (269) (256) (294)

Other opex (5) (16) 0 (27) (6) (10) 6 (28)

Operating profit (EBIT) 197 270 262 439 438 490 490 568

Provisions or other items 0 0 0 0 0 0 0 0

Finance costs (21) (30) (27) (30) (27) (29) (34) (27)

Profit after financing costs 175 240 235 409 411 461 456 540

Associated cos (0) (0) (0) (2) (0) 0 0 (0)

Jointly controlled cos 0 0 0 0 0 0 1 1

Pre-tax profit 175 240 235 407 411 461 457 541

Tax (37) (9) (48) (47) (81) (53) (82) (97)

Minority interests (8) (1) (20) (26) (36) 0 5 3

Net profit 130 230 167 335 294 409 380 447

HoH%

Revenue 15% 8% 28% 7% 11% 1% 21%

Gross profit

24% 9% 37% 2% 23% -5% 25%

Net profit 76% -27% 100% -12% 39% -7% 18%

YoY%

Revenue 24% 39% 37% 19% 12% 23%

Gross profit

36% 49% 40% 26% 17% 18%

Net profit 28% 46% 76% 22% 29% 9%

Key ratios

GPM 21.0% 22.8% 23.0% 24.6% 23.5% 26.1% 24.4% 25.1%

Selling exp 2.3% 2.0% 2.0% 2.6% 2.6% 2.3% 1.9% 3.1%

Admin exp 7.6% 7.7% 8.4% 5.7% 6.1% 8.4% 7.9% 7.5%

EIT 21.2% 3.7% 20.2% 11.4% 19.7% 11.6% 18.0% 18.0%

Net margin 7.7% 11.9% 8.0% 12.4% 10.2% 12.8% 11.7% 11.4%

Revenue by segment

Electrical fittings 1,317 1,566 1,569 2,068 2,311 2,470 2,619 3,051

Handsets 823 1,037 958 1,457 1,756 1,957 2,091 2,539

Electrical appliances 270 195 324 265 328 260 352 236

Notebook computers 224 334 287 346 227 253 177 159

3D glass casings 0 0 0 0 0 0 0 0

Waterproof internal component 0 0 0 0 0 0 0 117

Ironware parts 224 268 314 374 323 149 196 87

Communication facilities and others 148 104 218 249 247 575 423 786

HoH%

Electrical fittings 19% 0% 32% 12% 7% 6% 16%

Handsets

26% -8% 52% 21% 11% 7% 21%

Electrical appliances

-28% 66% -18% 24% -21% 36% -33%

Notebook computers

49% -14% 20% -34% 12% -30% -10%

Ironware parts

20% 17% 19% -14% -54% 32% -56%

Communication facilities and others -30% 110% 14% 0% 132% -26% 86%

YoY%

Electrical fittings 19% 32% 47% 19% 13% 24%

Handsets

16% 41% 83% 34% 19% 30%

Electrical appliances

20% 36% 1% -2% 7% -9%

Notebook computers

28% 4% -21% -27% -22% -37%

3D glass casings

n.a. n.a. n.a. n.a. n.a. n.a.

Waterproof internal component

n.a. n.a. n.a. n.a. n.a. n.a.

Ironware parts

40% 40% 3% -60% -39% -42%

Communication facilities and others 47% 140% 13% 131% 71% 37%

Source: Company, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 18 of 24

Investment risks

Shrinking market share of Xiaomi As of Sep 2016, Xiaomi dropped to No.4

from No. 2 in Sep 2015 in China’s smartphone market with the shipments

decreasing 16% yoy to 49mn. Since Xiaomi is the current largest customer of

Tongda with 20% revenue contribution, further shrinking in Xiaomi’s market share

would reduce Tongda’s revenue and profitability. However, Tongda would secure

more orders from OPPO and Huawei both of which maintained robust growth, we

believe it would partially offset the downturn risk of Xiaomi.

ASP erosion and margin pressure of smartphone casing ASP and GPM may

drop faster than expected due to intensifying competition and improvement of

technology. However, we believe the ASP and margin pressure can be relieved

by (1) product portfolio upgrade to metal and 3D glass metal casing; (2)

introducing waterproof products and penetration of automobile interior decoration

market.

Lower than expected adoption of 3D glass casing The penetration of 3D glass

may be lower than expected if the BOM of 3D glass casing remains high at

RMB200 together with metal frame, as most low-to-mid end smartphones within

RMB1,500 may not adopt it. However, as iPhone 8 is going to adopt glass casing,

we believe it can promote the adoption of 3D glass in high-end series of Chinese

smartphone brands from FY17E onwards.

Tue, 08 Nov 2016

Tongda (698 HK)

Page 19 of 24

Management profiles

Exhibit 24: Management profiles

Name Age Position Role and responsibilities Description

Mr. Wang Ya Nan 58 Chairman, CEO Overall strategic planning

and business development

Mr. Wang joined the group in 1988 and has over 20 years of experience in

the electronics and electrical industry.

Mr. Wang obtained Executive Master of Business Administration degree in

Xiamen University and serves as a member of the Standing Committee of

the Chinese People’s Political Consultative Conference.

Mr. Wang is a brother of Mr. Wong Ah Yeung, Wong Ah Yu and Wang Ya

Hua.

Mr. Wang Ya Hua 60 Vice Chairman,

general manager

Overall management and

product development

Mr. Wang joined the group in 1988 and has over 20 years of experience in

the electronic and electrical industry.

Mr. Wang mainly focuses on product development, preparation and

monitoring of annual production plans and operating budget. He focuses on

day-to-day operations in Xiamen, Fujian province.

Mr. Wong Ah Yu 63 Deputy general

manager

Overseeing and manage

the operation

Mr. Wong joined the group in 1988 and has over 20 years of experience in

the electronic and electrical industry.

Mr. Wong focuses on day-to-day operations in Shishi city, Fujian Province.

Mr. Wong Ah Yeung 66 Deputy general

manager

Overseeing and manage

the operation

Mr. Wong joined the group in 1988 and has over 20 years of experience in

the ironware and electrical industry.

Mr. Wong focuses on day-to-day operations in Shenzhen, Guangdong

Province.

Mr. Choi Wai Sang 60 Executive director Development of overseas

market and technical

support

Mr. Choi joined the group in 1988.

Mr. Choi obtained Bachelor and Master of Science degrees in electrical

engineering from the University of Illinois, USA.

Mr. Wang Ming Che 40 Executive director Overseeing the operation

and sales in Shenzhen

Mr. Wang joined the group in 2002.

Mr. Wang is the son of Mr. Wong Ah Yeung.

Source: Company, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 20 of 24

30.13% 59.08%

Landmark

Worldwide

HoldingsPublic

10.79%

Wang Ya Nan

(Chairlman)

Shareholding structure

Exhibit 25: Shareholding structure

Source: Company, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 21 of 24

Financial Summary Year to Dec FY14A FY15A FY16E FY17E FY18E

Year to Dec FY14A FY15A FY16E FY17E FY18E

Income Statement (HK$ mn)

Ratios

Electrical fittings 3,637 4,780 5,671 7,168 7,490

Gross margin (%) 23.9 24.9 24.8 25.3 25.4

Ironware parts 688 472 283 283 283

Operating margin (%) 14.6 15.3 14.8 16.6 16.6

Communication facilities and others 467 822 1,209 1,530 1,778

Net margin (%) 10.5 11.6 11.5 13.1 13.2

Turnover 4,791 6,074 7,162 8,982 9,552

Selling & dist'n exp/Sales (%) 2.3 2.4 2.5 2.2 2.2

YoY% 32 27 18 25 6

Admin exp/Sales (%) 6.9 7.3 7.7 6.6 6.7

COGS (3,648) (4,562) (5,386) (6,711) (7,121)

Payout ratio (%) 32.3 31.1 30.0 30.0 30.0

Gross profit 1,144 1,512 1,777 2,271 2,430

Effective tax (%) 14.6 15.4 18.0 18.0 18.0

Gross margin 23.9% 24.9% 24.8% 25.3% 25.4%

Total debt/equity (%) 26.9 58.6 62.1 51.3 43.9

Other income 27 26 34 35 38

Net debt/equity (%) 13.8 35.5 40.1 35.5 23.8

Selling & distribution (112) (149) (181) (200) (213)

Current ratio (x) 1.8 1.8 1.7 1.7 1.8

Admin (330) (445) (551) (591) (637)

Quick ratio (x) 1.2 1.3 1.2 1.2 1.3

R&D 0 0 0 0 0

Inventory T/O (days) 140 128 128 128 128

Other opex (27) (16) (21) (27) (29)

AR T/O (days) 165 161 161 161 161

Total opex (469) (610) (753) (818) (878)

AP T/O (days) 133 126 126 126 126

Operating profit (EBIT) 701 928 1,058 1,488 1,590

Cash conversion cycle (days) 172 164 164 164 164

Operating margin 14.6% 15.3% 14.8% 16.6% 16.6%

Asset turnover (x) 0.9 0.8 0.8 0.8 0.8

Provisions 0 0 0 0 0

Financial leverage (x) 1.8 1.9 2.1 2.1 2.0

Finance costs (57) (56) (62) (68) (68)

EBIT margin (%) 14.6 15.3 14.8 16.6 16.6

Profit after financing costs 644 873 996 1,421 1,523

Interest burden (x) 0.9 0.9 0.9 1.0 1.0

Associated companies & JVs (2) (0) 2 2 2

Tax burden (x) 0.8 0.8 0.8 0.8 0.8

Pre-tax profit 642 872 998 1,423 1,524

Return on equity (%) 16.2 18.3 19.1 23.0 20.8

Tax (94) (134) (179) (256) (274)

ROIC (%) 16.4 16.3 14.5 17.4 16.7

Profit from discontinued operations 0 0 0 0 0 Minority interests (47) (35) 8 12 12

Year to Dec FY14A FY15A FY16E FY17E FY18E

Net profit 502 703 827 1,178 1,263 Balance Sheet (HK$ mn)

YoY% 39 40 18 43 7

Fixed assets 1,873 2,740 3,221 3,590 3,847

Net margin 10.5% 11.6% 11.5% 13.1% 13.2%

Intangible assets & goodwill 62 58 58 58 58

EBITDA 873 1,123 1,333 1,828 1,989

Associated companies & JVs 3 3 4 6 8

EBITDA margin 18.2% 18.5% 18.6% 20.3% 20.8%

Long-term investments 0 0 0 0 0

EPS (HK$) 0.093 0.119 0.129 0.184 0.197

Other non-current assets 163 254 254 254 254

YoY% 26 28 8 43 7

Non-current assets 2,101 3,054 3,537 3,907 4,167

DPS (HK$) 0.030 0.037 0.039 0.055 0.059

Inventories 1,401 1,606 1,896 2,362 2,507

Year to Dec FY14A FY15A FY16E FY17E FY18E

AR 2,166 2,683 3,164 3,967 4,219

Cash Flow (HK$ mn)

Prepayments & deposits 204 301 355 445 473

EBITDA 873 1,123 1,333 1,828 1,989

Other current assets 134 183 183 183 183

Chg in working cap (491) (472) (483) (806) (253) Cash 360 762 844 708 1,141

Others 52 41 0 0 0

Current assets 4,266 5,535 6,441 7,666 8,523

Operating cash 434 693 850 1,021 1,736 Tax (106) (106) (192) (179) (256)

AP 1,329 1,572 1,856 2,313 2,454

Net cash from operations 328 588 658 842 1,481

Tax 177 192 179 256 274

Accruals & other payables 196 324 383 480 510

Capex (547) (986) (766) (719) (669)

Bank loans & leases 629 976 1,450 1,450 1,450

Investments 0 0 0 0 0

CB & othe debts 0 0 0 0 0

Dividends received 0 0 0 0 0

Other current liabilities 0 0 0 0 0

Sales of assets 13 1 0 0 0

Current liabilities 2,332 3,065 3,868 4,498 4,689

Interests received 5 8 10 10 12 Others (209) (304) 0 0 0

Bank loans & bonds 351 519 552 552 552

Investing cash (738) (1,282) (756) (708) (657)

CB & leases 0 873 873 873 873

FCF (409) (694) (98) 134 824

Deferred tax & others 48 92 62 62 62

Issue of shares 672 0 0 0 0

MI 0 0 (8) (20) (32)

Buy-back 0 0 0 0 0

Non-current liabilities 399 1,484 1,479 1,467 1,455

Minority interests 19 0 0 0 0 Dividends paid (142) (201) (235) (202) (323)

Total net assets 3,636 4,039 4,631 5,607 6,547

Net change in bank loans 130 516 506 0 0 Interests paid (57) (56) (62) (68) (68)

Shareholder's equity 3,636 4,039 4,631 5,607 6,547

Others (29) 902 (30) 0 0

Share capital 55 57 57 57 57

Financing cash 593 1,161 179 (270) (391)

Reserves 3,582 3,982 4,574 5,550 6,490

Net change in cash 184 467 82 (136) 433

BVPS (HK$) 0.53 0.68 0.72 0.81 0.98

Exchange rate or other Adj (1) (65) 0 0 0 Opening cash 178 360 762 844 708

Total debts 980 2,369 2,875 2,875 2,875

Closing cash 360 762 844 708 1,141

Net cash/(debts) (502) (1,433) (1,857) (1,993) (1,560)

CFPS (HK$) 0.061 0.099 0.103 0.131 0.231

Source: Company, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 22 of 24

Exhibit 26: Peer Group Comparison

Company Ticker Price

Mkt cap

(US$m)

3-mth

avg t/o

(US$m)

PER

Hist (x)

PER

FY1 (x)

PER

FY2 (x)

EPS

FY1

YoY%

EPS

FY2

YoY%

3-Yr

EPS

Cagr

(%) PEG (x)

Div yld

Hist (%)

Div yld

FY1 (%)

P/B

Hist (x)

P/B FY1

(x)

EV/

Ebitda

Hist

EV/

Ebitda

Cur Yr

Net

gearing

Hist (%)

Gross

margin

Hist (%)

Net

margin

Hist (%)

ROE

Hist (%)

ROE

FY1 (%)

Sh px

1-mth

%

Sh px

3-mth

%

Tongda Group Hld 698 HK 2.09 1,548 5.8 17.6 16.2 11.4 8.3 42.5 21.3 0.76 1.8 1.8 2.89 2.59 11.7 10.4 35.5 24.9 11.6 18.3 19.1 8.9 30.6

HSI 22801.40 12.3 12.6 11.5 -2.4 9.3 5.6 2.24 3.6 3.5 1.16 1.16 9.5 9.2 -4.4 3.0

HSCEI 9608.24 8.2 8.5 7.8 -2.9 8.6 4.8 1.78 3.8 3.5 0.94 0.94 11.5 11.1 -3.2 5.2

CSI300 3356.59 15.0 14.1 12.5 6.5 12.6 10.5 1.34 2.1 2.1 1.77 1.68 11.8 11.9 3.2 4.7

Adjusted sector avg* 10.9 13.3 10.8 -4.3 16.0 1.4 0.75 4.2 2.3 2.51 1.65 5.0 4.5 0.0 22.9 11.0 19.5 12.3 -5.3 -2.3

Byd Electronic 285 HK 6.39 1,856 8.2 14.0 10.4 9.1 33.8 14.6 19.1 0.55 1.2 1.6 1.12 1.08 4.7 3.6 0.0 6.5 3.1 9.9 10.8 -1.1 8.1

Fih Mobile Ltd 2038 HK 2.52 2,594 2.2 11.0 29.5 19.1 -62.8 54.5 -16.9 N/A 8.5 3.7 0.73 0.68 0.3 0.3 0.0 5.2 3.1 3.3 2.3 -1.9 -6.0

Aac Technologies 2018 HK 72.25 11,439 53.0 24.9 20.0 16.1 24.8 24.1 21.7 0.92 1.7 1.8 6.62 5.51 19.2 15.6 0.0 41.5 26.5 30.1 29.9 -8.7 -3.6

Cowell 1415 HK 2.29 246 1.7 3.9 5.3 4.4 -25.3 19.6 -0.4 N/A N/A 0.7 0.86 0.73 2.0 2.5 0.0 14.0 6.2 25.4 13.6 -18.5 -30.2

Catcher Tech 2474 TT 229.50 5,616 49.7 7.0 8.7 8.3 -19.1 5.4 -3.1 N/A 4.4 4.3 1.57 1.36 3.3 3.6 0.0 46.3 30.5 22.0 16.7 -6.3 5.0

Casetek Holdings 5264 TT 85.80 926 5.4 5.2 7.9 7.0 -34.3 12.0 -5.5 N/A 9.3 7.6 1.02 0.92 1.8 2.2 0.0 25.5 14.6 18.4 12.4 -26.0 -31.4

Foxconn Technolo 2354 TT 90.80 4,079 16.1 10.5 11.4 11.6 -8.2 -1.4 -5.2 N/A 3.3 3.1 1.43 1.30 3.9 3.8 0.0 16.4 12.3 13.1 12.1 -1.9 17.6

Shenzhen Everw-A 300115 CH 28.28 3,760 28.9 55.2 35.1 25.5 57.1 37.8 45.4 0.77 0.7 0.6 6.74 6.43 33.9 22.6 8.9 27.8 11.6 17.6 18.0 1.8 22.3

Source: Bloomberg, OP Research

Tue, 08 Nov 2016

Tongda (698 HK)

Page 23 of 24

Our recent reports

Date Company / Sector Stock Code Title Rating Analyst

27/10/2016 Sinotrans 598 9M16 figures as we expected BUY Bruce Yeung

25/10/2016 TCL Display 334

Name change for China Display Optoelectronics

Technology (CDOT) (華顯光電) for better showcase

BUY Chloe Liu/Yuji Fung

25/10/2016 TCL Multimedia 1070 3Q16 results as expected BUY Chloe Liu/Yuji Fung

14/10/2016 TCL Display 334 Upgrade on higher sales, better ASP BUY Chloe Liu/Yuji Fung

12/10/2016 Sunny Optical 2382 Sept shipments in-line SELL Yuji Fung

11/10/2016 Q Tech 1478 Upgrade on higher than expected 3Q16 shipments BUY Chloe Liu/Yuji Fung

04/10/2016 Canvest 1381 New project in Lufeng City BUY Bruce Yeung

28/09/2016 UMP 722 Fine-tuned and ready for takeoff BUY Chloe Liu/Yuji Fung

27/09/2016 Youyuan International 2268 A butterfly emerging from a cocoon BUY Bruce Yeung

20/09/2016 Q Tech 1478 Riding the dual camera ramp BUY Chloe Liu/Yuji Fung

12/09/2016 TCL Display 334 August shipments rising on track BUY Chloe Liu/Yuji Fung

12/09/2016 Sunny Optical 2382 Aug shipments as expected SELL Yuji Fung

12/09/2016 Chunli Medical 1858 1H16 results overwhelm GPM and opex BUY Chloe Liu/Yuji Fung

02/09/2016 Anta Sports 2020 Keep the momentum going in 2H16 BUY Walter Woo

02/09/2016 Peak Sport 1968 Lack of other upside catalysts HOLD Walter Woo

01/09/2016 EGL 6882 Looking forward FY17E HOLD Bruce Yeung

31/08/2016 Wasion Group 3393 Another cut in State Grid tenders HOLD Bruce Yeung

30/08/2016 Shenzhen International 152 1H16 results inline HOLD Bruce Yeung

29/08/2016 Tcl Display 334 Rising star of TCL BUY Chloe Liu/Yuji Fung

29/08/2016 Truly Intl 732 All-around play BUY Chloe Liu/Yuji Fung

29/08/2016 Lifetech SCI 1302 1H16 results beat on opex control BUY Chloe Liu/Yuji Fung

29/08/2016 Display Module Sector - Riding on Technology upgrade BUY Chloe Liu/Yuji Fung

25/08/2016 Sinotrans 598 Solid gains with 1H16 performance BUY Bruce Yeung

25/08/2016 Harmonicare 1509 Downgrade on hospitals revamping HOLD Chloe Liu/Yuji Fung

24/08/2016 Canvest 1381 Solid results at higher costs BUY Bruce Yeung

24/08/2016 Chinasoft Intl 354 Reiterate BUY on solid 1H16 results BUY Chloe Liu/Yuji Fung

23/08/2016 HC International 2280 Core business in transition BUY Yuji Fung

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Rating and Related Definitions

Buy (B) We expect this stock outperform the relevant benchmark greater than 15% over the next 12 months. Hold (H) We expect this stock to perform in line with the relevant benchmark over the next 12 months. Sell (S) We expect this stock to underperform the relevant benchmark greater than 15% over the next 12 month. Relevant Benchmark Represents the stock closing price as at the date quoted in this report.

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