Kingboard Laminates Holdings (1888.HK)_ Positive Profit Alert Is Below Expectation But Earnings Upcycle Remains Intact in 2025E

Summary of Kingboard Laminates Holdings (1888.HK) Conference Call Company Overview - Company: Kingboard Laminates Holdings (1888.HK) - Date of Report: 28 February 2025 Key Points Financial Performance - Kingboard Laminates Holdings (KBL) announced a positive profit alert for 2024, estimating a net profit increase of over 43% year-on-year to more than HK$1.3 billion, which is below the forecast of HK$1.648 billion [1][3] - The discrepancy in profit expectations is attributed to: 1. One-off provision on re-valuation of property investment portfolio and property bonds due to a subdued property market 2. Lower-than-expected gross margin (GM) in 4Q24 due to increased bulk purchase discounts across the industry [1][3] Market Reaction - Following the profit alert, KBL's stock declined by 6%, although it had previously gained over 25% in the week leading up to the announcement [1] - The current stock price is HK$9.22, with a target price set at HK$11.50, indicating an expected share price return of 24.7% and a total expected return of 28.3% [4] Industry Context - The lower GM in 4Q24 is viewed as an industry-wide issue rather than company-specific, as KBL's competitor, Shengyi Technology, also reported a profit alert that missed expectations [3] - KBL's GM is projected to improve from approximately 19% in 2024 to around 23% in 2025, still below the mid-cycle average of 25% [3] Shipment Trends - Monthly shipments showed a persistent uptick in the second half of 2024 compared to the first half, with an average monthly shipment increase of 12.1% [6] Valuation and Risks - The target price of HK$11.50 is based on a price-to-earnings (P/E) ratio of approximately 15x for 2025, reflecting a cautious approach due to slower-than-expected macro consumption in China [8] - Key risks affecting the stock's performance include: 1. Variability in China's macroeconomic growth 2. Changes in government stimulus measures 3. Fluctuations in demand for electronic goods [9] Conclusion - Despite the short-term stock weakness, the overall outlook for KBL remains positive, with expectations of a margin upcycle continuing into 2025, presenting potential buying opportunities for investors [1][3]