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*ST合泰 基础化工业 2014-06-26 6.30 10.56 233.13% 6.60 4.76% -- 6.60 4.76% -- 详细
Event:The Company announced that it recently signed the Agreement on Bank Card Fabrication, Customization, Package and Mailing Service with Ping An Bank. According to it, the Company will provide IC credit card fabrication, customization, package and mailing services for Ping An Bank. Comments: Smart IC card enters a peak season for business climate. In the Notice on Gradually Closing the Downgrade Transaction of Financial IC Cards issued on 14 May, the People’s Bank of China calls for giving play to the safety advantage of financial IC cards and paving the way for stopping issuance of magnetic stripe cards in 2015. This is expected to drive smart IC cards to an upbeat business climate season. The timetable was set down later: ATMs shall close the downgrade transaction of financial IC cards before the end of Aug 14E; POS machines shall close downgrade transaction of financial IC cards before the end of Oct 14E, and commercial banks shall close downgrade transactions of financial IC cards on other offline channels prior to the end of 2014 based on their own conditions. By continuously developing the national large banks as its customers, the position of the Company’s card business improved. Tungkung further won the IC credit card project (fabrication) of Ping An Bank, another high-quality customer following the China Construction Bank, Bank of Communications and Shanghai Pudong Development Bank. This is tipped to further consolidate its industrial position. At present, the IC card orders of China Construction Bank has started to increase, and the social security card business in Shandong and Henan is growing rapidly. The IC card business is expected to contribute substantial results in 2H14E. Traditional business is in sound operation, and electronic voucher business is developing steadily. The Company’s traditional business kept steady growth in 2Q14. In terms of e-invoice, latest data of www.e-inv.cn shows that the number of e-invoices issued through the Company has surpassed 10 million copies and it is still growing rapidly. JD and Xiaomi issue more than 50,000 copies of e-invoice every day each, and more large-scale e-commerce operators are applying for issuance of e-invoice. Peoples Insurance Company of China (a customer of the Company) is actively pressing ahead with the e-invoice accounting & reimbursement pilot program. Risks associated with investing in the company: enforcement of the smart card policies, and enforcement of the e-invoice policies etc.
金风科技 电力设备行业 2014-06-05 9.39 9.40 60.77% 10.00 6.50%
10.00 6.50% -- 详细
Event: A Politburo meeting held on 26 May pointed out “…, efforts shall be made to improve local participation in the resource development, utilization and transformation process, and accelerate Xinjiang’s opening-up”. China Securities Journal also reported that the central government will introduce relevant policies based on the actual demand of Xinjiang government and Xinjiang Production and Construction Corp on the upcoming Xinjiang Working Conference, Comments: Deeply rooted in Xinjiang to lead the region’s alternative energy construction. Born and rooted in Xinjiang, the Company has ~70% wind turbine market share in the region. When Xinjiang New Energy Group was established, the Company’s chairman Mr. Wu Gang was appointed as chairman of the Group, indicating that the Company is highly recognized in the region. Before the upcoming Xinjiang Working Symposium to be held in Jun, a Politburo meeting held at end-May pointed out “…, efforts shall be made to improve local participation in the resource development, utilization and transformation process, and accelerate Xinjiang’s opening-up”. In our view, the Symposium and the Politburo meeting will be consistent with this cabinet’s initial efforts to boost the “Silk Road” construction; accelerated development of energy in this region will be bound to stage a pleasant landscape during the 12th and 13th Five-Year Plan periods, which can be perceived from the Group’s target-3GW of installed alternative energy capacity at the end of the 12th Five-Year Plan period. The Company will inevitably benefit from and lead the development in the region. In the first year for offshore wind power, the Company is expected to become a leader. In 2014, the long-awaited “offshore wind power benchmark tariff” is about to be launched in the context of mature marine engineering equipment and great importance attributed to marine economy. By 2013, domestic installed offshore wind power capacity stood at 428.6MW, in which, the Company’s installed capacity (109.5MW) represented 25.5%, ranking behind Sinovel Wind Group (601558). The Company’s wind turbines have been in offshore service for more than one year, leading its competitors in terms of accumulated experience and customer awareness. In our view, domestic offshore wind power sector still has a long way to go compared with the 5GW target during the 12th Five-Year Plan period; the Company will fully benefit from a string of policies for offshore wind power development with high possibility to become an offshore wind power leader and model. 1H14E net profit is forecast to soar by 250-300%, and orders hit a new high. Due to seasonal factor, 1Q earnings have been a full-year low for the Company, and 2-4Q will gradually see a peak for earnings. The Company’s 1H14E net profit is forecast to soar by 250-300%, well above consensus forecast (150%). Thus its 2Q14E net profit is estimated to be ~Rmb280-320mn (+354-431% YoY), marking its record earnings other than wind sector’s peak of Rmb340/520mn in 2009/10. Its 8.13GW of orders hit a record high, which, from a micro perspective, heralds the sector’s upbeat climate and the Company’s favorable operation trend. Double engines (wind power generator/wind farms) will warrant earnings growth in future. The Company’s attributable installed wind power capacity stood at 1.3GW by end-2013, and is projected to increase to 2.2/3.0GW in 2014/15E; power generation business alone is expected to accrue Rmb0.95/1.3bn in profit in 2015/16E, which will pave the way for its earnings growth in future. Potential risks. (i) slower-than-expected power grid construction, and (ii) excessive reduction in benchmark tariff for wind power. Share price catalysts: (i) holding of Xinjiang working symposium, (ii) frequent rollout of policies for offshore wind power development; and (iii) unveiling of measures for the administration of renewable energy quotas. Earnings forecast and valuation. We lift the Company’s 2014/15/16E EPS to Rmb0.50/0.80/1.10 (from Rmb0.42/0.68/0.88), and raise its target price to Rmb15. Reiterate “BUY” rating.
*ST合泰 基础化工业 2014-06-04 6.12 10.56 233.13% 6.67 8.99%
6.67 8.99% -- 详细
Event: The Company announced on 29th May that it has recently received a “Notification on Bid Winning” from the credit card centre of Shanghai Pudong Development Bank Holdings Limited. It won the bid for the centre’s “blank credit card and customized purchases” program, becoming the supplier of their “chip card”. Our comments on this are as follows: Comments: The growth of the penetration rate of the smart IC card is likely to rise, and this signals a boom. On 14th May, the People’s Bank published its “Circular on Matters Relating to the Gradual Phasing-out of the Financial IC Card and Transaction Downgrades”,announcing its decision to implement a standardized, country-wide process of gradually abolishing the financial IC card and “downgrading of transactions”. This process will fully utilize the safety features of the financial IC card, minimizing the risk of fraud that may arise from downgraded transactions carried out via the financial IC card. The bank will stop issuing magnetic cards in 2015E, laying a foundation for transformation which would result in a boom for the smart IC card. Gaining premium customers and becoming a major player in China’s smart IC card market. Before winning the bid to become the supplier for SPDB’s program (there are essentially only 3-4 players in this market), the Company has won bids for financial IC cards from major financial institutions in China - China Construction Bank, Bank of Communications and Citic Bank. Winning the most recent bid enhances the Company’s premium customer base and reinforces its status in the industry. With the current rising volume of social insurance card issuances in Shandong, Henan etc., IC card schemes in the second half of the year will likely contribute to its results, and card-related business is expected to drive growth for the year. As electronic transactions continue to evolve, back office services can be effectively improved. Currently, in the realm of electronic transactions, JD, Xiaomi, Happigo and Gome are on E-inv and are doing well; many other major e-commerce enterprises have also filed applications. The Company has been diligently facilitating the trial for the electronic filing of personal insurance claims and most core issues have been settled. The Company has also played an important role in every stage of trials and policy implementation for electronic transactions in China, demonstrating considerable first-mover advantage which the Company is constantly accumulating. In addition, the traditional businesses of the Company were stable in April and May. Upcoming orders for smart IC cards will drive the Company’s growth for the year. Risks associated with investment into the Company: Implementation of unfavorable policies in the smart card industry, as well as unfavorable policies for electronic transactions. Earnings forecast, valuation and investment rating. Considering uncertainty over order volumes for the newly-won tenders, we currently maintain the Company’s 2014-16EEPS of Rmb 0.52/0.68/0.82, equivalent to prospective 2014-16E PE of 32/25/20x at the current share price of Rmb16.73 per share. Growth of traditional businesses of the Company has been steady. 2014 will likely see the Company become a forerunner among IC card suppliers, driving growth for the next two years. Success of the trial for electronic invoicing and reimbursement will gradually expand the market. In keeping abreast with trends in information services, quality back office support for the transition to electronic transactions can be provided. We reiterate its price target of Rmb21.52 per share and “BUY” rating. We continue advising investors to seize the opportunities from its re-rating driven by systemic stabilization of the market in the near term and possible breakthrough developments brought about by the trial for electronic invoicing.
东风科技 交运设备行业 2014-06-02 13.74 14.96 4.44% 14.26 3.78%
15.39 12.01% -- 详细
The Company’s operating profit is forecast to register a CAGR of ~30% and profit from auto electronics to represent 40%-plus over the next three years. The Company’s profit in future will stem mainly from three drivers: (i) thanks to the rapid increase in auto electronics adoption rate, Shanghai Johnson Controls Automotive Electronics (SJCAE, in which, the Company holds a 40% stake) is expected to log a rapid growth of ~50% over the next three years by virtue of developing new products/customers; (ii) thanks to improvement in the market share of major customers such as Dongfeng Aeolus and Dongfeng Venucia, Dongfeng Visteon (in which, the Company holds a 50% stake) is projected to sustain a rapid growth of ~20%; and (iii) thanks to upbeat climate in the downstream, the headquarters’ parts business is forecast to see improvement in both product mix and profitability. SJCAE has become Johnson Controls’s most important JV in the Asia-Pacific region with gradually emerging platform value. SJCAE has become Johnson Controls’s benchmark company for global manufacturing cost, product quality, and manufacturing efficiency, and its turnover/net profit increased from Rmb200/1.14mn in 2009 to Rmb900mn/100mn in 2013, while PPM index slid from 240 in 2008 to 4 in 2013. Moreover, the Company has made leapfrog progress in local R&D ability, and has taken advantage of its own strength to become a vendor for corresponding models of Dongfeng Aeolus for the project that Johnson Controls fails to win the bid worldwide. In our view, by virtue of favourable operation management, quality management, and R&D ability, the value of the Company as the auto part platform will gradually emerge. With SJCAE’s consistently diversified products, CMU and HUD will become major growth drivers in future. SJCAE’s products include multifunction display, combination instrument, HUD, CMU, wireless Bluetooth module, PCB assembly, electronic compass, tire pressure sensor, reversing radar display, vehicle body controller, and other auto electronics, in which, CMUs are exported mainly to Japan-based Mazda, and SJCAE is projected to sell ~300k/500-600k units of CMUs in 2014/15E. Additionally, CMU business is expected to see gradual development of such new customers as Mitsubishi and Honda. Johnson HUD is PSA’s global sole vendor. As home-grown PSA models introduce HUD in future, and the Company gradually becomes a vendor for Shanghai GM, Dongfeng Honda, and other customers, HUD is expected to become another major source for the Company’s growth. With consistently improved customer structure, SJCAE is expected to gradually increase product supply to GM, Honda, Mitsubishi, and other customers. Currently, the Company’s customer base has gradually expanded from DPCA to a slew of brands including Shanghai GM, Shanghai VW, Dongfeng Honda, GAC Honda, Dongfeng Nissan, Mazda, and Ford, boasting consistently improved customer structure. As for old customers, the market shares of DPCA, Dongfeng Nissan, and Dongfeng Venucia are expected to keep improving thanks to consistent introduction of new products. As for new customers, with the development of such products with high added value as HUDs and CMUs, the revenues from GM, Honda, and Mitsubishi are expected to represent a growing proportion as a new growth driver for the Company’s turnover. Potential risks associated with investment into the Company: (i) slower-than-expected development of SJCAE’s electronic products and customers, (ii) decline in market positions of major customers, (iii) heavy-duty truck business losses arsing from bleak commercial vehicle market, and (iv) surging raw materials prices and labor cost erode corporate earnings. Investment advice: we reiterate the Company’s 2014/15/16E EPS of Rmb0.95/0.96/1.18 (EPS of Rmb0.55 in 2013). It is trading at Rmb13.24, implying 2014/15/16E PE of 12/12/10x. Its earnings growth rate will be relatively low in 2015E, mainly due to ~Rmb60mn in revenue from land slot transfer by Zhanjiang Deli (the Company’s subsidiary) in 2014. Its net profit after excluding this portion of non-recurring gains is projected to register a CAGR of 30% over the next three years, and auto electronics business to represent ~40%. We believe 2014E PE of 20x-plus is fair for its operating profit. We reiterate “OVERWEIGHT” rating with the target price at Rmb16 per share.
隆平高科 农林牧渔类行业 2014-05-19 24.80 16.78 27.27% 26.90 8.47%
28.02 12.98% -- 详细
Event: On the evening of 14 May, the Company announced that its controlling shareholder (Xindaxin) planned to acquire Origin Agritech (NASDAQ:SEED). We cover the specific situations of the Company and Origin Agritech, and made an R&D and valuation comparison with the US-based Monsanto. Our comments are as follows: Comments: Forecast-beating acquisition of one of top 10 Chinese seed providers. Origin Agritech has been steadily ranking among top 10 in the sector, with hybrid maize seed operation capability and commercialized breeding system building being its most notable features and value, in which, its genetically modified (GM) crop R&D system building leads national commercial establishments. In 2013, it logged ~Rmb482mn in turnover, and ~Rmb382mn in maize seed sales (representing 80% of its turnover). Core value of the acquisition: Origin Agritech’s R&D system is expected to greatly complement with that of the Company. Over the past three years, the Company’s annual scientific research expenditure has represented ~8% of its turnover. It boasts the transgenic breeding techniques and most mature achievements. At present, it has qualifications for commercialized promotion of phytase transgenic maize. Meanwhile, it has completed field test for its glyphosate resistant transgenic maize seeds, and is waiting for product safety certificate to be issued. Initial R&D input determines earnings to be accrued by GM products in future. Since its listing, Origin Agritech has invested Rmb250mn-plus in R&D, and it is forecast to benefit first and fastest after policies for commercialization of GM products. Monsanto’s seed business contributions to its earnings are recognized by the market, and the business was applied more than 30x prospective 2014E PE by the market at the beginning of its development. Compared with Monsanto, the Company is operating at the early period of growth seen in Monsanto’s development process. With huge growth potential in future, the Company’s presence featuring in organic growth and inorganic expansion will boost it to become a global seed giant at an accelerated pace, while acquisition of Origin Agritech marks only first step towards its inorganic growth. Conventional hybrid maize seed business of Origin Agritech is expected to accrue the Company’s net profit. Origin Agritech has a total of 57 hybrid maize seed products, including Liyu 16, Liyu 35, Lin’ao 1, and other core products. Over thepast two years, Liyu 37 was officially launched. We estimate that as the sector’s business climate picks up, earnings contribution from Origin Agritech’s conventional breeding segment is expected to recover YoY. Based on ~10% net margin that domestic seed leaders usually earn, Rmb30-40mn is a fair level of net profit p.a. for it. The rapid advancement of its efforts in M&A at home and overseas is expected to further improve the Company’s valuation potential. Since the Company’s completion of acquisition of minority interests in 2013, it has further improved its corporate governance, and interests of its shareholders and executives are highly consistent. As for its businesses, high-end products (hybrid rice/maize seeds have seen increase in both sales volume and selling price. LongliangyouHuazhan (demonstration field yield: more than 1,000 kg/mu), Longliangyou 534 and other new products are enough to help the Company to pose (i) a CAGR of ~30% and (ii) organic growth in net profit over the next five years. Potential risks: (i) Promotion of new seed products, (ii) slower-than-expected spin-off of derivative industries, and (iii) policies for genetically modified seeds. Investment advice: we are upbeat about the Company’s sustainable growth value in the long term, and reiterate “BUY” rating with its target price at Rmb35 per share. In 2014E, core products represented by Y Liangyou and Longping 206 are expected to register a steady growth, and new products represented by Longliangyou/Shenliangyou/Jingliangyou/Longping 702/Huawan series will see their growth surge, so the Company is projected to post rapid organic growth in earnings. Loss-making subsidiaries are expected to be spun off within 2014E. If its controlling shareholder succeeds in acquiring Origin Agritech, a string of achievements in GM sees of the latter’s will further beef up the Company’s R&D strength, enrich its product line-up, and step up its maize seed business. Also, the acquisition will tamp its position as a leading seed provider, paving the way for its overseas expansion, and re-rating its valuation. As for its long-term development potential, it is expected to continue inorganic expansion worldwide by virtue of its leading hybrid rice techniques, which will accrue its earnings and improve its valuation. We reiterate its 2014/15/16E EPS of Rmb0.95/1.26/1.85 and “BUY” rating with target price at Rmb35 per share.
人民网 传播与文化 2014-05-08 36.52 27.94 47.89% 77.66 5.65%
41.50 13.64% -- 详细
An omnimedia cross-platformcompany with core brand value:the Company is a media platform company with core brand influence. Based on its brand advantage, it boasts an exponential growthin advertisingrevenue and mobile added value, which builds its media platform competitiveness. Thanks to its inorganic development and presence in online lottery and online reading, and acquisitionof Guqiang Technology and Okooo.com, its brand value has further improved. In2013, itraked in Rmb1.028bn in turnover (+45.18% YoY), and Rmb273mn in net profit attributable to parent company (+29.75% YoY). As online entertainment lottery leads themarket, media operation brands will stand out. In thecontext of increasingly diversified models of online entertainment, thanksto relaxed lottery policies, bumper year for sports in 2014, and other sector catalysts, onlinelottery field has entered an exponentialgrowth period, so we forecast that online lottery sales value will hit Rmb63-67bn in 2014E. In our view, in currentcontextwith exponentialgrowth in informationquantity, media operation has entered a stage where brands will stand out, and authoritative and in-depth content will represent the developmentorientationof brand media operation in future. With great efforts for online lottery, the Company is expected to makebreakthroughsinmaterializationof its value in multiple fields.In Aug 2013, Okooo.com became a sub-brand under the umbrella of the Company. The Company operates in thetier-1 line-up in theonline lottery market. In particular, it boasts a leadership in thesports competitive lottery market. In 2014E, mobile Internet lottery will surge with theadvent of the FIFA World Cup, UEFA Champions League, etc. Relevantbusiness of theCompany is projected to registeranexponential growth, and its lottery sales value is optimisticallyestimated to exceed Rmb3bn in 2014E. We believe that incorporation of Okooo.people.cnmarks an important breakthrough in materialization of the Company’s’value, and an importantfoothold for its strategyfor inorganic expansion. The Company will keep proceedingwith its strategyfor inorganic expansionto penetrate into more Internet vertical fields.Vertical application will deepen media operation and further improve brand value. We forecast thatthe Company is expected tomake positive presence in education, medicaltreatment, games, animation and other vertical fields. It is projected to consistently follow the path to its brand value materialization, and make consistent breakthroughs in inorganic acquisitionsin 2014E. We firmly believe that as a media platform with core brand value, the Company will make great efforts for mobile Internet business, and continue to rapidly grow into an omnimedia cross-platformplayer with core brand value along with vertical fields where it makes strategic presence in theindustrychain. Potential risks:(i) impact of economic fluctuations on advertising business growth, (ii) fluctuations in revenues from Internet and mobile Internet projects, and (iii) new business development. Earnings forecast and valuation:Given the rapid growth in the Company’score business, and consistent advancementin its strategy for inorganic expansion,we reiterate its 2014/15/16E EPS ofRmb1.55/2.09/2.71.Itis trading at Rmn72.42per share, implying 2014/15/16E PE of 47/35/27x.Asa domestic Internet player with the most outstandingcore brand value, itboastsa robust growth in its businesses (especiallyexponential growth in mobile value-added business), and its inorganic expansion is expected toconsistently accelerate. Based on local valuation method, the value of its media platform is expected to stand at Rmb20bn, and thatof its Internet product platform mainly underpinned by online lottery business to comein at Rmb10bn, so we believemarket cap of Rmb30bn is fair for it in 2014E (implying target price of Rmb115). We reiterate “BUY”rating, and advise investors to continue to watch for its medium-term value.
贵州茅台 食品饮料行业 2014-04-28 148.63 170.31 43.13% 165.48 -1.49%
146.42 -1.49% -- 详细
Revenue missed market expectations. Kweichow Moutai recorded revenue of Rmb7.45bn (+4% YoY), net profit attributable to shareholders of the parent company of Rmb3.7bn (+3% YoY) and EPS of Rmb3.56 in 1Q14. Its advance receipts decreased by Rmb1.42bn QoQ to Rmb1.62bn. The Company proposed to pay out cash dividend of Rmb43.74 (tax inclusive) plus one bonus share for every 10 shares outstanding, and it will hold the general meeting of shareholders on 18 May. The 3% growth target implies smooth operational transition in 2014. The liquor sector witnessed drastic corrections in 2013. In order to attain the annual revenue target, Kweichow Moutai stepped up sales in 2H13 to boost the short-term revenue. This put pressure on the market capability, brand image and the distributor resources. The Company brought forward a 3% growth target for its 2014 turnover. Given the current competitive landscape of the liquor sector, combination of i) brand, ii) sales/inventory of retailers and iii) the distributor resources are able to underpin Kweichow Moutai’s normal sales. As the high scale of Moutai liquor supplied to distributors is gradually absorbed by the market, retail sales in 2014 will reflect the real demand. The Company’s output of the Moutai liquor and the series liquor rose from 25k tonnes to 52k tonnes during 2008-13, representing a CAGR of 16%. After Kweichow Moutai returns to normal sale in 2014, the growth in its Moutai liquor sales will be able to support a 15%+ increase p.a. in its turnover during the next 5 years. Quarterly revenue growth will be steady. Given that age liquor accounted for a certain share of the Company’s sales in 1Q13, hot sale of the classic liquor products in 1Q14 will drive the product structure downgrade to a bottom. Along with unveiling of the “age liquor group purchase plus a certain share of ordinary liquor” policy and rollout of the customized liquor products, its business structure will improve slowly. The Company’s 2Q13 revenue amounted to Rmb7bn, and its advance receipts slipped Rmb2bn to Rmb800mn at end-2Q13. We forecast its revenue growth will be stable in 2Q14E. Financial company changed the structure of financial expenses. Its 1Q14 gross margin stayed flat YoY at 93.3%; and the cost/income ratio rose by 3.5ppts YoY to 13.7%. The selling expense ratio moved up 0.4ppt to 4.3%; the administrative expense ratio increased by 1.8ppts to 9.6%, due to growth of the taxes and salary payment; and the financial expense ratio increased by 1.3ppts YoY from -1.6% in 1Q13 to -0.3%.Sharp change of the financial expenses was mainly because after the Kweichow Moutai Group Financial Co., Ltd. (the “financial company”), in which the Company has a 51% stake, began to sweep funds from member companies, interest income of the Company and its subsidiaries from commercial banks declined. The financial company obtained the business license in mid-Mar 2013 and started operation in May 2013. As a result, the Company’s 1Q14 interest income from the financial company increased by Rmb132mn, which pushed up the overall turnover of its core business by 5.8% YoY to Rmb7.58bn. Its minority interest jumped by 40.7% YoY to Rmb250mn, due to consolidation of new subsidiaries. Potential risks: steep correction of the liquor sector will change the product mix. Earnings forecast, valuation and investment advice: based on the sector’s development status and the Company’s operating condition and strategy, we forecast its 2014-16E EPS to be Rmb15.58/17.50/ 20.08 (2013 EPS: Rmb14.58). The current share price equals to merely 11x 2014E PE. Against the expectations that correction of the liquor sector will last for 1-2 more years, Kweichow Moutai maintains stable operation. Given the stable expectations, the SOE reform, integration of the series liquor and the mass consumer goods nature of its products, we set fair valuation of the Company at 15x 2014E PE, equivalent to a target price of Rmb230.
天富热电 电力、煤气及水等公用事业 2014-04-23 7.52 9.36 29.16% 8.03 2.82%
8.16 8.51% -- 详细
A regional energy supplier relying on the Xinjiang Production and Construction Corps (XPCC). Asa power supplier integrating electricity supply and sales business under the Eighth Agricultural Division of the XPCC in Shihezi, the Company boasts an independent regional power grid. Its core business covers power/heat/natural gas supply, and has operated 1,665MW of installed capacity built independently or based on state-owned assets, and has 2,080MW of installed capacity under construction. In 2013, power supply and natural gas revenues represented 79.5% and 3.9% of its total turnover, and gross margin accounted for 85.6% and 6.4%. Its controlling shareholder is Tianfu Power Group, and actual controller is the State-owned Assets Supervision and Administration Commission of the Eighth Agricultural Division of the XPCC which indirectly holds a 41.6% stake in the Company. Uniquely low electricity tariff underpins businesses from energy-intensivesectors, and organic/inorganic means drive power business to keep growing.The Company has an independent Shihezi power grid with autonomous pricing power. It offers preferential price to major industrial users to attract energy-intensive sectors, and itsaverage selling price for electricity in 2013 was ~Rmb0.15/kWh, lower than that for major industrial users in other areas in Xinjiang. The energy-intensive sectors have become a major booster to its electricity sales volume growth, and improvement in local industrial production capacity in Shihezi boosted its electricity sales volume to increase rapidly; advancement in installed capacity and power grid construction, and breakthroughs in supply bottlenecks will warrant rapid growth in its electricity sales volume. In addition, as the XCCP’s integrated energy platform, the Company has a clear positioning, and it may take advantage of M&As to facilitate grid integration in northern Xinjiang, which should boost its development in the medium to long term. Its electricity supply volume is projected to be 11.0/13.0/15.6tWh in 2014/15/16E (8.5tWh in 2013). Gas filling stations are forecast to expand rapidly, and gas profit contribution is expected to keep improving. The Company relies on main traffic trunks in Xinjiang to build urban natural gas pipeline network and filling stations, and it is rapidly boosting its cross-region presence; its construction and acquisition of gas filling stations will propel the number of its gas filling stations to increase at an accelerated pace. 16/32/50 gas filling stations are projected to be operated in 2014/15/16E, and gas for vehicles will drive its natural gas earnings to register a rapid growth. Making presence in shale gas will underpin gas source, and silicon carbide business may become an X factor.Shale gas and other unconventional natural gas development is greatly encouraged by policies. China bounds in shale gas resources, and Xinjiang is home to such resources. The Company partners with Hubei Shale Gas to accelerate exploration of shale gas in Xinjiang, which will provide natural gas business development with multiple gas sources. In recent years, it has been endeavouring to spin off auxiliary businesses with unpleasant economic benefits, and the retained silicon carbide business remains in R&D and market development period, which should accrue insignificant earnings in the short term. Yet, if breakthroughs can be made in technology or market development, silicon carbide business will become another shinyspot to boost the Company’s growth. Potential risks: (i) the Company’s earnings is highly susceptible to economic environment and environmental protection policies as electricity it generates is mainly used by customers from heavy industry, (ii) coal price rise arising from resource tax and huge demand due to relatively low coal price in Xinjiang, and (iii) expiry of lockup on 183mn shares on 19 Mar out of all shares under private placement (at an offering price of Rmb7.55 per share) in 2013. Earnings forecast, valuation and investment rating. In 2013, forecast-beating labor cost due to wage adjustment and average annual wage increase and special bad debt impairment totally reduced EPS by Rmb0.11, which was a major contributor to lower-than-expected earnings; thanks to the advantage of low electricity tariff and regional expansion, the Company’s electricity and gas businesses are projected to propel its earnings in future to grow rapidly (CAGR of ~14-16% in 2014-16E). We forecast its 2014/15/16E EPS to be Rmb0.52/0.67/0.82 (including Rmb0.48/0.61/0.73 accrued by electricity business, and Rmb0.03/0.06/0.09 by gas business), implying 2014/15/16E PE of 14.9/11.6/9.5x. Factoring in Xinjiang’s outstanding advantage in shale gas resources and regional development to be further facilitated by national policy support, we initiate coverage of it with a “BUY” rating with its target price at Rmb10.4 per share (implying 2014E PE of 20x).
上汽集团 交运设备行业 2014-04-23 14.11 13.41 23.14% 14.84 5.17%
15.86 12.40% -- 详细
Event: SAIC Motor put on show many models at the Auto China 2014 in Beijing, for example, the Volkswagen NMC, Skoda New Octavia, Chevrolet Trax, Chevrolet New Cruze, Baojun 610 etc. Comments: Launch of new models pick up gradually, and the Company’s market position is further tamped down. During the Auto China 2014, SAIC Motor put on show many new models, such as the Volkswagen NMC (an entry-level coupe, to hit the market at end-2014), Skoda New Octavia (sedan), Chevrolet Trax (a compact SUV), Chevrolet New Cruze (sedan) and Baojun 610 (hatchback). We forecast that the Company will also roll out a Buick compact SUV and a Cadillac LWB ATS etc. during the year. Accelerating pace of new model launches will help further tamp down the Company’s market position. SAIC Motor sold 1.52mn units (+14.5%) in 1Q14, and its 1Q14 results are expected to sustain relatively fast growth. SAIC Motor sold cumulatively 1.52mn units of auto (+14.5%) in 1Q14, continuously beating the average growth in the auto sector. Among it, Shanghai Volkswagen sold 510k units (+25%), Shanghai GM sold 430k units (+8%), SGMW sold 480k units (+15%) and SAIC Passenger Vehicle sold 50k units (-0.6%). Based on growth of its 1Q14 sales volume and the sales structure, we forecast the Company to sustain relatively fast growth of 10%+ in 1Q14. SAIC Motor keeps high dividend yield and attractive valuation. The Company proposed to pay out cash dividend of Rmb12 for every 10 shares outstanding, equivalent to a dividend payout ratio of 53.3%. Based on the current share price, its dividend yield is as high as 8.5%. Considering that the Company has ample cash flow and is gradually finishing its building of strategic presence, we expect the Company to maintain relatively high dividend payout ratio in the future. Meanwhile, the Company trades at only 5.7x 2014E PE at present due to slowing growth in the auto sector and expectations for auto purchase ban. The valuation is noticeably lower than that of the global mainstream auto conglomerates (~8x), suggesting remarkable valuation advantage. E-commerce platform officially came into operation on 28 Mar. Active exploration of new business will help the Company’s re-rating. In response to the increasing online shopping behaviour, the Company officially launched an e-commerce platform (www.chexiang.com) on 28 Mar. In our view, the platform does not target overthrowing the existing distribution channels. Rather, it aims at attracting customer traffic by providing individualized services (such as auto customization) through the online platform, and guiding the online customers to the off-line channels, thus building an O2O business model and establishing a virtuous cycle. The e-commerce platform is forecast to help upgrade the Company’s brand and valuation. Potential risks: (i) Disappointing sales volume due to slowdown in macroeconomic growth, (ii) worse-than-expected consumers’ recognition of Shanghai Volkswagen’s new models; (iii) growing losses of the Company’s own brands; (iv) decline in valuation due to some cities’ purchase restrictions. Earnings forecast, valuation and investment rating. We reiterate the Company’s 2014/15/16E EPS of Rmb2.48/2.86/3.24 (EPS of Rmb2.25 in 2013). Its last price of Rmb14.09 per share implies prospective 2014/15/16E PE of 6/5/4x. As a leader in the Chinese auto market, SAIC Motor is quickly launching new models. We forecast its 1Q14 results to register a growth of 10%+. Meanwhile, the Company kept a dividend yield of 8.5%, suggesting significant valuation advantages. Additionally, the Company is also actively developing the auto e-commerce and alternative energy vehicle business. Based on the sector’s average valuation, we believe a prospective 2014E PE of 8x is fair for it. We reiterate the “BUY” rating and the target price of Rmb19.
陈聪 3
付瑜 2
金地集团 房地产业 2014-04-23 7.64 7.08 -- 10.29 32.26%
10.11 32.33% -- 详细
Event: On 21 Apr, Gemdale was informed that Sino Life held 885,748,901 shares (19.8%) in Gemdale, among which 670,748,901 (15.0%) are voting shares, according to Gemdale’s announcement. Comments: Long-term funds continued to boost investment in the Company, reflecting industrial capitalists’ positive outlook. Since 2H13, long-term funds have been continuously increasing their stake in Gemdale. Sino Life and Anbang Insurance consecutively announced changes in their equity stake, and designated directors to the Company’s Board of Directors through revision of the Company’s Articles of Association. This suggests that the industrial capitalists believe the Company’s capitalization is absolutely underestimated. In fact, many mainstream real estate stocks including Gemdale are trading at significant discounts relative to their respective NAV. For investors with real industry concept (such as insurance funds), buying real estate stocks are better choice than buying housing properties. More importantly, another important reason for the free float shareholders to continuously increase their investment is that they have essential influence on the target listed company and that leverage ratio of the listed company is basically safe. A small step for Gemdale, a big step for the real estate sector: attractiveness of the undemanding real estate stocks to industrial capitals. In our view, on one hand, the divided opinions of the capital market about the real estate sector’s long cycle enable long-term investors to select appropriate investment targets at ease; on the other hand, long-term investors bring new changes to the listed companies, such as reducing their fund cost and even providing land resources support etc. As long as overall valuation of the real estate sector is not changed systemically, industrial capitalists’ boost to investment will occur again. Of course, a moderate market capitalization size, good stock liquidity and trustable management made Gemdale the first stock to reflect the industrial investment value. Although the Company’s valuation is already relatively high among the leading stocks to some investors, it is still lower than the real value of the Company’s assets to the industrial investors. Additionally, the Company’s management is reliable. In order to maintain their influence in the Company, the long-term investors are expected to continue increasing their stake in specific companies. Rise of Gemdale: the right rhythm and the premium products.Gemdale became prudent about land acquisitions and active about de-stocking in 2H13. This effectively improved the quality of its land bank, and made room for the land acquisition after 2Q14E. Additionally, the Company has inherent brand premium and achieved solidsales performance against the huge supply and fierce competition in southeast China. Its previous shortest slab (poor quality of land bank, improper timing of land acquisition) has been filled up completely. In our view, boost of investment by long-term investors is expected to deliver a boost to its income statement in 2014E. Potential risks: restrictions on the settleable resources in 2013-14; earnings growth is mainly due to changes in the accounting policy. Valuation, earnings forecast and investment rating: we reiterate the Company’s 2013/14/15E EPS at Rmb0.91/0.95/1.49. Given that a) continuous boost of investment by industrial capitalists and their appointment of members to the Board of Directors help raise the say of free float shareholders, b) monthly sales of the Company are expected to increase along with increase in the property projects launched, and c) the Company is expected to see frog-leap development after 2014 (due to increase in the settlement scale and profitability, its 2015 earnings growth is relatively high considering the time lag in settlement of sold properties), we assign the Company a 6x 2015E PE and keep its target price to Rmb8.94. Reiterate the BUY rating on the last share price of Rmb7.76.
陈聪 3
付瑜 2
金融街 房地产业 2014-04-22 5.16 6.35 32.28% 6.18 19.77%
6.39 23.84% -- 详细
The Company’s controlling shareholder (Financial Street Group) boosted its stake by more than 41.58mn shares. Following the deal, the Financial Street Group and companies acting in concert jointly hold more than 845mn shares (27.92%) of the Company. Financial Street Group consolidated its position and boosted its share of Financial Street’s profit at relatively small cost. At the current stock price, the purchase of shares will cost a total of ~Rmb220mn. The purchase will raise the controlling shareholder’s stake in the Company. Currently, Financial Street has a dividend yield of more than 4.6% and is trading at a notable discount to its NAV. In our view, the deal is a wise investment choice for the Financial Street Group. Resource value is undisputed. Financial Street currently holds 682k m2 of rental properties (~450k m2 is located in prime districts of Beijing) and over 5mn m2 of above-ground construction area reserve (>1mn m2 is located in prime areas within the third ring road of Beijing). Stripping out reserves in other cities and other areas of Beijing, the Company’s properties and land reserves in core areas within the third ring road are valued at an estimated Rmb40bn-plus (assuming property price > Rmb50,000/m2 and land price > Rmb20,000/m2). After deducting net liabilities, its net asset value (NAV) is notably higher than its current market capitalization. Additionally, projects in core areas of Beijing boast stable value even though China’s new housing developments are reaching a peak. Strong ability to acquire land: Financial Street is expected to actively expand its land bank in 2H14E. Financial Street verified sustainability of its development over the recent years. It successfully bought high-quality land plots on which to build Guangan Plaza, Yuetan Plaza and Jingxi Commercial Center amid stiff competition in Beijing’s land market. In 2013, the Company slowed its acquisition of new land plots due to the overheated land market. We forecast it will actively expand its land bank in the Beijing-Tianjin-Hebei area and other tier-1/2 cities after 2Q14 (opportunities for land acquisition could emerge after 2Q14). Risks associated with investing in the company: (i) YoY decline in 2Q14E earnings due to limited size of related sales proceeds during the period and (ii) excessive investment in non-core areas. Earnings forecast, valuation and investment rating: The Yuetan project sales are expected to be booked in 2014. This will lock up its earnings growth for the year. We maintain the Company’s forecast 2014/15/16E EPS at Rmb1.19/1.45/1.79 and NAV at Rmb11.18/share. Among the stocks trading at high discounts to NAV, no others are posting such rapid earnings growth and trade at a prospective 2014E PER of only 5x. Additionally, among the companies trading at attractive valuation, none of these other companies have such abundant resources reserve. Looming REITS could offer an institutional opportunity. The incremental investment by Financial Street Group confirms the Company’s investment value. We value Financial Street at a 30% discount relative to its NAV and maintain our target price of Rmb7.83. We maintain our BUY rating.
长安汽车 交运设备行业 2014-04-21 11.72 13.54 19.70% 12.34 4.40%
13.34 13.82% -- 详细
The Company registered net income of Rmb3.5bn (+142% YoY) in 2013, equivalent to EPS of Rmb0.75, in line with market expectation. The Company sold a total of 2.12mn vehicles in 2013 (+20.7% YoY), among which local brands sedan tallied 387k units (+67.9% YoY), noticeably better than sectoral average. The Company’s 2013 earnings grew considerably mainly due to the following three reasons. 1) Changan Ford raked in net income of Rmb8.2bn (+156% YoY); 2) CAFME registered net income of Rmb240mn (+524% YoY); and 3) Jiangling Holdings Limited recorded net income of Rmb530mn (+24% YoY). Local brand: The Company delivered sound financial treatment in 2013 and is expected to incur much less losses in 2014E. The Company’s local brands help it register an turnover of Rmb38.5bn (+31%) with gross margin at 17.5%, among which sedan’s gross margin stands at 17.9% (at 16.0% in 2012) and minicar’s gross margin at 15.2% ( at 20% in 2012). In 2013, the Company changed in accounting estimation of product quality warranty fee so that its net income decreased by Rmb170mn. In addition, the Company provisioned Rmb330mn for asset impairment losses, which underscores its prudence in financial treatment. Its local brands are expected to incur much less losses in 2014E with a string of new models such as CS75 being launched and produce mix optimization. Changan Ford: Profitability is projected to rise continually on localization of major parts such as engine, gearbox etc. The Company sold taotal of 680k vehicles (+60%) in 2013 thanks to launch of better-positioned new models such as new Focus, Kuga, new Mondeo etc. to rake in a turnover of Rmb84.2bn (+54%) and net income of Rmb8.2bn (+156%) with its net margin rising to 9.8% (at 5.9% in 2012). Its profitability is projected to continue rising thanks to product mix optimization, localization of major parts such as engine, gearbox etc. Changan Mazda: earnings growth picked up thanks to launch of new models. Changan Mazda registered profit of Rmb78mn in 2H13, up by 258% HoH as it introduced CX-5 (SUV) and sold 23k units of CX-5. It is projected to launch brand-new Mazda 3 in 2Q14E. Thanks to the launch of new models, Changan Mazda’s earnings are forecast to pick up noticeably in 2014E. Risks associated with investment into the Company: (i) Worse-than-expected sales volume of Changan Ford due to escalation of Kuga recall, (ii) consumers’ weaker-than-expected acceptance of brand-new Mazda 3, CS&5 of local brand, and other new models, and (iii) consistent decline in minicar business. Earnings forecast and valuation: We reiterate the Company’s 2014/15E EPS and debut its 2016E EPS to arrive at its 2014/15/16E EPS of Rmb1.50/1.98/2.39 (2013 EPS at Rmb0.75). It is now trading at Rmb11.72 per share, implying 2014/15/16E PE of 8/6/5x. Given that Changan Ford, Changan Mazda and other JVs have been introducing new models continually, localization of engine, gearbox and other major parts are and continually enhancing market positions of local brands, and referring to secoral valuation, we believe 10-12x 2014E PE is fair for the Company and reiterate BUY rating with the target price at Rmb16 per share.
星宇股份 交运设备行业 2014-04-17 19.10 23.01 37.41% 20.49 2.91%
19.66 2.93% -- 详细
Investment Highlights In 2013, the Company registered Rmb220mn in net profit (+15.4% YoY) with EPS of Rmb0.91, meeting market expectations. Thanks to consistent development of customer base and products, the Company raked in Rmb1.63bn in turnover in 2013, up by 23.8% YoY, a growth notably outpacing the sector’s average. Due to increased pressure from decline in annual prices for products, consistent mounting labor cost, and other factors, its gross margin stood at 24.6% in 2013 (-1.3ppts YoY). As for expense ratio, thanks to economies of scale and lean management, its administrative expense ratio slipped by 2.4ppts YoY to 7.4%. It plans to pay out Rmb7.3 of cash dividend for every 10 shares outstanding, and sustain 80%-plus dividend payout ratio for three straight years. The Company logged Rmb52.70mn in net profit in 1Q14 (+19.6% YoY) with EPS at Rmb0.22, boasting accelerated earnings growth. In 1Q14, the Company posted Rmb430mn in turnover (+16.1% YoY); gross margin rose by 0.5ppt YoY to 23.8%; administrative expense ratio slid by 1.0ppt YoY to 7.4%; and financial expense ratio edged up by 3.6ppts YoY, mainly due to increase in financial expense arising from bank wealth management products’ interest income booked in as “investment gain”. In 1Q14, it registered Rmb52.70mn in net profit (+19.6% YoY), boasting accelerated earnings growth, and its full-year earnings are projected to grow by ~20% in 2014E. The Company boasts quality customer resources, and its revenue from VW brands auto makers represented 40%-plus. The Company boasts quality customer resources with consistently improving structure. Based on its customers such as VW, GM, Nissan, and Toyota, it successfully entered the supplier system for Changan Ford and Dongfeng Honda, and undertaken relevant R&D projects in 2013, providing services for all auto groups other than Korean ones. By brand, in 2013, its revenue from FAW-VW/Shanghai VW/FAW Toyota represented 31.8%/~10.3%/~5.1% of its total turnover. It quality customer structure will provide effective support for its steady business growth in the long term. Endeavouring to diversify into LED, AFS, and other car lamp electronic businesses. The LED-based car lamps will be a general trend, and the Company is expanding from small lamps and rear combination lamps toward headlamps, boasting a huge growth potential in future. It is endeavouring to expand LED, AFS, and other car lamp electronic businesses. Full-LED rear combination lamps designed and manufactured for FAW-VW New Golf A7 represent domestic leading technology. Also, its 500k-set LED lamp and supporting project are forecast to be completed in Jun 14E, which will pave the way for new product market development. It is expected to launch LED headlamps in 2014E, and proportion of LED lamp business revenue to increase to 20%-plus. Potential risks: (i) slower-than-expected growth of downstream auto demand; (ii) decline in market position of major customers; (iii) weaker-than-expected development of LED and other new products; (iv) slower-than-expected inorganic growth; and (v) corporate earnings eroded by surging prices for plastic particles and other major raw materials. Earnings forecast and valuation: we reiterate the Company's 2014/15E EPS of Rmb1.09/1.30 and project its 2016E EPS to be Rmb1.55 (EPS of Rmb0.91 in 2013). It is trading at Rmb20.97, implying 2014/15/16E PE of 19/16/14x. Factoring in its quality customer resources, steady growth in its existing business, active development of LED, AFS, and other car lamp electronic products, after-sale service market potential in future, and possible inorganic growth with over-allotment proceeds, and based on the sector's average valuation, we believe 2014E PE of 25x is fair for it, and reiterate “OVERWEIGHT” rating with the target price of Rmb26 per share.
中兴通讯 通信及通信设备 2014-04-15 13.85 16.20 50.83% 13.97 0.87%
13.97 0.87% -- 详细
Investment Highlights Forecast-beating reversal of earnings. The Company disclosed its 1Q14 earnings pre-announcement, forecasting its profit to be Rmb425-637mn in 1Q4E (+107.32-210.74% YoY), and net profit after non-recurring gains and losses to stand at Rmb583mn (+Rmb1.2bn YoY), notably beating market expectations. Its forecast-beating improvement in earnings in 1Q14 was thanks mainly to three drivers: (i) it launched 3/4G business in Southeast Asia, one of its powerful overseas markets that poses strong support for its overseas business rally; (ii) its operation in Africa is about to enter a harvest period, which helps narrow its losses; and (iii) domestic 4G projects are in full swing, giving a strong boost to its turnover and profit growth. Thanks to China’s 4G network construction and national network security strategy, the Company’s earnings are expected to sustain a rapid growth during 2014-16E. With the rapid growth in mobile Internet traffic, construction of 4G base stations and supporting networks will keep growing for three straight years. In the domestic market, the Company has transformed from an “expansion” period into a “harvest” period. The launch of the national network security strategy will boost operators, government departments, enterprises and public institutions to tilt toward Chinese standards and manufacturers in terms of network equipment and IT software procurement, and the Company will gain more business growth in such integrated applications as government-enterprise network market and “smart city”. The Company boasts powerful technological strength, complete presence in industry chain, and profound accumulation of IPRs, and its long-term value is underestimated. The Company makes increased efforts in such fields as smart city, industrial informatization, and alternative energy, and has expressly put forward its development goal of “building another ZTE”. Among China’s integrated hardware/software R&D technology companies, the Company ranks among the top 5 in terms of its scale and comprehensive ability. It boasts profound experience in such technological fields as self-developed OS, memory database, bottom chip, network equipment, software application development, mobile terminal and energy management, and ranks among top companies in terms of international IPRs. It is also a leader in terms of independent innovation at home, and notably prevent other leading peers from commanding monopoly in the sector. With a solid position, its long-term value is underestimated. Ample catalysts in the short term: against the national general orientation of independent and controlled business development, the Company has started to take advantage of a wide range of resources to develop its business in emerging sectors, and it is projected to expand and be catalyzed in such fields as IDC collaborative operation, virtual operator, smart TV games, overseas e-commerce platform, and alternative energy management. It is cooperating with TMALL on its newly launched 4G flagship mobile phone sales, booked volume stands at 12mn units, with first 50k units sold out within 1min on 10 Apr. In 1Q14, the Company intended to adjust its supply chain, and cut 3G mobile phone capacity. Domestic mobile phone business is forecast to begin to fully improve after the start of 2Q14E, and underscore 4G mobile phones’ first-mover advantage and operators’ channel advantage. Potential risks: (i) lukewarm improvement in overseas business, and (ii) limited improvement in domestic mobile phone business. Reiterate “BUY” rating. Given that the Company’s development in the emerging sectors will gradually reflect its long-term technological advantages and strategic value, we reiterate its 2014/15/16E EPS of Rmb0.88/1.10/1.26. Factoring in its certain orientation in strategic transformation and gradual improvement in its earnings, we set its target price at Rmb20 per share (implying 2013/14/15E PE of 49/23/18x), and reiterate “BUY” rating.
长安汽车 交运设备行业 2014-04-15 11.82 13.54 19.70% 12.50 4.87%
13.34 12.86% -- 详细
Event: The Company pre-announced its 1Q14 earnings, forecasting that its net profit to stand at Rmb1.85bn-2.05bn (+237-274% YoY), implying EPS of ~Rmb0.40-0.44. It also guided its 2013 results, indicating that it registered Rmb38.5bn/3.5bn in turnover/net profit (+31%/142% YoY) with EPS of Rmb0.75. Comments: EPS of ~Rmb0.40-0.44 in 1Q14 notably beat market expectations. In 2013, the Company logged Rmb38.5/3.5bn in turnover/net profit (+31%/142% YoY) with EPS of Rmb0.75, meeting market expectations. In 1Q14E, it forecast its net profit to be Rmb1.85bn-2.05bn, and EPS to be ~Rmb0.40-0.44, notably beating market expectations, thanks mainly to three drivers: (i) Changan Ford sustained robust sales, selling 200k units (+53%) in 1Q14, and Kuga, new Mondeo, and other high-end models represented a growing proportion; (ii) Changan local brands saw consistent improvement in sales volume and market position, and the headquarters incurred much less losses; and (iii) such JVs as Changan Mazda, Changan Suzuki, and JMC registered a rapid growth. Changan Ford: sales volume remained high, and profitability picked up. As of 21 Feb 14, the Company recalled 81k units of Kuga, mainly because production materials for some batches of front steering knuckles failed to meet Ford global standard for intensity of such materials. In our view, thanks to high growth in SUV demand and rapid increase in the number of Ford 4S shops, 12k units of Kuga were sold in Mar, reflecting limited impact of the recall. In 1Q14, Changan Ford sold 200k units (+53%), including 33/25k units of Kuga/new Mondeo. Thanks to growing proportion of medium and high-end products, and gradual localization of such core components as engines and gearboxes, the Company’s profitability is expected to keep improving. Local brands: improved market position, and optimized product mix. Thanks to consistent launch of new products, the Company sold 390k units of sedans of local brands in 2013 (+68% YoY) with notable improvement in market share. In 1Q14, its local brands saw high growth in sales volume, in which, CS35/EADO/Honor sales volume hit 27/36/47k (+78%/73%/31%), showing further optimized product mix, and its local brands are expected to incur much less losses in 1Q14E. New SUV CS75 is forecast to be launched at the Auto China 2014, which is expected to become a newgrowth driver for the Company. Earnings growth rates of such JVs as Changan Mazda, Changan Suzuki, and JMC picked up. In 2H13, Changan Mazda introduced CX-5 (SUV), a model based on brand-new SKYACTIV technology, and sold 15k units of XX-5 in 1Q14. It is projected to launch brand-new Mazda 3 in 2Q14E. Thanks to the launch of new models, Changan Mazda’s earnings are forecast to improve noticeably i n 2014E. Benefiting from the launch of S-Cross (SUV) and other new products, Changan Suzuki is expected to incur much less losses. Thanks to the operation of Xiaolan base, and introduction of Ford SUV and new generation of Transit in 2015E, JMC is projected to usher in a fresh round of rapid earnings growth period. Potential risks: (i ) Worse-than-expected sales volume of Changan Ford due to escalation of Kuga recall, (ii) consumers’ weaker-than-expected acceptance of brand-new Mazda 3, CS&5 of local brand, and other new models, and (iii) consistent decline in minicar business. Earnings forecast, valuation and investment rating: Gi ven the Company’s forecast-beating 1Q14 earnings, we lift its 2014/15E EPS to Rmb1.50/1.98 (from Rmb1.10/1.45), and project its 2013E EPS to be Rmb0.75 (EPS of Rmb0.31 in 2012). It is trading at Rmb10.84, implying 2013/14/15E PE of 15/7/5x. Factoring in the consistent introduction of new products from Changan Ford, Changan Mazda, and other JVs, localization of engines, gearboxes, and other core components, and consistently improving market posi tion of its local brands, and based on the sector’s average val uation, we believe 2014E PE of 10 -12x is fair for it. We reiterate “BUY” rating with the target price of Rmb16 per share.
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