东江集团控股：Positive profit alert in 1H24E; Strong order momentum to continue into 2H24/FY25E

Investment Rating - The report maintains a "BUY" rating for TK Group with a target price of HK$2.79, indicating a potential upside of 46.8$1.90 [8][21][40]. Core Insights - TK Group announced a positive profit alert for 1H24, projecting over 40% year-on-year earnings growth, primarily driven by strong orders in the smartphone and wearables segments [4][7]. - The company is expected to achieve 20% sales growth and 38% earnings growth year-on-year in FY24, supported by new client orders and improved operational efficiency [4][7]. - The gross profit margin is anticipated to improve to 24.3% in 1H24, up from 23.3% in 1H23, due to a better product mix and utilization improvements [4][37]. Summary by Sections Earnings Summary - TK Group's revenue for 1H24E is projected at HK$1,025 million, reflecting a 19.8$77 million, a 41.4% increase [37]. - The gross margin is expected to rise to 24.3%, while the operating margin is projected at 6.2% for 1H24E [37]. Financial Forecasts - Revenue is forecasted to grow from HK$1,946 million in FY23 to HK$2,339 million in FY24, representing a 20.2% year-on-year increase [30][42]. - Net profit is expected to increase from HK$204.2 million in FY23 to HK$281.4 million in FY24, marking a 37.8% growth [30][42]. Valuation - The stock is currently trading at a P/E ratio of 5.6x for FY24E, which is considered attractive given the expected earnings growth and dividend yield of 8% [4][40]. - The target price of HK$2.79 is based on an 8.2x FY24E P/E, aligning with the company's historical valuation metrics [40]. Growth Drivers - Key growth drivers include strong order pipelines from major clients such as Meta, SONOS, and Polycom, alongside anticipated product launches from major tech companies [4][7]. - The company is well-positioned for potential M&A opportunities due to substantial cash reserves following debt repayments [4][7].