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Top 3 Hong Kong Analysts’ Calls
In the Spotlight | 02 September 2014
By:
    Tongda Group (Target Price: HK$1.370) BUY

  • Tongda Group’s sales revenue and net profit has reached about 2.1 billion HKD (similarly hereinafter) and 167 million in 1H14, increasing by 24.3 percent and 28.3 percent per year respectively due to non-phone revenue performing better than expected. Its gross profit margin has risen to 23.0 percent from last year’s 21 percent and its gross profit has increased by 35.6 percent to 482 million. To sum it all up, it has been enjoying steady growth.
  • We expect the company’s phone casing business to grow at a faster rate in the second half of the year. With China Telecom and China Unicom speeding up 4G construction, more alternative terminals and a possible reduction of the 4G tariff, the demand for 4G cell phones is likely to increase. At the same time, the company will be expanding the production capacity and product structure of its cell phone casing business. It has already built new plants in Xiamen which are expected to start production in September.
  • In 1H14, Tongda’s electric appliance casing business has improved by a tremendous 20 percent and the latest data from July shows that household appliance sales inland are continuing to increase. Future subsidies from the Chinese government for the use of energy-efficient household appliances will help to sustain this upward trend. This year, the company has begun diversifying into the automobile parts industry by producing decorative parts for a Sino-US joint venture automobile brand in Shanghai since the beginning of the year.
  • The company’s gross profit margin in the automobile parts industry of over 30 percent is better than the company’s overall gross profit margin of 20 percent. In view of the fact that the automobile industry now enjoys stable growth and has bright prospects, we believe that the automobile parts industry will spur the future growth of the company in the medium term.
    Taking the above and the fact that it is rare for companies to enjoy such sustainable growth into consideration, we value the company at 15 times earnings per share, with a target price of 1.37 HKD and the rating of “Buy

By: Philips Securities Group

    Geely Auto (Target Price: HK$3.070) NEUTRAL

  • As of the end of June, Geely Auto’s revenue has decreased by 32 percent YoY to 10.158 billion. Its net profit has decreased 20 percent YoY to 1.113 billion and its EPS has decreased by 25 percent YoY to 0.1265. The main reason for this drop in performance is the decrease in sales volume. Geely’s export sales volume has declined by a sharp 32 percent YoY to 34,440 units due to the increasing political turmoil in major export markets like Ukraine, Russia etc. since the beginning of the year. At the same time, its domestic business has suffered from the lack of new models and changes in the company’s branding and marketing policy. Geely’s domestic sales has fallen by 28 percent to 152,856 units.
  • Despite Geely Auto’s poor sales performance, its gross margin increased by 1.2 points to 20.34 percent due to regular financial subsidies and its management’s ability to exercise good cost control as evidenced by the 32.6 percent decrease in the cost of auto parts YoY. Our outlook for 2H 2014 is that sales will continue to decline due to an increasingly ambiguous political situation in overseas markets, greater competition in the domestic passenger vehicle market and a lack of support from the Chinese government for the local automobile industry.
  • The company has decided to lower its sales target by 22 percent from 0.58 million units last year to 0.43 million units this year and it plans to release new models in 2H 2014 like the new EC7, the large SUVGX9 and large sedan GC9.
    Based on the revised financial forecast, we cut our target price to HK$3.07 and we suggest a rating of ‘’Neutral’’ for this company.

By: Philips Securities Group

    Yestar International Holdings (Target Price: HK$7.200) NEUTRAL

  • As of the first half of 2014, Yestar has been on the upswing due to rapid growth in its medical film and professional color paper businesses. During this period, its profit has increased 35 percent YoY to RMB 694 million and its net profit has gone up to RMB 37 million by 30.7 percent YoY. As a result of some changes in its product portfolio, the growth rate of Yestar’s gross profit has decreased to 15.7 percent.
  • Yestar International’s medical film business’ profit has exceeded expectations by growing by 55.2 percent YoY and reaching RMB 337 million. For the first time, the income from its medical film business has overtaken the income from its color paper business. Hence, the company’s medical film business has now become the main source of revenue for Yestar. With the acquisition of a medical equipment company underway, the company is poised to become a leading player in the medical equipment sector. Yestar’s color paper business has earned RMB247 million as of the first half of 2014 and grown by 10.7 percent YoY.
  • The company’s efficient promotion and expansion of its distribution channels has considerably boosted the sales volume of professional paper, thus making a major contribution to the growth of its color paper business. Since Yestar’s listing last year, its share price has multiplied by an astounding 4 times. Yestar is currently working towards raising its profits quickly and increasing its market share in a flourishing medical information service sector where the company is regarded as a good imaging service company.
  • Taking into account Yestar’s heightening performance, we thus give Yestar International a ‘Neutral’ rating with a target price of HK$7.2 in 12 months roughly equivalent to 26 times the expected PE ratio in 2015.

By: Philips Securities Group


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