China Aluminum Cans
13 March 2017
China Aluminum Cans
INDUSTRIAL
FY16 net profit increased by 20%
BUY
China Aluminum Cans (CAC) announced FY16 results: revenue stood at HKD696mn while its net profit increased 20.2% to HKD95.3mn, about 15% lower than expectation, mainly due to higher than expected marketing costs. A final dividend of 1.5 HK cents was declared and total dividend reached 2.9 HK cents, representing an 18.5% payout ratio or a 2.1% yield on the current price. As its business expansion plan is expected to materialize in FY17, we maintain our BUY rating with a target price of HKD1.90 based on 14.7x FY17 PER for 41% upside potential. Production automation and brand building of Botny – CAC’s revenue from aluminum cans and aerosol production remained at the FY15 similar level, when the increase in sales was offset by RMB depreciation. With the intensive competition in the aluminum packaging and aerosol production industry, CAC expanded its product range in aluminum packaging, incorporated automation in production and built up its self-owned brand Botny with a focus on car care products. Effective cost control with expanding margins – GPM increased by 4.9 ppt to 35.1% mainly attributable to lower purchasing cost of raw materials. With its expanding sales network and promotion of its new brand Botny, CAC’s selling and distribution costs increased by 24.2% while other operating expenses stayed at a similar level to FY15. With the substantial decrease in total debt, its financing costs dropped 54.2% in FY16, while its net margin improved 3.2 ppt to 18.0% in FY16.
Recommendation Ticker Quam's Rating Last Close Target Price Previous Target Up/(Down)side Previous Rating Share Information 52-week range ADT (3M) (HK$’mn) Market Cap. (HK$’mn) Shares outstanding (‘mn) Free float (%) SH-HK Connect SZ-HK Connect Major Shareholders Lin Wan Tsang
6898 HK BUY HK$1.35 1.90 1.90 41% BUY
1.16 – 2.00 0.73 807.6 598.2 34.3 No No
65.3%
Share Price Performance
Healthy financial position – CAC kept its healthy financial position with minimal debt. As at the end of 2016, it had a cash balance of HKD122mn and total debt amounted to HKD18.5mn, equivalent to net cash of HKD103mn, or about HK$0.158/share. Its total debt to equity ratio further decreased to 3.6%, much lower than that of 11.4% in 2015. Expecting new products and sales network expansion – With its strong R&D capability, CAC is preparing to develop new products in aluminum drinkware targeted at high-end FMCG clients and expand the sales network of its self-owned brand Botny of car care products. CAC intends to introduce 1 to 2 more high-speed automatic production lines from FY17 which are expected to further increase its production capacity by 20% in the coming years. With CAC’s business expansion plan on schedule, we expect that CAC will achieve a substantial improvement in its performance from FY17.
Source: Bloomberg
Key Financials – Fiscal Year Ended December (HK$mn) Revenue Growth (%) Operating profit Growth (%) Net profit Growth (%) EPS (HK Cents) FD-EPS (HK Cents) DPS (HK Cents) P/E (x) P/B (x) Dividend Yield (%)
FY14 752.7 -4.0% 102.3 -18.9% 81.7 -15.4% 20.0 20.0 2.2 6.7 1.3 1.6
FY15 693.7 -7.8% 102.8 0.5% 79.3 -2.9% 12.7 6.5 2.2 20.9 3.0 1.6
FY16 696.3 0.4% 125.5 22.1% 95.3 20.2% 15.9 8.0 2.9 14.3 2.9 2.1
FY17E 851.0 22.2% 197.6 57.5% 155.6 63.3% 25.2 12.9 3.8 10.4 2.4 2.9
FY18E 984.0 15.6% 249.1 26.1% 196.8 26.5% 31.9 16.3 4.8 8.2 1.9 3.6
Eric Li : +852 2971 5433 : [email protected]
Source: Company data, Quam Securities
1
CAC’s results comments Year ended 31 December (HKD mn)
2015
2016
Reported
Reported
693.7
696.3
(483.7)
(451.7)
-6.6%
209.9
244.6
16.5%
Revenue Cost of goods sold Gross profit Other income and gains, net
YoY 0.4%
Comments In line with expectations
2016 Forecast 697.5
vs Forecast -0.2%
(449.1)
0.6%
GPM improved from 30.3% to 35.1%
248.4
-1.5%
17.8
10.7%
Higher marketing cost than expected
(46.1)
28.6%
20.3
19.7
-3.0%
Selling and distribution expenses
(47.8)
(59.3)
24.2%
Administration expenses
(47.8)
(44.7)
-6.4%
(44.9)
-0.4%
R&D expenses
(29.0)
(29.0)
0.0%
(27.3)
6.4%
(3.0)
(5.7)
94.4%
(2.0)
193.2%
102.8
125.5
22.1%
145.9
-14.0%
(5.3)
(2.4)
-54%
(3.4)
-29.0%
Other operating expenses Operating profit
Finance costs Profit before tax
Substantial decrease in financing cost
97.5
123.0
26.3%
142.5
-13.7%
(18.2)
(27.8)
52.9%
(29.7)
-6.5%
Profit after tax
79.3
95.3
20.2%
112.8
-15.5%
Minority interest
0.3
0.5
32.6%
0.6
-27.6%
Attributable profit to shareholders
79.0
94.8
20.1%
112.2
-15.5%
EPS (HK Cents)
12.7
15.9
24.8%
6.5
8.0
22.9%
2.2
2.9
31.8%
17.4%
18.5%
Taxation
FD-EPS (HK Cents)
DPS Payout ratio
NPM improved from 11.4% to 13.7%
Source: Company data, Quam Securities
China Aluminium Cans Holdings Limited (6898 HK)
2
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: Li Yiming (CE No. BIE646), 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.
China Aluminium Cans Holdings Limited (6898 HK)
3
China Aluminum Cans
INDUSTRIAL
FY16 net profit increased by 20%
BUY
China Aluminum Cans (CAC) announced FY16 results: revenue stood at HKD696mn while its net profit increased 20.2% to HKD95.3mn, about 15% lower than expectation, mainly due to higher than expected marketing costs. A final dividend of 1.5 HK cents was declared and total dividend reached 2.9 HK cents, representing an 18.5% payout ratio or a 2.1% yield on the current price. As its business expansion plan is expected to materialize in FY17, we maintain our BUY rating with a target price of HKD1.90 based on 14.7x FY17 PER for 41% upside potential. Production automation and brand building of Botny – CAC’s revenue from aluminum cans and aerosol production remained at the FY15 similar level, when the increase in sales was offset by RMB depreciation. With the intensive competition in the aluminum packaging and aerosol production industry, CAC expanded its product range in aluminum packaging, incorporated automation in production and built up its self-owned brand Botny with a focus on car care products. Effective cost control with expanding margins – GPM increased by 4.9 ppt to 35.1% mainly attributable to lower purchasing cost of raw materials. With its expanding sales network and promotion of its new brand Botny, CAC’s selling and distribution costs increased by 24.2% while other operating expenses stayed at a similar level to FY15. With the substantial decrease in total debt, its financing costs dropped 54.2% in FY16, while its net margin improved 3.2 ppt to 18.0% in FY16.
Recommendation Ticker Quam's Rating Last Close Target Price Previous Target Up/(Down)side Previous Rating Share Information 52-week range ADT (3M) (HK$’mn) Market Cap. (HK$’mn) Shares outstanding (‘mn) Free float (%) SH-HK Connect SZ-HK Connect Major Shareholders Lin Wan Tsang
6898 HK BUY HK$1.35 1.90 1.90 41% BUY
1.16 – 2.00 0.73 807.6 598.2 34.3 No No
65.3%
Share Price Performance
Healthy financial position – CAC kept its healthy financial position with minimal debt. As at the end of 2016, it had a cash balance of HKD122mn and total debt amounted to HKD18.5mn, equivalent to net cash of HKD103mn, or about HK$0.158/share. Its total debt to equity ratio further decreased to 3.6%, much lower than that of 11.4% in 2015. Expecting new products and sales network expansion – With its strong R&D capability, CAC is preparing to develop new products in aluminum drinkware targeted at high-end FMCG clients and expand the sales network of its self-owned brand Botny of car care products. CAC intends to introduce 1 to 2 more high-speed automatic production lines from FY17 which are expected to further increase its production capacity by 20% in the coming years. With CAC’s business expansion plan on schedule, we expect that CAC will achieve a substantial improvement in its performance from FY17.
Source: Bloomberg
Key Financials – Fiscal Year Ended December (HK$mn) Revenue Growth (%) Operating profit Growth (%) Net profit Growth (%) EPS (HK Cents) FD-EPS (HK Cents) DPS (HK Cents) P/E (x) P/B (x) Dividend Yield (%)
FY14 752.7 -4.0% 102.3 -18.9% 81.7 -15.4% 20.0 20.0 2.2 6.7 1.3 1.6
FY15 693.7 -7.8% 102.8 0.5% 79.3 -2.9% 12.7 6.5 2.2 20.9 3.0 1.6
FY16 696.3 0.4% 125.5 22.1% 95.3 20.2% 15.9 8.0 2.9 14.3 2.9 2.1
FY17E 851.0 22.2% 197.6 57.5% 155.6 63.3% 25.2 12.9 3.8 10.4 2.4 2.9
FY18E 984.0 15.6% 249.1 26.1% 196.8 26.5% 31.9 16.3 4.8 8.2 1.9 3.6
Eric Li : +852 2971 5433 : [email protected]
Source: Company data, Quam Securities
1
CAC’s results comments Year ended 31 December (HKD mn)
2015
2016
Reported
Reported
693.7
696.3
(483.7)
(451.7)
-6.6%
209.9
244.6
16.5%
Revenue Cost of goods sold Gross profit Other income and gains, net
YoY 0.4%
Comments In line with expectations
2016 Forecast 697.5
vs Forecast -0.2%
(449.1)
0.6%
GPM improved from 30.3% to 35.1%
248.4
-1.5%
17.8
10.7%
Higher marketing cost than expected
(46.1)
28.6%
20.3
19.7
-3.0%
Selling and distribution expenses
(47.8)
(59.3)
24.2%
Administration expenses
(47.8)
(44.7)
-6.4%
(44.9)
-0.4%
R&D expenses
(29.0)
(29.0)
0.0%
(27.3)
6.4%
(3.0)
(5.7)
94.4%
(2.0)
193.2%
102.8
125.5
22.1%
145.9
-14.0%
(5.3)
(2.4)
-54%
(3.4)
-29.0%
Other operating expenses Operating profit
Finance costs Profit before tax
Substantial decrease in financing cost
97.5
123.0
26.3%
142.5
-13.7%
(18.2)
(27.8)
52.9%
(29.7)
-6.5%
Profit after tax
79.3
95.3
20.2%
112.8
-15.5%
Minority interest
0.3
0.5
32.6%
0.6
-27.6%
Attributable profit to shareholders
79.0
94.8
20.1%
112.2
-15.5%
EPS (HK Cents)
12.7
15.9
24.8%
6.5
8.0
22.9%
2.2
2.9
31.8%
17.4%
18.5%
Taxation
FD-EPS (HK Cents)
DPS Payout ratio
NPM improved from 11.4% to 13.7%
Source: Company data, Quam Securities
China Aluminium Cans Holdings Limited (6898 HK)
2
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: Li Yiming (CE No. BIE646), 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.
China Aluminium Cans Holdings Limited (6898 HK)
3
