通达（698.HK）：出售苹果业务后24 - 25 E财年盈利恢复积极

Tongda announced plans to dispose its Apple business and purchase back smart electrical appliances and motor businesses, in order to mitigate geopolitical risks and boost capital for future new business development. After our discussion with mgmt., we expect Apple biz disposal will allow Tongda to focus more on non-Apple customers' market share gains and boost capital for new businesses given the likely smartphone recovery in 2024, while business buyback should accelerate profitability improvement driven by order wins in FY24-25E. We lower FY23/25E EPS estimates by 4-19% to reflect the business disposal and cut interest expense assumptions. Our new TP of HK$0.155 is based on the same 6.0x FY24E P/E. Trading at 7.1x/4.0x FY23/24E P/E (a 10-year low), the stock has attractive risk/reward in our view.

Maintain BUY.

Apple biz disposal to boost capital for new business development. Tongda announced that its indirect wholly-owned subsidiary Tongda Precision had signed an agreement with the buyer (Tectum Global) to sell all equity of Tongda Xiamen Precision Rubber and all issued shares of TPT Singapore for a total consideration of HKD$2.015bn in cash. Tongda will use ~80% of net proceeds from the disposal for repaying floating-rate indebtedness to reduce finance cost expenditures and improve liquidity and gearing ratio, which we think will improve its balance sheet and overall profitability. We believe one of the main reasons for the disposal is the recent challenging geopolitical environment for production expansion in the overseas market, and we expect the disposal to be completed in 1H24E. In addition, we expect the disposal to drive smartphone casing growth as Tongda can focus more on non-Apple customers such as Honor, Xiaomi, Vivo and Transsion with share gains and an improving UTR amid smartphone market recovery in 2024.

Smart electrical appliances and motors to contribute sales in 2024 after biz buyback. Tongda also announced that its indirect wholly-owned subsidiary, Tongda Intelligence (BVI) will acquire all shares of Credence Technology (small motors, small fans, micro motors and their precision manufacturing) from Tongda Group (Asia) Limited at HKD60mn. In addition, Tongda terminated the sale of shares of Stedfast Investments (smart electrical appliances) at the cost of HKD60mn. We expect smart electrical appliances and motor businesses to contribute sales of HKD250mn/350mn driven by major customer orders in FY24E.

Positive on household & sports goods and network communication sales growth in FY24E. Mgmt. expected household and sports goods sales to achieve double-digit growth in FY24E driven by customers' demand recovery and new factories' capacity ramp-up. Driven by WiFi 7 router applications popularization, the Paris Olympic Games in 2024 and a major US customer order win, mgmt. expects new network communication products to drive sales growth in FY24E.