Breton Technology Co Ltd (1333.HK) Q2 2019 Earnings Report

Breton Technology reported QQ2 2019 revenue of 5,895.92 million CNY, gross profit of 1,776.10 million CNY and net income of 793.69 million CNY. Key profitability metrics remained respectable with a gross margin of 30.1% and an operating margin of 17.9%, while EBITDA reached 1,663.86 million CNY (EBITDA margin 28.2%). Year-over-year, revenue declined by 7.9% and net income fell by approximately 28.9%, signaling softer demand in a capital-intensive Industrials cycle and potential mix effects. Earnings per share dropped to 0.1075 CNY, down about 47.5% YoY.

Liquidity and cash flow dynamics, however, raise concerns: the company generated negative operating cash flow of 151.54 million CNY and free cash flow of -2,205.01 million CNY, driven by capital expenditure of 2,053.48 million CNY and a substantial debt repayment of 7,131.52 million CNY. Ending cash was 228.97 million CNY, with a large stock of inventory (13.60 billion CNY) and current liabilities roughly matching current assets (current ratio ~1.02). Net debt stood at 50.17 billion CNY, and leverage remains elevated (long-term debt 44.55 billion CNY; total debt 57.90 billion CNY), yielding a debt-to-capitalization of 0.611 and interest coverage around 3.3x.

From a valuation perspective, Breton trades at a subdued earnings multiple (P/E ~8.97) and a price-to-book of ~0.77, with a dividend yield near 1.5%. The enterprise value multiple sits at roughly 47.28x, signaling market expectations of substantial future cash flow generation amid an expansive capital program. The near-term investment thesis hinges on the company leveraging its margin profile and asset base to monetize capex efficiently, while managing deleveraging and near-term cash burn. Overall, the QQ2 2019 results present a two-sided picture: attractive operating profitability against a heavy balance sheet load and persistent cash flow headwinds.