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Top 3 Hong Kong Analysts’ Calls
In the Spotlight | 17 September 2014

Haitong Securities (Target Price: HKD 16.40) BUY

  • Haitong Securities’ (HTS) performance has exceeded our expectations. According to its 2014 interim report, there was a consistent increase in profit growth because of an improvement in market conditions. By the end of June, HTS’s operating profit and net profit grew by 6.6 percent and 8.1 percent y-y approximately to RMB3.823 billion and RMB2.878 billion respectively, with the EPS of RMB0.30. Despite a 27.6 percent rise in HTS’ total assets to RMB 215.711 billion as compared to the end of 2013, HTS’ net assets only increased by 3 percent to RMB63.348 billion mainly as a result of a great increase in liabilities like borrowings and accounts payable to brokerage clients.
  • As a result of a substantial growth in HTS’ margin financing and securities lending businesses and HTS’ merger with UT Group in January 2014, HTS’ total interest income has increased by a tremendous 97.3 percent to RMB 3.184 billion. In addition, HTS’ investment income has continued to rise. As of 2Q14, HTS’ investment income has grown by 10.3 percent, primarily due to a large growth in HTS’ fixed-income investments. There has also been a great increase in income from HTS’ asset management business. Besides this, HTS’ has made a breakthrough in underwriting projects in its investment banking business and it has continued to keep its market share in the traditional brokerage business. Due to the continued expansion of HTS’ businesses, HTS’ profit growth continues to increase swiftly, thus exceeding our expectations. As of June 2014, HTS’ net profit attributable to shareholders has risen by 8.1 percent to 2.878 billion.
  • Taking into consideration the fact that HTS’ brokerage business will expand due to a future improvement in market conditions and a huge increase in trading volume were the Shanghai-Hong Kong Stock Connect to launch successfully in October, we predict that HTS’ net profit would increase by 40 percent in 2014. However, we feel that HTS’ profit growth will slow down over the next two years. We thus give HTS a ‘Buy’ rating and a target price of HK$16.40, equivalent to 2015 P/E16.2x and P/B1.8x respectively,

Source: Philips Security Group

Samsonite International (Target Price: HKD 31.00) ACCUMULATE

  • Samsonite’s 1H14 performance is within our expectations. A 12.4 percent increase in sales has slightly exceeded our expectations. While operating profit rose 12 percent to USD 152 million, profit attributable to shareholders grew 14 percent to USD 0.97 million. The company’s gross profit margin has remained stable. In 1H14, the company’s gross profit margin marginally increased from 53.2 percent in 1H13 to 53.3 percent. In addition, the company’s distribution costs, marketing and administrative expenses have shown signs of a gradual decrease, due to its outstanding cost control. This will help to enhance the company’s profitability and give it a competitive edge. Although the company’s short-term debt has rapidly increased from USD 0.15 million at the end of 2013 to USD 0.98 million at the end of June 2014 as a result of the company’s efforts to finance its acquisition of new brands, its financial situation continues to remain stable. The company’s growth in value is assured because of its sustained positive operational cash flow.
  • The acceleration of growth in sales in the North American and European markets has provided strong impetus to Samsonite’s double-digit increase in total sales. While Samsonite’s existing brands are growing intrinsically, the company continues to acquire new brands to increase its revenue. In 1H14, the company has completed three major acquisitions: the USD195 million acquisitions of the Paris luggage brand Lipault, the high-end American backpack brand Gregory and a leading brand of electronic equipment protective casing, Speck. We feel that Samsonite is making these acquisitions to increase its market share and broaden its moat to help it resist attacks from its competitors. The acquisition of Lipault and Gregory will help to improve the Samsonite brand name through their established reputations and prominent positions in the market while the acquisition of Speck shows that the company is planning to move into other related fields.
  • At the moment, Samsonite is at the peak of its growth. We feel that the new brands acquired by Samsonite and its new marketing measures will promote the growth of its Asian and Latin American businesses to compensate for a potential decline in its North American and European businesses. Hence, our “Accumulate” rating stays and we give a target price of HKD 31, equivalent to 26x expected P/E in 2014 and 23x expected P/E in 2014.

Source: Philips Security Group

TravelSky (Target Price: HKD 8.730) ACCUMULATE

  • According to TravelSky’s recently published 1H14 results, the company has achieved a 28.6 percent increase in revenue growth, mainly due to an increase in business volume. The rapid growth of revenue from data networks and other income have also had noteworthy impact on revenue. Operating profit has only increased by a slight 5 percent to RMB650 million due to the canceling-out effect of a substantial 43.5 percent increase in operating costs. As a result of the stimulating effect of a RMB500 million subsidy from the Chinese government, the company’s net profit has surged by 78.6 percent YoY to RMB1.133 billion with earnings per share of RMB0.39 and no interim dividend.
  • In 1H14, TravelSky’s revenue from data networks and other income have surged by 80 percent to RMB960 million. The main reason for this is a breakthrough the company has made in airport integration services, generating revenue of RMB470 million. The company management has stated that its future in this segment will depend on its ability to win future contracts.
  • In recent years, the company has been testing the waters for transition. It hopes to consolidate its market share in its traditional markets and reinforce its development of new products and its marketing. Examples of the measures the company has taken are the construction of a new technological center, the introduction of a new GDS system and its measures to speed up the development of products for emerging industries like Internet based mobile terminals. We estimate that the company’s adjusted EPS will be RMB0.42 and RMB0.48 in 2014 and 2015 respectively. According to the industry’s and company’s current situation, we give a 12-month target price of HKD 8.73 and we will continue to give it the “Accumulate” rating.

Source: Philips Security Group

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