The average target price of 002745.SZ is 9.2 and suggests 11% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 9.2. This translates into 11% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 9.2. This suggests 11% upside potential. Even the most pessimistic analyst believes there will be stock growth. 

MLS Co., Ltd engages in the research and development, production, and sale of LED package and application products. It offers industrial lighting, circulating, household, display lamp beads, and power products, as well as lighting device. The company was founded in 1997 and is based in Zhongshan, China.

China

MLS Co., Ltd

Industrials

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends annually. 

002745.SZ reported revenue of CNY 16 770mn in the last 12 months, down 1% from FY24. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 8% from FY24 to CNY 0.23. Market expects EPS to reach CNY 0.48 in FY25.

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 4ppts and its growth decelerated by 0ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 5.4% in the last 12 months, a decline from 11.4% in FY23. 

Historically, 002745.SZ has reported weak net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 2.0%, down from 2.5% in FY23. 

MLS Co., Ltd reported a return on equity (RoE) of 2.5% in the last 12 months, down from 3.2% in FY23. The market consensus projects an RoE of 4.3% in FY24, again behind its peers. 

Another important profitability metric, return on assets (RoA), amounted to 1.4% in the last 12 months, a decrease from 1.7% in FY23. The market analysts predict that RoA will be 2.6% in FY24, again weaker than its peers. 

In the last 12 months, the return on capital employed (RoCE) declined to 2.3%, below the peers. The consensus estimate for FY24 for RoCE is 7.7%, again behind the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.5 in the past several years. This ratio implies a weak shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

002745.SZ boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually quite stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. 

No other major risks have been identified.

The risk of default is moderate. We note strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, bleak profitability, and negligible return on capital.

In highly turbulent market conditions, 002745.SZ is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low. 

In normal market circumstances, 002745.SZ is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. We would also like to highlight the mild intraday volatility of the instrument. 

Considering past and projected metrics, the stock is 'cheaper' than its peers. In particular, the stock is reasonably priced on P/E, 'cheap' on EV/EBITDA, undervalued on P/FCF. 

MLS Co., Ltd

CN¥ 8.27

5

MLS Co., Ltd

CN¥ 8.27

5

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

CN¥ 8.27

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