1H17 net profit increased by 88% YoY
24 August 2017
Sun King Power Electronics – Results Comments
BUY
1H17 net profit increased by 88% YoY
Industrial
Sun King Power Electronics (“Sun King”) reported strong growth in its 1H17 results with net profit increasing by 88% YoY to RMB103mn, which is largely in line with our expectations and achieved about 45% of our original FY17 forecast. An interim dividend of 2 HK cents per share was declared, equivalent to a payout ratio of 27%. However, the company’s GPM has exceeded our expectations, reaching 43% compared to our estimate of 40%. As the bidding of the company’s landmark project, the Zhangbei flexible DC project ( 張 北 柔 直 工 程 ), is expected to be concluded towards the end of FY17, we believe that Sun King will be able to keep on delivering amazing operational performance. As a result, we reiterate a BUY on the counter with target price of HKD3.18, based on a 13x FY18 forward PER, indicating an 84% of upside potential. Stronger second half expected – Riding on the high tide of the thirteenth five-year plan (十三五規劃) focusing on HVDC and flexible DC infrastructure construction, Sun King has achieved a 45% growth YoY in its top-line in 1H17 with more shipments ready for the second half. According to the management, the contracts of Yu-E flexible DC (渝鄂柔直 工 程 ) and a “belt and road” project have been concluded recently with shipments expected in the second half of FY17. All confirmed HVDC and flexible DC contracts that will commence shipment in the second half amount to around RMB400mn. Another RMB400mn worth of contracts will be finalized in the near future. Adding these shipments to its 1H17 results, we are confident that Sun King will be able to deliver a satisfactory result for FY17 as forecasted in our model. However, certain delays in its projects could potentially shift some of the revenue to FY18.
Recommendation Ticker Quam's Rating Last Close Target Price Previous Target Up/(Down)side Previous Rating Share Information 52-week range (HK$) ADT (3M) (HK$’mn) Market Cap. (HK$’mn) Shares outstanding (‘mn) Free float (%) SH-HK Connect SZ-HK Connect
580 HK BUY HKD1.73 HKD3.18 HKD3.18 84% BUY
1.11-1.99 3.55 2,427 1,403 47.4 No No
Major Shareholders Xiang Jie China Hi-Tech CRH
21.4% 18.7% 12.5%
Share Price Performance
Impressive GPM presented in 1H17 – Sun King has delivered a higher than expected GPM of 43% compared to our estimate of around 40%, thanks to its stringent control in procurement costs and the increased proportion of sales in products with higher gross profit margin. Its gross profit has increased by around 82% YoY to RMB250mn. Zhangbei project outlook – In addition to the RMB1-1.2bn worth of converter valves that will be applied in the project, Sun King’s new R&D breakthrough, DC circuit breakers, are expected to be deployed in the project with a total estimated contract value of RMB800mn. The shipments of converter valves are anticipated to be in FY18, while those of DC circuit breakers are projected in FY19.
Source: Bloomberg, Company data
Net gearing ratio improved to 15% – Its net gearing ratio has improved to 15% from 22% as of Dec 2016. The company had also been able to finance its operations by pledging its account receivables in the first half of the year. Key Financials – Fiscal Year Ended December 31th (RMB mn) FY15 FY16 Revenue 782 857 Growth 51.2% 9.6% Operating profit 104 170 Growth T/A 63.5% Net profit 62 144 Growth T/A 132.3% EPS (RMB Cents) PER (x) PBR (x) Dividend Yield
4.5 33.1 2.3 0.50%
10.4 14.4 2.0 1.48%
FY17E FY18E 1,272 1,813 48.4% 42.5% 307 446 80.8% 45.0% 230 336 59.6% 46.0% CAGR FY17E-19E 14.5 21.1 10.3 7.1 1.5 1.3 2.42% 3.54%
FY19E 2,194 21.0% 557 25.0% 417 24.2% 34.7% 26.2 5.7 1.1 4.40%
Kevin Sun : +852 2971 5439 : [email protected]
Source: Company data, Quam Securities
1
Sun King’s results comments Year ended 31 Decem ber (RMB m n)
1H16
1H17
Reported
Reported
Revenue
401
581
(263)
(331)
138
250
20
12
Selling and distribution expenses
(37)
(41)
Administration expenses
(39)
R&D expenses
Cost of goods sold
YoY
Com m ents
45% Largely in line w ith our expectation 26%
2017 Forecast 1,272
Com pletion Rate 46%
(760)
44%
512
49%
21
56%
12% Beyond our expectation due to increasing sales
(76)
54%
(50)
27% Astrol's expenses consolidated into group's accounts
(78)
64%
(13)
(21)
59%
(51)
41%
Other operating expenses
(6)
(15)
143%
(21)
69%
Operating profit
63
136
116%
308
44%
Share of P/L in JV or Associate
12
2
-86% No profits from Jiashan Henghua Real Estate Co., Ltd in 1H17
-
Finance costs
(8)
(9)
Gross profit Other income and gains, net
Profit before tax Taxation
Attributable profit to shareholders
-40% No gains on disposal of PPE in 1H17
(28)
31%
67
129
93%
279
46%
(25)
110%
(45)
56%
55
104
235
44%
-
89% Largely in line w ith our expectation
(1) 55
103
(5) 88% The expected and actual NPMs all standing at around 18%
EPS (RMB Cents)
3.98
7.4
86%
FD-EPS (RMB Cents)
3.90
7.2
85%
1
2
100%
25.13%
27.03%
DPS (HKD Cents) Payout ratio
Source: Company data, Quam Securities
Sun King Power Electronics (580 HK)
N/A
10% Finance costs low er than expected
(12)
Profit after tax Minority interest
81% The actual GPM reaching around 43% higher than our estimate
2
230
12% 45%
Rating Definitions
Disclaimer and Risk Statement
BUY
We expect the stock to have a total return of > 15% over the next 12 months HOLD We expect the stock to have a total return of < 15% and >-15% over the next 12 months SELL We expect the stock to have a total return of < -15% over the next 12 months
This document is published by Quam Securities Company Limited (“Quam Securities”), a licensed corporation (central entity number AAC577) regulated by the Securities and Futures Commission in Hong Kong. This document is for distribution in Hong Kong only to persons who are “Professional Investors” as defined in Part 1 of Schedule 1 of Securities and Futures Ordinance (Cap 571) of Hong Kong and any rules made thereunder. This document is not intended for distribution to or use by, any person or entity who is a citizen or resident of any jurisdiction where such distribution or use would be contrary to applicable law or regulation within such jurisdiction. This document does not constitute an offer or a solicitation of an offer to buy or sell any securities. This document is circulated to addresses solely and may not be reproduced or redistributed to any other person or published, in whole or in part, for any purpose. The research is based on information obtained from sources believed to be reliable, but Quam Securities does not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without prior notice. Any recommendation does not have regard to specific investment objectives, financial situation and particular needs of any specific addressee. Quam Securities accepts no liability whatsoever for any direct or consequential loss arising from any use of this document. Quam Securities and its affiliates as well as persons associated with any of them from time to time may or may not have interests in the securities mentioned in this document. The prices of securities may move up or down, and past performance is not an indication of future performance. Investors shall consider seeking separate legal or financial advice before making investment decisions.
Disclosures
Analyst Certification: The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Kaiwen “Kevin” Sun (CE No. BIH180), the authors of this document and their associates declare that as of the date of the publication of this report, they do not hold any financial interest in the company.
Sun King Power Electronics (580 HK)
3
Sun King Power Electronics – Results Comments
BUY
1H17 net profit increased by 88% YoY
Industrial
Sun King Power Electronics (“Sun King”) reported strong growth in its 1H17 results with net profit increasing by 88% YoY to RMB103mn, which is largely in line with our expectations and achieved about 45% of our original FY17 forecast. An interim dividend of 2 HK cents per share was declared, equivalent to a payout ratio of 27%. However, the company’s GPM has exceeded our expectations, reaching 43% compared to our estimate of 40%. As the bidding of the company’s landmark project, the Zhangbei flexible DC project ( 張 北 柔 直 工 程 ), is expected to be concluded towards the end of FY17, we believe that Sun King will be able to keep on delivering amazing operational performance. As a result, we reiterate a BUY on the counter with target price of HKD3.18, based on a 13x FY18 forward PER, indicating an 84% of upside potential. Stronger second half expected – Riding on the high tide of the thirteenth five-year plan (十三五規劃) focusing on HVDC and flexible DC infrastructure construction, Sun King has achieved a 45% growth YoY in its top-line in 1H17 with more shipments ready for the second half. According to the management, the contracts of Yu-E flexible DC (渝鄂柔直 工 程 ) and a “belt and road” project have been concluded recently with shipments expected in the second half of FY17. All confirmed HVDC and flexible DC contracts that will commence shipment in the second half amount to around RMB400mn. Another RMB400mn worth of contracts will be finalized in the near future. Adding these shipments to its 1H17 results, we are confident that Sun King will be able to deliver a satisfactory result for FY17 as forecasted in our model. However, certain delays in its projects could potentially shift some of the revenue to FY18.
Recommendation Ticker Quam's Rating Last Close Target Price Previous Target Up/(Down)side Previous Rating Share Information 52-week range (HK$) ADT (3M) (HK$’mn) Market Cap. (HK$’mn) Shares outstanding (‘mn) Free float (%) SH-HK Connect SZ-HK Connect
580 HK BUY HKD1.73 HKD3.18 HKD3.18 84% BUY
1.11-1.99 3.55 2,427 1,403 47.4 No No
Major Shareholders Xiang Jie China Hi-Tech CRH
21.4% 18.7% 12.5%
Share Price Performance
Impressive GPM presented in 1H17 – Sun King has delivered a higher than expected GPM of 43% compared to our estimate of around 40%, thanks to its stringent control in procurement costs and the increased proportion of sales in products with higher gross profit margin. Its gross profit has increased by around 82% YoY to RMB250mn. Zhangbei project outlook – In addition to the RMB1-1.2bn worth of converter valves that will be applied in the project, Sun King’s new R&D breakthrough, DC circuit breakers, are expected to be deployed in the project with a total estimated contract value of RMB800mn. The shipments of converter valves are anticipated to be in FY18, while those of DC circuit breakers are projected in FY19.
Source: Bloomberg, Company data
Net gearing ratio improved to 15% – Its net gearing ratio has improved to 15% from 22% as of Dec 2016. The company had also been able to finance its operations by pledging its account receivables in the first half of the year. Key Financials – Fiscal Year Ended December 31th (RMB mn) FY15 FY16 Revenue 782 857 Growth 51.2% 9.6% Operating profit 104 170 Growth T/A 63.5% Net profit 62 144 Growth T/A 132.3% EPS (RMB Cents) PER (x) PBR (x) Dividend Yield
4.5 33.1 2.3 0.50%
10.4 14.4 2.0 1.48%
FY17E FY18E 1,272 1,813 48.4% 42.5% 307 446 80.8% 45.0% 230 336 59.6% 46.0% CAGR FY17E-19E 14.5 21.1 10.3 7.1 1.5 1.3 2.42% 3.54%
FY19E 2,194 21.0% 557 25.0% 417 24.2% 34.7% 26.2 5.7 1.1 4.40%
Kevin Sun : +852 2971 5439 : [email protected]
Source: Company data, Quam Securities
1
Sun King’s results comments Year ended 31 Decem ber (RMB m n)
1H16
1H17
Reported
Reported
Revenue
401
581
(263)
(331)
138
250
20
12
Selling and distribution expenses
(37)
(41)
Administration expenses
(39)
R&D expenses
Cost of goods sold
YoY
Com m ents
45% Largely in line w ith our expectation 26%
2017 Forecast 1,272
Com pletion Rate 46%
(760)
44%
512
49%
21
56%
12% Beyond our expectation due to increasing sales
(76)
54%
(50)
27% Astrol's expenses consolidated into group's accounts
(78)
64%
(13)
(21)
59%
(51)
41%
Other operating expenses
(6)
(15)
143%
(21)
69%
Operating profit
63
136
116%
308
44%
Share of P/L in JV or Associate
12
2
-86% No profits from Jiashan Henghua Real Estate Co., Ltd in 1H17
-
Finance costs
(8)
(9)
Gross profit Other income and gains, net
Profit before tax Taxation
Attributable profit to shareholders
-40% No gains on disposal of PPE in 1H17
(28)
31%
67
129
93%
279
46%
(25)
110%
(45)
56%
55
104
235
44%
-
89% Largely in line w ith our expectation
(1) 55
103
(5) 88% The expected and actual NPMs all standing at around 18%
EPS (RMB Cents)
3.98
7.4
86%
FD-EPS (RMB Cents)
3.90
7.2
85%
1
2
100%
25.13%
27.03%
DPS (HKD Cents) Payout ratio
Source: Company data, Quam Securities
Sun King Power Electronics (580 HK)
N/A
10% Finance costs low er than expected
(12)
Profit after tax Minority interest
81% The actual GPM reaching around 43% higher than our estimate
2
230
12% 45%
Rating Definitions
Disclaimer and Risk Statement
BUY
We expect the stock to have a total return of > 15% over the next 12 months HOLD We expect the stock to have a total return of < 15% and >-15% over the next 12 months SELL We expect the stock to have a total return of < -15% over the next 12 months
This document is published by Quam Securities Company Limited (“Quam Securities”), a licensed corporation (central entity number AAC577) regulated by the Securities and Futures Commission in Hong Kong. This document is for distribution in Hong Kong only to persons who are “Professional Investors” as defined in Part 1 of Schedule 1 of Securities and Futures Ordinance (Cap 571) of Hong Kong and any rules made thereunder. This document is not intended for distribution to or use by, any person or entity who is a citizen or resident of any jurisdiction where such distribution or use would be contrary to applicable law or regulation within such jurisdiction. This document does not constitute an offer or a solicitation of an offer to buy or sell any securities. This document is circulated to addresses solely and may not be reproduced or redistributed to any other person or published, in whole or in part, for any purpose. The research is based on information obtained from sources believed to be reliable, but Quam Securities does not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without prior notice. Any recommendation does not have regard to specific investment objectives, financial situation and particular needs of any specific addressee. Quam Securities accepts no liability whatsoever for any direct or consequential loss arising from any use of this document. Quam Securities and its affiliates as well as persons associated with any of them from time to time may or may not have interests in the securities mentioned in this document. The prices of securities may move up or down, and past performance is not an indication of future performance. Investors shall consider seeking separate legal or financial advice before making investment decisions.
Disclosures
Analyst Certification: The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Kaiwen “Kevin” Sun (CE No. BIH180), the authors of this document and their associates declare that as of the date of the publication of this report, they do not hold any financial interest in the company.
Sun King Power Electronics (580 HK)
3
