Dim Sum Express. A-Share Market. Hong Kong Market. Equity Research. Feb 16, 2015

Transcription

1 Equity Research Dim Sum Express Key index performance Chg (%) EPS (%) P/E Market 1D 1M YTD 14E 15E 14E 15E HSI HSCEI MXCN SHSZ SHCOMP SZCOMP INDU SPX CCMP UKX NKY Hong Kong ADRs HK Local Daily ADR Daily ticker Company (HK$) (%) (US$) (%) 857 PETROCHINA CHINA MOBILE ICBC CCB BANK OF CHINA HSBC CHINA LIFE TENCENT SINOPEC PING AN Econ data release US Data Date Period Prior Cons Initial Jobless Claims 19-Feb 14-Feb Cont Jobless Claims 19-Feb 7-Feb Markit US Mfg PMI 20-Feb FEB P Source: Bloomberg GF events Source: GF Securities (HK) A-Share Market Banking: Jan financial data; sector to remain volatile in near term New loans growth remained strong in Jan mainly as a large amount of loans are typically issued prior to Chinese New Year. M2 growth eased to just 10.80% at end-jan while M1 growth strengthened to 10.6% on a low base. We expect the share prices of banking stocks to remain volatile in the near term given continued deleveraging in banks' off-balance-sheet businesses, the beginning of anticorruption campaigns in the financial sector and quarterly earnings growth deceleration amid IR-cutdriven loan repricing. Natural Gas: Gas distribution sector to enter cycle of strong growth Recent oil price corrections have forced domestic natural gas pricing reform to accelerate, and we see considerable downside in gate station gas prices in key markets. In addition, we estimate that national natural gas sales volume is likely to grow at a CAGR of 13-15% during with key areas likely to see even higher growth. The gas distribution industry is set to enter a new cycle of strong growth with expectations for sector earnings and valuations likely to turn around. Gloria Pharmaceuticals ( CH): 2014 earnings in line; new product pipeline strong 2014 earnings preview shows that revenue grew 45.7% YoY with net profit rising 95.7% YoY, in line with our expectation and market consensus. The company will fund a stake acquisition and a plant expansion with its Rmb6bn planned placement which should ease its funding pressure. Gloria has a large number of new products in its pipeline which are set to see considerable market size. Given uncertainties surrounding this private placement, we forecast 2014/15/16 EPS of Rmb0.63/0.86/1.14 (2013: Rmb0.32), representing 37/28/21x P/E. Oriental Yuhong Waterproof Technology ( CH): 2014 earnings in line; continued growth expected Yuhong maintained strong growth last year despite property market weakness. It has also announced a plan to set up a mortar business jointly with a fully-owned subsidiary: this is a fastgrowing market where Yuhong has a significant competitive edge in terms of product base network and distribution channels. We remain optimistic on the company given its high MLT growth visibility. In addition, recovering property sales is also a catalyst and relatively low oil prices will drive a significant YoY rebound in gross margin. Hong Kong Market Sunny Optical (2382 HK, Buy): Good start to 2015; reiterate Buy Jan handset camera module shipments rose 51% YoY. We reiterate our Buy rating as the company s business outlook remains positive. Handset related products accounted for over 80% of group sales in 1H14, and the shipment outlook for Chinese smartphone makers remains robust in We expect this robust customer demand to drive sales growth of over 20% YoY during the year. We also expect the downward trend in blended gross profit margin to be reversed in Its forward P/E multiple has eased from high teens to low-teens, which we see as a re-entry opportunity. Alex Fan, CFA, Head of Research, SFC CE No. ADJ672 alexfan@gfgroup.com.hk Gao Yedong, Editor, SFC CE No. BAI002 yedonggao@gfgroup.com.hk

2 Banking: Jan financial data; sector to remain volatile in near term Pre-CNY new loans strength Jan Rmb new loans came in at Rmb1.47trn, increasing by Rmb289.9bn from the Jan 2014 figure. New loans growth remained strong mainly as a large amount of loans are typically issued prior to Chinese New Year. Both household and corporate mid/long-term loans maintained strong growth with the lending structure improving. Deposit growth also strong Rmb deposits increased by Rmb1.7trn in Jan, which was Rmb1.66trn higher than the figure one year ago. The significant difference was primarily due to a substantial drop in corporate deposits in Jan 2014 due to last year s Chinese New Year and an adjustment in the calculation of deposits starting from Jan M1 surged on low base M2 growth eased to just 10.80% at end-jan while M1 growth strengthened to 10.6%. The weighted average interbank interest rate came down by 0.31pp from Dec to 3.18% in Jan. Banking stocks to remain volatile in near term We expect the share prices of banking stocks to remain volatile in the near term given continued deleveraging in banks' off-balance-sheet businesses, the beginning of anti-corruption campaigns in the financial sector and quarterly earnings growth deceleration amid IR-cut-driven loan repricing. We see 1-1.2x 2015E P/B as a fair valuation range for domestic banks with any upside to be determined by a rebound in the economy. Natural Gas: Gas distribution sector to enter cycle of strong growth Gas supply prices coming down as pricing reform accelerates Recent oil price corrections have forced domestic natural gas pricing reform to accelerate. With reference to comparable fuels, we see considerable downside in gate station gas prices in key markets. We believe natural gas prices for existing and new users will be unified this year. In addition, a regular price adjustment mechanism will likely be put in place. Gas sales volume growth expected to strengthen We estimate that national natural gas sales volume is likely to grow at a CAGR of 13-15% during with key areas likely to see even higher growth. Strong gas sales volume growth will mainly be driven by the shift from using coal to natural gas amid increasing environmental pressure. In particular, downstream users should become more willing to use natural gas in view of expected gas price declines. Distribution companies to benefit from import rights relaxation The NDRC has given the goahead for the establishment of an oil & gas trading center in Shanghai with an aim to promote market-driven LNG pricing. Furthermore, there have been media reports that restrictions on natural gas import rights might be relaxed with gas distribution companies likely to be granted such rights. Gas distribution companies should see greater growth upside as they become independent energy suppliers by securing low-price long-term gas sources. Distributors to enter strong growth cycle Given the three factors discussed above, the gas distribution industry is set to enter a new cycle of strong growth with both sales volume and prices rising; expectations for sector earnings and valuations are likely to turn around. We suggest watching Shaanxi Provincial Natural Gas ( CH), Guoxin Energy ( CH), Shenzhen Gas ( CH), Jinhong Energy ( CH), Shenergy ( CH) and Changchun Gas ( CH). Gloria Pharmaceuticals ( CH): 2014 earnings in line; new product pipeline strong 2014 earnings in line According to the company s 2014 earnings preview, revenue grew 45.7% YoY to Rmb1.91bn while net profit rose 95.7% YoY to Rmb444m, in line with our expectation as well as market consensus. Sales performance by product Creatine phosphate sodium sales were strong at Shanghai Huatuo and Nanjing Wanchuan. We estimate that the sales volume of this product likely rose nearly 70% YoY in 2014 with Page 2

3 its net profit contribution almost doubling. We expect sales volume growth of 30% this year as main competitors are yet to catch up with Gloria due to production technique issues. The company s Annao Pill product has been included as an essential drug in Beijing, Guangdong, Shandong and Shanghai and posted strong sales growth in Gloria s clopidogrel product has been included as an essential drug in Guangdong and Shandong. Sales of cervus and cucumis polypeptide remained stable. Private placement to alleviate funding pressure The company is planning to raise up to Rmb6bn through a private placement. The funds will be spent on the acquisition of an 85.01% stake in Powerdone Pharmaceuticals and the expansion of a production plant. The placement has been approved at a shareholder meeting and is expected to be approved by the CSRC within 1H15. Large new product pipeline The company is submitting supplementary documents to the Food and Drug Administration regarding its ginkgolide B injection which is likely to be approved for sale in The product is likely to see its market size exceed Rmb2bn in the long term. In addition, steady progress is being made for the sales permit application for Qinlongkusu, ibuprofen injection, docetaxel and Meiditini, with docetaxel likely to get permission this year. It is worth noting that these four products are all likely to see their market size reach Rmb1bn. Earnings forecasts There are some uncertainties surrounding the company s private placement as it is still pending CSRC s approval. Regardless of the impact of this placement, we forecast 2014/15/16 EPS of Rmb0.63/0.86/1.14 (2013: Rmb0.32), representing 37/28/21x P/E. Oriental Yuhong Waterproof Technology ( CH): 2014 earnings in line; continued growth expected 2014 earnings in line Yuhong maintained strong growth last year despite property market weakness. According to its 2014 earnings preview, net profit picked up 60.91% YoY to Rmb585m on revenue of Rmb5.10bn (+30.57% YoY). Moving into mortar space with new subsidiary The company has also announced a plan to set up a mortar business jointly with its fully-owned subsidiary Hong Kong Oriental Yuhong. It is worth noting that the mortar product market is growing rapidly and demonstrates substantial growth potential. More specifically, Yuhong s competitive edge lies in its production base network across the country and its highly efficient retail sales and distribution channels which cannot be matched by any of its competitors. MLT growth prospects unharmed by ST oil price volatility We remain optimistic on the company as: 1) its position as a leader in a scattered market will ensure its mid/long-term growth, and 2) potential increases in retail sales and M&A in 2015 will provide new growth drivers. In addition, recovering property sales is also a catalyst and relatively low oil prices will drive a significant YoY rebound in gross margin. We still see considerable investment opportunities from the company and forecast 2015/16 EPS of Rmb2.45/3.10. Sunny Optical (2382 HK, Buy): Good start to 2015; reiterate Buy What s new? Sunny Optical reported upbeat Jan shipment data. Jan handset camera module shipments rose 51% YoY to 17.7m units (see figure 1). Positive business outlook for 2015 We reiterate our Buy rating, as Sunny Optical s business outlook remains positive. To recap, handset related products accounted for over 80% of group sales in 1H14. The company s top five customers are Huawei, Xiaomi, Oppo, Yulong, and Lenovo, which collectively accounted for 55% of group sales in 1H14. The shipment outlook for Chinese smartphone makers remains robust in For example, Xiaomi targets over a 60%YoY increase in smartphone shipments to 100m units during the year, up from 61m in Meanwhile, Huawei targets a 33% YoY increase in smartphone shipment to 100m units, up from 75m units in We expect this robust customer demand to drive sales growth of over 20% YoY in Page 3

4 Blended gross profit margin likely to rebound in 2015 We also expect the downward trend in blended gross profit margin to be reversed in 2015, underpinned by vertical integration (in-house lens set production) and pixel migration. Gross profit margin for handset camera modules is currently in the low-teens (1H14: 12%). Sunny Optical has in-house production for its lens sets (a critical part of camera modules) and buys from external suppliers such as Largan in Taiwan and Kantatsu in Japan. In-house lens set production more than doubled to 119m units in 2014, up from 55m units in Its in-house lens set procurement ratio reached 24% in 2014, up from about 22% in We expect in-house lens set procurement to further increase to around 30% in In addition, pixel migration will help margin improvement (8MP handset camera modules accounted for 29% of shipments in 1H14). Reiterate Buy The share price corrected in early Jan due to downward revisions of some aggressive earnings estimates as well as normal profit taking following strong share price performance last year (the share price rose 77% in 2014). Its forward P/E multiple has eased from high teens to low-teens, and we see this as a re-entry opportunity. The stock is trading at 14.0x 2015E P/E (or 13.5x based on Bloomberg consensus). We reiterate our Buy rating and maintain our target price of HK$15.05 (based on an unchanged 18x 2015 target P/E), which offers 28% upside from the current level results the short-term catalyst The company will release its 2014 results on Mar 10 (Tue). We expect net profit for the year to reach Rmb544m (+21% YoY), with EPS of Rmb0.50 (+14% YoY), a slower growth rate due to EPS dilution following the issuance of HK$781m worth of new shares in Sep 2013 (97m HK$8.06). Bloomberg 2014 consensus EPS estimate is Rmb0.54. Key risks Slowdown in China s smartphone market, and poor production yields for its in-house lens sets. (Joseph Ho, CFA, Research Analyst, SFC CE No. AFP308, josephho@gfgroup.com.hk ) Page 4

5 Rating Definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 10% Neutral Expected sector relative performance ranges between -10% and 10% Cautious Sector expected to underperform benchmark by more than 10% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. Disclosure of Interests (1) The proprietary trading division of GF Securities (Hong Kong) Brokerage Limited ( GF Securities (Hong Kong) ) and/or its affiliated or associated companies do not hold any shares of the securities mentioned in this research report. (2) GF Securities (Hong Kong) and/or its affiliated or associated companies did not have any investment banking relationships with the companies mentioned in this research report in the past 12 months. (3) All of the views expressed in this research report accurately reflect the independent views of the analyst(s). Neither the analyst(s) preparing this report nor his/her associate(s) serves as an officer of the companies mentioned in this report, or has any financial interests in or holds any shares of the securities mentioned in this report. Disclaimer This report is prepared by GF Securities (Hong Kong). It is published solely for information purpose and does not constitute an offer to buy or sell any securities or a solicitation of an offer to buy, or a recommendation for investing in, any securities. This research report is intended solely for use by the clients of GF Securities (Hong Kong). The securities mentioned in this research report may not be allowed to be sold in certain jurisdictions. No action has been taken to permit the distribution of this research report to any persons in any jurisdictions that the circulation or distribution of such research report is unlawful. The information contained in this research report has been compiled or arrived at from publically available sources believed to be reliable in good faith, and no representation or warranty, either express or implied, is made by GF Securities (Hong Kong) as to their accuracy and completeness. GF Securities (Hong Kong) accepts no liability for any losses arising from the use of the materials presented in this research report, unless otherwise required by applicable laws or regulations. Please be aware of the fact that investments involve risks and that the prices of securities may fluctuate and therefore returns may vary. Past results do not guarantee future performance. Any recommendations contained in this research report do not have regard to the specific investment objectives, financial situation and the particular needs of any individuals. This report is not to be taken in substitution for the exercise of judgment by the respective recipients of this report. Where necessary, the recipients should obtain professional advice before making investment decisions. GF Securities (Hong Kong) may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this research report. The points of view, opinions and analytical methods adopted in this research report are solely expressed by the analyst(s) but not GF Securities (Hong Kong) or its subsidiaries. The information, opinions and forecasts presented in this research report are the current opinions of the analyst(s) as of the date appearing on this material and are subject to changes at any time without notice. The salespersons, dealers or other professionals of GF Securities (Hong Kong) may deliver opposite points of view to their clients and the proprietary trading division with respect to market commentaries and dealing strategies either in writing or verbally. The proprietary trading division of GF Securities (Hong Kong) may have investment decisions which are contrary to the opinions expressed in this research report. GF Securities (Hong Kong) or its affiliates or respective directors, officers, analysts and employees may have rights and interests in the securities mentioned in this research report. The recipients should be aware of relevant disclosures of interests (if any) when reading this report. Copyright GF Securities (Hong Kong) Brokerage Limited. Without the prior written consent obtained from GF Securities (Hong Kong) Brokerage Limited, any part of the materials contained herein should not (i) in any forms be copied or reproduced or (ii) be re-disseminated. GF Securities (Hong Kong) Brokerage Limited. All rights reserved /F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: Fax: Website: Page 5