2018 Interim Report

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Net profit HK$140 million, up 27.1% from a year before, interim dividend HK 6 cents, dividend payout ratio 35.6%

Smart home, mobile phones and wearable devices, and medical and personal care recorded strong growth

Further increase capacity to meet full order demand

[2018年8月15日 – 香港] 全球领先的一站式注塑解决方案供应商之一 ─ 东江集团（控股）有限公司（「东江集团」或「本集团」，股份代号：2283），今早于投资者发布会上公布其截至2018年6月30日止六个月（「期内」）的中期业绩，多位投资者参与，现场气氛热烈。

[August 15, 2018 – Hong Kong] As one of the world's leading suppliers of one-stop injection molding solutions, TK Group (Holdings) Limited (hereinafter referred to as “TK Group” or “TK”, stock code: 2283) announced its interim results of the six months ended June 30, 2018 (the “Period”) this morning at the investor conference. Many investors were present, creating a warm atmosphere.

The management answered investors' questions at the conference.

In the first half of 2018, the global economy recovered steadily and the market demand expanded greatly. China's GDP rose 6.8% compared with the same period of last year, and consumption also increased continuously. TK’s downstream sectors such as smart home, mobile phones and wearable devices, and medical and personal care maintained strong growth. In the first half of 2018, TK's revenue was HK$1,025.7 million (first half of 2017: HK$816.3 million), up 25.7% over the same period last year.

Based on strong engineering capabilities, TK has always been optimizing production processes, reducing labor ratios and improving production efficiency. With technical advantages (including high-efficiency precision molds, automated production) in the industry and market insights, TK not only enjoys a cost advantage, but also can meet customers’ demands for high quality products. During the period, TK's gross profit increased to HK$323.4 million (first half of 2017: HK$263.3 million), with an increase of 22.8% over the previous year; the gross profit margin decreased slightly by 0.8 percentage points to 31.5% (first half of 2017: 32.3%). In the first half of 2018, TK recorded a profit attributable to its owners of HK$140.4 million (first half of 2017: HK$110.5 million), representing an increase of 27.1% over the same period last year; the net profit margin was 13.7% (first half of 2017: 13.5%), up 0.2 percentage points from last year, and the basic earnings per share was HK 16.9 cents (first half of 2017: HK 13.4 cents).

The Board of Directors resolved to recommend an interim dividend of HK 6 cents per share for the six months ended June 30, 2018, representing a year-on-year increase of 20.0% and a dividend payout ratio of 35.6%.

Business review

As the world's leading provider of one-stop integrated injection molding solutions, TK Group provides tailor-made, cost-effective and high-precision products and services for many internationally renowned companies. During the said period, TK, benefiting from a sound consumption climate, led to a significant growth in its downstream sectors such as smart home, mobile phones and wearable devices, and medical and personal care.

Mold manufacturing business

TK's ultra-large standard mold products are mainly auto parts. Its clients are mainly first-class component suppliers for European auto brands such as Mercedes-Benz, BMW and Volkswagen. TK is still focused on expert-level mold technology research and is committed to providing customers with high quality and cost-effective design solutions, which have won the trust of customers. In the first half of 2018, the revenue of the mold manufacturing business section was about HKD 339.9 million, representing a steady increase of approximately 11.0% as compared to approximately HKD 306.1 million for the same period of the last year and accounting for approximately 33.1% of TK's total revenue. With the increase in sales, continuous improvement in production line utilization and internal management, the gross profit margin of the mold manufacturing business increased by 1.9% to 36.7%.

Injection molding components manufacturing business

In the first half of 2018, the smart home segment recorded a strong growth of 145.3% on year-on-year basis as a result of the fact that TK became the sole supplier of some products of the two leading brands of smart home in North America, and successively obtained orders for a number of new product components. Revenue from the mobile phone and wearable devices segment increased by 45.1% year-on-year as a result of the fact that orders for protective covers for smartphones have grown substantially and orders for smartphone brand have grown steadily. Moreover, there was sharp increase in the market in demand for high-tech wearable products and sound equipment brands have introduced a number of new products in the field of wireless wearable devices, resulting in a significant increase in orders. The demand for medial and personal care in the market is on the increase. TK closely cooperated with clients to actively implement the expansion plan of new products, and the sector increases 10.6% on a year-on-years basis accordingly. On the whole, the revenue of the injection molding component manufacturing business segment was approximately HKD 685.8 million (HKD 510.2 million in the first half of 2017), representing a significant increase of 34.4% on a year-on-year basis and accounting for approximately 66.9% of TK's total revenue.

During this period, the production capacity of TK has reached a very high level. However, TK has purchased a large number of new equipment to meet the increasing demand for orders. Most of the production lines have been put into operation. The production process of some new products is still to be gradually optimized to better production efficiency, and so the profit margin of the injection molding component manufacturing business sector decreased slightly by 1.8% to 28.9% from approximately 30.7% in the same period last year. TK believes that the efficiency will be fully released after the optimization of the new production line is completed.

Outlook

China-US trade war broke out in the first half of 2018, and the market uncertainty and volatility increased accordingly, but it had little direct impact on TK on the whole.

Mr. Li Peiliang, Chairman of TK stated that TK has always adhered to the business philosophy of diversified customers and has been the preferred supplier for most customers, effectively reducing geopolitical and policy risks. TK's products directly exported to the United States accounts for less than 10% of total sales. TK is also actively considering setting up plants outside China, especially in Southeast Asian countries. On the one hand, we can enjoy lower labor costs and tax concessions, and on the other hand, the impact of China-US trade wars can be reduced. TK will continue to invest in technology R&D and automation, consolidate our advantages in the industry and strengthen our own strength. We are still confident about the future and face the economic fluctuations and challenges in the second half of the year with a cautious and optimistic attitude.」

“The existing production capacity of TK will not be sufficient to meet the growth demand for the foreseeable orders. Therefore, we have arranged for the short-term rental of plants outside Shenzhen to set up additional production lines. At the same time, we are constantly looking for M&A targets that have synergy with our Group's production capacity, customers and technology, expanding our business scale and maintaining growth momentum,” said Mr. Weng Jianxiang, Executive Director and Chief Executive Officer of the TK. He added: “TK’s business office in North America have entered the preparatory stage, which will help TK to more closely contact the emerging technology industry customers in the United States. High-end consumer electronics products continue to be popular in the market. TK will closely track emerging product and industry trends, develop quality customers and projects, and will continue to tap the potential of existing customers to secure a larger share of supply to consolidate the position of TK as the globally leading one-stop integrated injection solution provider.