SinoPac Securities Investment Service Corp (永豐投顧) has said it is upbeat about the stock price of TCI Co Ltd (大江生醫), even though it is high.
Trading at 25.5 times this year’s estimated earnings, the TCI stock is expensive compared with other health food suppliers’ price-to-earnings ratios of between 10 and 20.
However, the stock is still attractive amid an optimistic outlook for the company’s new emulsified fish oil and facial mask products, SinoPac said.
Other brokerages have said the stock is set for a re-rating on the back of marked growth in the market aided by the aging global population and the emergence of new distribution channels, such as direct selling and e-commerce.
TCI produces and distributes dietary supplements, functional foods and skincare products. The firm’s consolidated revenue rose 31.36 percent annually to NT$4.09 billion (US$139.4 million) from NT$3.11 billion in 2016.
It reported net income of NT$503.47 million, or earnings of NT$5.82 per share, for the first three quarters of last year, compared with NT$381.37 million, or earnings of NT$4.45 per share, a year earlier.
Shares of TCI, headquartered in Taipei’s Neihu District (內湖), have risen 73.26 percent over the past 12 months, outperforming the over-the-counter Taipei Exchange’s 7.78 percent increase over the period.
“There is no sign of a slow season for TCI this quarter in view of brisk orders for its ODM [original design manufacturing] business,” SinoPac analyst Fion Chen (陳奕均) said in a research note on Feb. 9.
“With higher capacity utilization at its existing plants and contribution from new fish oil and facial mask products, plus the development of its new US business, TCI’s revenue and profit are expected to show high-speed growth in 2018, following a similar pattern seen over the past three years,” Chen said.
TCI’s revenue this year is expected to increase 34.2 percent annually to NT$5.48 billion, Chen said, higher than the NT$5.15 billion she forecast in December last year.
Given the company’s solid growth outlook for this year, Chen’s said that a price-to-earnings ratio of 28 for this year’s estimated earnings is “attainable.”
SinoPac maintains a target price of NT$323 for the stock, which implies a 10.05 percent upside from the stock’s closing price of NT$293.5 on Monday last week, the last trading day before the Lunar New Year holiday.
TCI’s business portfolio ranges from product concept design to production of a variety of items, including functional drinks, capsules, tablets, sachets and powders. The company has six plants and four laboratories in Taiwan and China.
TCI on Feb. 6 reported revenue of NT$414.83 million for last month, up 56.43 percent from a year earlier, which it attributed to higher capacity utilization at its plants in Pingtung County.
The better-than-expected sales also reflected the effect of a strong Chinese yuan, Yuanta Securities Investment Consulting Co (元大投顧) said in a note on Feb. 7.
China is a major market for TCI, accounting for 63 percent of its total sales last year, followed by the Asia-Pacific region with 15 percent, Europe and the US with 13 percent and Taiwan with 9 percent, company data showed.
With more of the firm’s revenue coming from direct-selling companies — the key distribution channel for functional food products — TCI has benefited from the increase in issuance of direct-selling licenses in China over the past few years.
The company is also seeing popular messaging services, such as WeChat (微信), quickly become an emerging platform for marketing for micro-businesses in China, a phenomenon known as “we business” analysts have said.
“As TCI’s IBD [Integrated Bioscience Design] material has been verified in its key labs, it is able to provide its clients engaged in ‘we business’ in China with data on the efficacy of its functional drink products, and these products can thus be easily adopted in these clients’ marketing activities and distribution channels,” Yuanta analyst Lee Yi-shin (李懿欣) said in a note.
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