Attractive and defensive industrial play

Investment Rating - The report maintains a "BUY" rating for TK Group (Holdings) Limited with a target price of HK$2.44, indicating an upside potential of 28.5$1.90 [6][8]. Core Insights - The company is expected to recover in FY24E, supported by a strong balance sheet and operational efficiency improvements. Despite a decline in FY23 revenue and net profit due to weak downstream demand, the blended gross margin increased to 26.4%, the highest since FY20, driven by significant improvements in the mold fabrication segment [6][8]. - The financial position remains robust, with net operating cash inflow up 20% YoY to HK$445 million in FY23 and a net cash position of approximately HK$1.1 billion, which is about 72% of the market cap [6][9]. Revenue and Profit Forecast - Revenue is projected to grow at a CAGR of 12.5% from FY23 to FY26E, with net profit expected to grow at 18.5% CAGR during the same period. The FY24E PE ratio is estimated at 6.1x, which is considered undemanding compared to historical averages and peers [8][9]. - The order book for FY23 was HK$830 million, primarily driven by automotive and healthcare sectors, which accounted for 46$1 billion by April [6][8]. Segment Performance - The mold fabrication segment's revenue is expected to grow from HK$620 million in FY23A to HK$718 million by FY26E, with a gross margin projected to remain above 30% [3][6]. - The plastic components manufacturing segment is forecasted to recover from a revenue drop in FY23A to HK$2,060 million by FY26E, with gross margins expected to stabilize in the mid-20s percentage range [3][6]. Dividend Policy - The company raised its dividend payout ratio to 80% in FY23, supported by low CAPEX and strong cash flow. The expected payout ratio for FY24E is projected to remain above 50%, translating into dividend yields of 10.8% and 13.6% for FY23 and FY24E, respectively [9][6]. Market Position and Client Diversification - TK Group continues to diversify its client portfolio, successfully engaging with leading global brands in various sectors, including automotive and healthcare. The company is optimistic about the growth potential in electronic atomizers, which are increasingly used in both e-cigarettes and medical devices [6][8].