Financials

Financials — What the Numbers Say

Ten Pao is a HK$5.6 billion-revenue Chinese contract manufacturer of power adapters, smart industrial chargers, EV chargers, and battery-pack/energy-storage products. Revenue has nearly quadrupled since 2012, but the company sits in a low-margin (gross margin around 18%, net margin around 7%), capital-intensive OEM/ODM segment where pricing power belongs to a handful of Fortune 500 customers. Reported earnings have generally converted to cash over a multi-year cycle, but cash flow is lumpy because working capital and capex swing sharply with order books. The balance sheet shows a large gross debt position that is more than fully offset by cash plus pledged deposits, so net leverage is effectively zero. The current setup — share price HK$2.91, P/E roughly 7.9x, P/B about 1.4x, dividend yield 4.4% — prices the company as a slow-growth manufacturer despite double-digit returns on equity and an emerging AI-server / energy-storage tilt. The single financial metric that matters most right now is FY2026 gross-margin direction: FY2025 margin slipped 130bps to 18.2%, FY2025 free cash flow collapsed to HK$19 million, and the bull case rests on AI-server power and smart-controller mix lifting blended margin back toward 20%.

Financials in One Page

Revenue, Margins, and Earnings Power

Revenue is what the company sells customers; gross margin is what is left after raw materials, labour, and factory overhead; operating margin is what is left after selling, R&D and admin costs. Net margin is what is left after interest and tax. For an OEM like Ten Pao, gross margin is the most direct read on pricing power and mix.

A fourteen-year top-line view

Three things stand out. First, revenue has compounded at roughly 10–11% per year over 13 years, with a clear acceleration after 2019 as the company shifted into industrial chargers and new energy. Second, 2021 was a cyclical peak — pandemic-era device demand pulled revenue to HK$6.4 billion that never repeated. Third, earnings power is variable: FY2018's HK$55 million net-income trough (margin 1.7%) and FY2021's HK$379 million peak (margin 6.0%) reveal an OEM whose profitability swings with mix and commodity costs, not with revenue alone.

Margin structure since detailed disclosure began (FY2020)

The margin path is telling. Gross margin rebuilt from 16.7% in FY2022 to 19.5% in FY2024 as the high-margin smart-chargers-and-controllers segment grew from 22.5% to 26.7% segment margin and rose to 37% of sales. FY2025 reverses some of that gain (gross margin 18.2%) on rising electronic-component costs and fiercer industry competition. Operating margin held up better than gross margin because admin expenses fell 5.2% year-on-year, evidence of cost discipline. Net margin stayed close to 6.9% thanks to a low 10.8% effective tax rate (driven by High-and-New Tech Enterprise status for five PRC subsidiaries and a 10% rate in Vietnam).

Recent trajectory — the first half pattern

The H1 2025 number matters because it is the most recent operating window. H1 2025 revenue jumped 19% year-on-year to HK$2,948 million, while operating margin reached an H1 record 8.6%. That sets up the read on the FY2025 full year: H2 2025 gross margin can be backed out at 18.6% (full-year 18.2% minus H1 17.9% on a weighted basis), so the second half actually firmed slightly even as competition intensified. The earnings power has not obviously deteriorated; the headline FY2025 gross-margin step-down is mostly comp against an unusually strong FY2024.

Cash Flow and Earnings Quality

Free cash flow (FCF) is cash generated by operations minus capital spending. It is the cash an owner could theoretically pull out without harming the business. For an OEM with heavy working capital and ongoing factory build-out, FCF is more volatile than reported earnings; what matters is whether the multi-year sum of FCF roughly equals or exceeds the multi-year sum of net income.

The chart reveals the OEM rhythm. Operating cash flow has outrun net income in five of the last six years — a sign that reported earnings are real cash, not accruals. But FCF whipsaws because capex is lumpy: FY2021 saw HK$586 million of capex (new factory build) that swamped operations; FY2024 was the inverse, with HK$814 million operating cash and HK$421 million FCF.

The FY2025 cash-flow problem

FY2025 free cash flow collapsed to HK$19 million — 5% of net income. Two drivers, both disclosed in management's commentary. First, the Group "accelerated payment to suppliers in order to acquire a more competitive pricing for raw materials," which drained working capital. Second, capex stayed elevated at HK$334 million as the Huizhou Intelligent Manufacturing Industrial Park ramped to full operation in October 2025. Both pressures look transitional rather than structural; if management is right that "future capital expenditure is expected to decline progressively," FY2026 FCF can rebuild.

Balance Sheet and Financial Resilience

The optics look highly geared: gearing ratio (borrowings / equity) was 36.6% at year-end 2025, with all HK$796 million of debt maturing within one year. That is the kind of profile that worries a credit committee on first read. But the company's own disclosure flags an important nuance: most of that "borrowing" is bank's acceptance bills — short-dated paper used to fund supplier purchases and secured by deposits held in the same bank. Adjusted for those secured bills, the underlying gearing ratio is just 10.6%.

Restricted cash sits inside the same banks that issued the acceptance bills. Functionally, the working-capital financing is a closed loop — the cash deposit collateralises the bill — so the balance sheet has effectively no net debt. Working capital is the real risk: receivables of HK$1,651 million plus inventory of HK$955 million represent roughly six months of sales, typical of a Chinese ODM with global customers but a real exposure if a major customer were to delay payment or cancel orders.

Returns, Reinvestment, and Capital Allocation

Return on equity (ROE) measures profit per dollar of book equity. Return on assets (ROA) does the same per dollar of total assets. An ODM with sustained ROE above 15% is creating value above its likely cost of equity.

ROE has averaged 22.0% over the last nine years and stayed above 17% even in FY2025. That is a strong reading for a thin-margin OEM — it works because the company turns assets briskly (FY2025 asset turnover roughly 1.0x) and uses minimal financial leverage net of secured working-capital bills. ROA has drifted lower from a 9% peak as the asset base bloated with the new Huizhou park, the kind of dilution one expects from a multi-year capex cycle that has not yet fully translated into revenue.

Where the cash is going

Cumulative six-year capex is HK$1,983 million; cumulative six-year dividends paid is HK$278 million. Roughly seven dollars of capex for every dollar of dividend. That ratio is the right answer in a growth phase, but it cannot persist — at the FY2025 FCF rate of HK$19 million, the dividend of HK$132 million (HK$0.128 per share, 1,030 million shares) is being funded out of the cash pile, not out of current free cash. The FY2025 payout ratio of 34.7% of net profit is on the upper side of management's "approximately 30%" benchmark.

Share count has been essentially flat at 1,030 million since 2022 — minimal dilution, no buyback program. Management has shown no appetite for repurchases at depressed prices, which is a missed opportunity if one believes the equity is materially undervalued. The capital allocation story is therefore: build the factory, pay a steady dividend, retain the rest. That is a coherent strategy if reinvestment returns stay attractive (FY2025 incremental ROIC will be the test) but a value-eroding one if growth fails to materialise.

Segment and Unit Economics

Segment disclosure was restated in FY2023: "new energy" was carved out of "others," and "electrical home appliances" was folded into the new "smart chargers and controllers" segment together with parts of "others." The figures shown below use the most recent restatement available.

Segment revenue mix and profitability — FY2025

Segment revenue trend FY2020–FY2025

The mix shift is the single most important fundamental story in this company. Smart chargers and controllers (the industrial / AI-server power segment) was 10% of revenue in FY2020 and is 39% today. At 24% segment gross margin, this segment now contributes roughly HK$520 million of the HK$1,012 million of group gross profit — more than half of gross profits from less than 40% of revenue. Telecom (mobile chargers) has shrunk from 35% of revenue in FY2020 to 24% in FY2025, and its margin sits in the low teens. The bull case is that this mix shift is permanent and that the new energy segment (currently a 7.7% gross-margin drag) eventually scales into profitability with the battery-swap and home energy-storage push.

Geographic mix — FY2025

Direct US exposure is 6.4% of revenue, but ultimate end-product destination is much broader because customers re-export. Africa grew to 5.0% of revenue on a single decade-long lighting partnership tied to solar-plus-storage lighting. The Mexico, Vietnam, and Hungary plants are positioned for tariff-driven nearshoring; the largest risk remains the 49% Chinese-mainland concentration in a tariff-volatile environment.

Valuation and Market Expectations

The stock closed at HK$2.91 on 21 May 2026 against a 52-week range of HK$1.50–HK$3.38. Market capitalisation is approximately HK$3.0 billion (1,030 million shares).

What the market is paying for

The trailing P/E of 7.9x is well below the Hong Kong-market average (around 10x), and at roughly half the broader Industrials sector multiple of approximately 12x. P/B of 1.4x is in line with the broader market and modestly above the company's own historical 1.0–1.2x range, reflecting the ROE rebuild since 2017's profitability trough. EV/Revenue near 0.51x is consistent with a thin-margin contract manufacturer.

Multiple framework — bear / base / bull

The bear case assumes gross margin compresses further toward 16%, FY2026 net income drops to roughly HK$310 million, and the market pays a 6x multiple — consistent with the FY2018 trough. The base case (EPS HK$0.40, 8x) holds margin flat and credits a slow industrial-power mix shift. The bull case (EPS HK$0.50, 10x) requires gross margin near 20%, FCF normalising to over HK$300 million, and a re-rating toward Chicony Power's roughly 10x EBITDA multiple as AI-server power crystallises. The current price is roughly equal to the base case fair value, so the upside skews mildly positive only if mix continues to shift.

Peer Financial Comparison

All peer figures expressed in US dollars (peer trading currencies converted at 21 May 2026 spot rates) to allow apples-to-apples comparison across HKEX, TWSE, and SZSE listings. Ten Pao's row is the first.

The peer panel is sharply bifurcated. Delta Electronics (2308.TW) trades at 39x EV/EBITDA and 8.3x EV/Revenue — the data-centre / industrial power supremum. Chicony Power, the closest direct PSU comparable, sits at 11.8x EV/EBITDA on a 9% EBITDA margin. AcBel and Lite-On trade between 19x and 20x EV/EBITDA. Phihong, the closest size match, is loss-making at the EBITDA line.

Ten Pao's roughly 0.5x EV/Revenue and 7.9x P/E are at the bottom of this peer set despite an 18% gross margin that is better than four of the six peers and a 17% ROE that beats five of them. The discount has a credible explanation — HKEX small-cap illiquidity, China-revenue concentration, no buyback program, and a customer base disclosed only by segment — but the gap to Chicony Power and AcBel is the gap that fundamentally has to close (or be justified) for the stock to re-rate.

What to Watch in the Financials

What the financials confirm: Ten Pao is a real, cash-generating manufacturer with growing scale, an improving mix, double-digit ROE, and an effectively zero-net-debt balance sheet. What they contradict: the bear narrative that this is a stranded mobile-charger commodity OEM — industrial chargers now contribute the majority of gross profit, and the customer base has moved toward Fortune Global 500 names in AI-server power and battery swap. What to watch: whether FY2026 free cash flow rebuilds to HK$300+ million as capex normalises and supplier-payment timing reverses; that single line item determines whether the dividend stays funded and whether the equity can demand a higher multiple.

The first financial metric to watch is the FY2026 H1 gross margin — if it prints above the 18.6% implied for H2 2025, the mix-shift thesis is intact and the 1.4x P/B looks low for a 17%+ ROE business; if it drops below 17%, the bear case crystallises and 6x P/E becomes the right benchmark.