Sun King Power Electronics - Global Alliance Partners
15 March 2017
Sun King Power Electronics
INDUSTRIAL
FY16 net profit increased by 131%
BUY
Sun King Power Electronics reported a 1.3x leap in net profit to RMB144mn beating our estimate by 13.2% on the back of a strong 39% GPM and rigid expense control. Revenue went up to RMB857mn, a 9.6% YoY growth. A final dividend of 1.5 HK cents was declared adding up to a full year dividend of 2.5 HK cents. The dividend payout ratio reached around 21.4% or a 1.4% dividend yield. We reiterate our BUY rating with a target price of HKD2.55 based on 13X FY18 PER for 39% upside potential. We will revisit our forecast after the post result roadshows tomorrow. The power transmission segment changing the game – This segment produced about 64% of its total revenue, compared with 38% of FY15. The higher GPM of 44% and rapid increase in the sales of HVDC and flexible DC products have brought up the overall GPM to 39% or 5 ppt higher YoY. With major tenders, including ZhangJiaKou global energy network exhibition district (張家口全球能源互聯網示範區), coming out, we expect that the company will have a good chance of winning more large contracts. Rigid cost control ensuring overall profitability – Operating expenses only grew by 2.11% to RMB197mn given the swift growth of the business. The finance cost was down to RMB17mn due to less bank borrowings with effective interest rate of 4.7%. The PBT has reached RMB171mn, representing a 116% YoY growth. The net margin hikes to 16.8% up by 8.8 ppt YoY, rendering a net income of RMB144mn. The net debt to equity ratio stood at 22.3% – The company has a net debt position of RMB224mn as at year-end FY16, improving the net debt to equity ratio from 25.7% as at end of 1H16. Working capital has increased to RMB705mn, or a 21.7% growth from that at end of 1H16. It is expected that a large amount of working capital would be needed should Sun King continue to win major projects due to the nature of its business model.
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
580 HK BUY HK$1.84 2.55 2.55 39% BUY
1.03 – 1.88 2.29 2,568.6 1,396.0 52.3 No No
Major Shareholders Xiang Jie Jiang Huicheng
34.68% 7.36%
Share Price Performance
Source: Bloomberg
Key Financials – Fiscal Year Ended December 31th (RMB mn) Revenue Growth Operating profit Growth Net profit Growth EPS (RMB Cents) PER (x) PBR (x) Dividend Yield Dividend Payout
FY14 517 (30.1%) (12) T/A (32) T/A (2.36) N/A 2.69 0.59% N/A
FY15 782 51.2% 104 T/A 62 T/A 4.50 36.50 2.55 0.54% 18.6%
FY16 857 9.6% 171 64.4% 144 131.0% 10.37 15.84 2.50 1.36% 21.4%
FY17E 1,207 40.8% 260 52.0% 173 38.2% 12.53 13.11 1.96 2.34% 25%
FY18E 1,513 25.4% 350 34.8% 240 38.6% 17.37 9.46 1.68 3.25% 25%
Kevin Sun : +852 2971 5439 : [email protected]
Source: Company data, Quam Securities
1
Sun King’s results comments Year ended 31 December (RMB mn)
2015
2016
Reported
Reported
782
857
(515)
(523)
2%
267
334
25%
Revenue Cost of goods sold Gross profit Other income and gains, net
YoY 10%
Comments Slightly below expectations
2016 Forecast
vs Forecast
924
-8%
(564)
-8%
GPM improved from 34% to 39%
360
-8%
16
52%
Higher marketing cost than expected
(65)
-17%
30
33
10%
Selling and distribution expenses
(63)
(78)
24%
Administration expenses
(75)
(80)
7%
(71)
-11%
R&D expenses
(31)
(34)
10%
(37)
9%
Other operating expenses
(30)
(5)
-83%
(12)
-140%
Operating profit
104
170
64%
191
-11%
(7)
18
T/A
(2)
T/A
(18)
(17)
6%
(25)
-47%
Share of P/L in JV or Associate Finance costs Profit before tax
79
171
116%
(18)
(24)
33%
Profit after tax
61
147
140%
Minority interest
(1)
3
T/A
Attributable profit to shareholders
62
144
131%
EPS (RMB Cents)
4.50
10.37
130%
FD-EPS (RMB Cents)
4.50
10.13
125%
1.00
2.50
150%
18.6%
21.4
Taxation
DPS (HKD Cents) Payout ratio
Source: Company data, Quam Securities
Sun King Power Electronics (580 HK)
2
The effective tax rate stood at 14.2%
NPM improved from 7.9% to 16.8%
13.2% above our estimate
164
4%
(41)
-71%
123
16%
(2)
T/A
125
13%
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
INDUSTRIAL
FY16 net profit increased by 131%
BUY
Sun King Power Electronics reported a 1.3x leap in net profit to RMB144mn beating our estimate by 13.2% on the back of a strong 39% GPM and rigid expense control. Revenue went up to RMB857mn, a 9.6% YoY growth. A final dividend of 1.5 HK cents was declared adding up to a full year dividend of 2.5 HK cents. The dividend payout ratio reached around 21.4% or a 1.4% dividend yield. We reiterate our BUY rating with a target price of HKD2.55 based on 13X FY18 PER for 39% upside potential. We will revisit our forecast after the post result roadshows tomorrow. The power transmission segment changing the game – This segment produced about 64% of its total revenue, compared with 38% of FY15. The higher GPM of 44% and rapid increase in the sales of HVDC and flexible DC products have brought up the overall GPM to 39% or 5 ppt higher YoY. With major tenders, including ZhangJiaKou global energy network exhibition district (張家口全球能源互聯網示範區), coming out, we expect that the company will have a good chance of winning more large contracts. Rigid cost control ensuring overall profitability – Operating expenses only grew by 2.11% to RMB197mn given the swift growth of the business. The finance cost was down to RMB17mn due to less bank borrowings with effective interest rate of 4.7%. The PBT has reached RMB171mn, representing a 116% YoY growth. The net margin hikes to 16.8% up by 8.8 ppt YoY, rendering a net income of RMB144mn. The net debt to equity ratio stood at 22.3% – The company has a net debt position of RMB224mn as at year-end FY16, improving the net debt to equity ratio from 25.7% as at end of 1H16. Working capital has increased to RMB705mn, or a 21.7% growth from that at end of 1H16. It is expected that a large amount of working capital would be needed should Sun King continue to win major projects due to the nature of its business model.
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
580 HK BUY HK$1.84 2.55 2.55 39% BUY
1.03 – 1.88 2.29 2,568.6 1,396.0 52.3 No No
Major Shareholders Xiang Jie Jiang Huicheng
34.68% 7.36%
Share Price Performance
Source: Bloomberg
Key Financials – Fiscal Year Ended December 31th (RMB mn) Revenue Growth Operating profit Growth Net profit Growth EPS (RMB Cents) PER (x) PBR (x) Dividend Yield Dividend Payout
FY14 517 (30.1%) (12) T/A (32) T/A (2.36) N/A 2.69 0.59% N/A
FY15 782 51.2% 104 T/A 62 T/A 4.50 36.50 2.55 0.54% 18.6%
FY16 857 9.6% 171 64.4% 144 131.0% 10.37 15.84 2.50 1.36% 21.4%
FY17E 1,207 40.8% 260 52.0% 173 38.2% 12.53 13.11 1.96 2.34% 25%
FY18E 1,513 25.4% 350 34.8% 240 38.6% 17.37 9.46 1.68 3.25% 25%
Kevin Sun : +852 2971 5439 : [email protected]
Source: Company data, Quam Securities
1
Sun King’s results comments Year ended 31 December (RMB mn)
2015
2016
Reported
Reported
782
857
(515)
(523)
2%
267
334
25%
Revenue Cost of goods sold Gross profit Other income and gains, net
YoY 10%
Comments Slightly below expectations
2016 Forecast
vs Forecast
924
-8%
(564)
-8%
GPM improved from 34% to 39%
360
-8%
16
52%
Higher marketing cost than expected
(65)
-17%
30
33
10%
Selling and distribution expenses
(63)
(78)
24%
Administration expenses
(75)
(80)
7%
(71)
-11%
R&D expenses
(31)
(34)
10%
(37)
9%
Other operating expenses
(30)
(5)
-83%
(12)
-140%
Operating profit
104
170
64%
191
-11%
(7)
18
T/A
(2)
T/A
(18)
(17)
6%
(25)
-47%
Share of P/L in JV or Associate Finance costs Profit before tax
79
171
116%
(18)
(24)
33%
Profit after tax
61
147
140%
Minority interest
(1)
3
T/A
Attributable profit to shareholders
62
144
131%
EPS (RMB Cents)
4.50
10.37
130%
FD-EPS (RMB Cents)
4.50
10.13
125%
1.00
2.50
150%
18.6%
21.4
Taxation
DPS (HKD Cents) Payout ratio
Source: Company data, Quam Securities
Sun King Power Electronics (580 HK)
2
The effective tax rate stood at 14.2%
NPM improved from 7.9% to 16.8%
13.2% above our estimate
164
4%
(41)
-71%
123
16%
(2)
T/A
125
13%
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
