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Fujikon Industrial Holdings Limited(927): FY06/07 Results Far Better Than Estimate

Thursday, July 5, 2007 Views10635
Fujikon Industrial Holdings Limited(927)
Recommendation on  5 July 2007
Recommendation Buy
Price on Recommendation Date $3.200
PE Ratio $7.55
Interest rates 2.480
Suggested purchase price $3.150
Target Price $4.530

Fujikon Industrial Hjoldings Limited (“Group”) is a leading company which designs, manufactures, markets, and trades electro-acoustic products, accessories, and other electronic products.

The Group has just announced its annual results for the year ended 31Mar06. The Group achieved prominent turnover growth, up by 54% yoy, due to the ongoing global demand for hands-free headsets, shipment of new audio products for a premium US audio brand, as well as the full year’s shipment of headsets for Microsoft Xbox 360TM game consoles. Net profit increased 86% to HKD159 million. This primarily thanks to the focusing on better margin business and products, and increased operational efficiency.

During the year, the sales of communication products, audio products, multimedia products, electronic products and accessories, and electro-acoustic parts accounted for 36%, 25%, 9%, 25% and 6% respectively of the total turnover.

Valuation

We expected the Group would continue to benefit from the strong global sales of mobile communication and entertainment products, with FY07/08 turnover increasing by about 25% to HKD2,098 million. Separately, we target the Group’s net margin would further improve to about 10.5% since the management expressed in the results announcement meeting that several cost control projects have been on progress in the coming years. We expect the net profit would increase by 38% to HKD220 million while EPS would increase by 34% to HKD0.5667. Valued it with historical P/E at 8x, the target price is $4.53.

Liquidity ratios and leverage ratios are both healthy for the Group: Current Ratio (Current Assets / Current Liabilities) is 1.9x while Long-term Debt / Common Equity is 1%.

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