yum cha 飲茶 - chinastock.com.hk cha 飲茶 march 23 ... higher allocation by its largest...

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Yum Cha 飲茶 March 23, 2016

Source: Bloomberg

INDICES Closing DoD%

Hang Seng Index 20,666.8 (0.1)

HSCEI 8,900.2 (0.3)

Shanghai COMP 2,999.4 (0.6)

Shenzhen COMP 1,880.8 (0.3)

Gold 1,248.3 0.4

BDIY 398.0 -

Crude Oil, WTI(US$/BBL) 41.5 (0.2)

Crude Oil, BRENT(US$/BBL) 41.8 0.6

HIBOR, 3-M 0.6 0.4

SHIBOR, 3-M 2.8 0.1

RMB/USD 6.5 0.1

RESEARCH NOTES

COWELL [1415.HK; HK$3.02; BUY] - Cowell e Holdings’ (Cowell) management highlighted that order visibility is low but that there is growth potential from high resolution camera modules

(CMs) and rear CMs, which offer higher selling prices and gross margins. Currently, Cowell is

the only CM supplier of both front-end CMs and rear CMs to its largest customer, and its pro-

duction capacity scalability enables Cowell to outperform its peers in terms of utilization rate

and profitability. The Company should deliver solid earnings growth of 11.1%/11.3% in 2016E

and 2017E, respectively. We believe the current valuation of 4.8x 2016E still looks reasonable

compared with its peers. Higher allocation by its largest customer and increasing sales to LG

and Samsung are share price catalysts. We maintain a BUY rating with a new target price of

HK$3.79 based on 6x 2016 PER.

CHINA MEDICAL SYSTEM [0867.HK; HK$10.68; BUY] - CMS’s 2015 results were largely in line with expectations: revenue grew 20.7% YoY to RMB3,554.4m and core net profit grew

20.4% YoY to RMB827.9m. In general, we expect the core products to start to deliver slower

growth than in previous years due mainly to the large base effect and relative maturity of the

products. We believe the introduction of new products will become a vital part of the future

growth of the company. We expect core EPS to grow 40.3% in 2016E, owing to a significant

contribution from newly acquired products, and 18.5% in 2017E. We maintain a BUY rating on

CMS with TP unchanged at HK$14.29. The TP implies 2016E/17E PER of 21.4x/18.0x.

SHANDONG WEIGAO [1066.HK; HK$5.18; BUY] - Weigao’s 2015 revenue and core net profit were largely in line with expectations. Revenue grew 12.1% YoY and core net profit grew

16.8% YoY. For 2016, the company targets around 12% revenue growth, and with expected

operating leverage after the completion of the Company’s plant relocation, we expect net profit

to grow 17.7% in 2016 and 2015-18E core EPS CAGR of 17.6%. We maintain our BUY rating

on the company and TP of HK$6.78. Our target price implies 2016E/17E PER of 19.0x/16.1x.

CTCM [0570.HK; HK$4.07; BUY] - We believe the market has overreacted to the reported stagnant growth of the TCM finished drug business of CTCM. With the conservative assumption

that revenue growth will be in line with the industry growth rate, we still expect revenue to dou-

ble in 2016E from full-year consolidation of CCMG business and grow another 14.5% in 2017E.

Therefore, we expect core EPS to grow 93.2%/16.1% in 2016E/17E, respectively. The current

share price level should already reflect the expected weakness in the TCM finished drug indus-

try. We maintain a BUY rating on CTCM and have adjusted our TP from HK$6.18 to HK$5.45

based on our DCF model (WACC: 10.1%, terminal growth: 4%). Our TP implies 2016E/17E

PER of 16.2x/14.0x.

CSCI [3311.HK; HK$11.16; BUY] - As usual, CSCI reported net profit growth of >20% in 2015

and maintained its guidance of >20% profit growth this year, driven by more public-private part-

nership (PPP) projects. It is encouraging to see the Company reported net operating cash in-

flow in 2015 and management expects operating cash flow to remain a net inflow in the coming

years. Therefore, there is no plan for share placement. Given the muted share price perfor-

mance after the results release yesterday, we believe investors are looking for new catalysts,

especially asset injections, but there is no update at the moment. We slightly lowered our

2016E EPS by 3% after some housekeeping adjustments and the DCF-based target price was

adjusted from HK$17 to HK$16.50 accordingly (13.1x 2016E PER, 9.5% WACC, 2% terminal

growth). Reiterate BUY.

CHINA AIRCRAFT LEASING [1848.HK; HK$7.45; NOT RATED] - The Company’s 2H15 net

growth was only 10% YoY due to only 6% growth in other income because it postponed some

cases of realization. Management explained that since the unexpected RMB depreciation in

August 2015, there has been strong demand for US$ assets, and therefore, the Company be-

lieves it can earn more from realization this year thanks to higher pricing. Management is confi-

dent in completing more realizations in 2016. The Company’s fleet size at end-2015 was 63,

which met the target number announced in its 1H15 results release. The total delivery number

this year is 17 (revised up from August 2015 guidance of 12) if there are no pop-up orders.

Based on the Company’s business targets, we believe it should be able to achieve >HK$500m

net profit comfortably in 2016. Based on HK$500m net profit (31.5% growth), it is trading at

10.2x 2016E PER on fully diluted basis, which looks undemanding considering the high growth.

DATA RELEASES DUE THIS WEEK

03/21-25 MNI Consumer Sentiment

03/21-25 Bloomberg Mar. China Economic

03/21-25 China January Property Prices

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Cowell e Holdings [1415.HK]

Cowell e Holdings (Cowell) reported 2015 results which were higher than our expectations and

at the higher end of the pre-announced guided range. Management highlighted that order visibil-

ity is low but that there is growth potential from high resolution camera modules (CMs) and rear

CMs, which offer higher selling prices and gross margins. Currently, Cowell is the only CM sup-

plier of both front-end CMs and rear CMs to its largest customer, and its production capacity

scalability enables Cowell to outperform its peers in terms of utilization rate and profitability. The

Company’s new CEO mentioned during the results presentation that he is leading Cowell to

expand its product portfolio and diversify its customer base. We expect the Company to release

a new product roadmap and corporate strategy later this year, which may offer an opportunity

for long-term investors to re-assess Cowell. We raised our earnings forecasts for 2016F and

2017F. The Company should deliver solid earnings growth of 11.1%/11.3% in 2016E and

2017E, respectively. We believe the current valuation of 4.8x 2016E still looks reasonable com-

pared with its peers. Higher allocation by its largest customer and increasing sales to LG and

Samsung are share price catalysts. Maintain BUY with a new target price of HK$3.79 based on

6x 2016 PER.

Investment Highlights

2015 results highlights. Cowell’s 2015 net profit was US$60.7m, which was higher than

our expectations and at the high end of the pre-announced guidance. Turnover of US$980.2m, up 10.6% YoY, was also higher than our expectations of US$870.2m. The gross margin of 14.0% was higher than our expectations (13.3%), due partly to re-classification of R&D expenses. Cowell’s total CM shipments for 2015 were up 2% YoY to 197.6m units, which was mainly due to faster growth in sales of flip-chip CMs, as COB CMs to LG dropped in 2015. Cowell is in a net cash position. The Company didn’t declare a final dividend as the board wants to conserve resources to support the execution of the new CEO’s corporate strategy.

ASP movement to drive growth in 2016. Management highlighted that visibility is low but

it still sees growth potential from high resolution CMs and rear CMs, which offer higher ASPs and margins. We still expect Cowell to report top line growth in 2016 due to a) rising ASPs, b) growth in shipments to LG & Samsung, and c) stable output of flip-chip CMs. Shipments of CMs for the iPhone SE will start in Apr 2016. The news flow from Cowell’s peers is turning more in line with the guidance from Cowell management. The CAPEX for 2016 is about US$39m, which is much lower than our original expectations of about US$90, as the Company aims to improve its utilization rate before further expansion.

Removing concentration risk. Cowell’s new CEO reiterated the view that he is leading

the Company in expanding its product portfolio and diversifying its customer base by lever-aging his expertise in the semi-conductor industry. Cowell is also expanding its product development team. We expect Cowell to release its new corporate strategy and product roadmap later this year, which may offer an opportunity for long-term investors to reassess the Company.

Upward earnings adjustment. We revised upward our net profit forecasts for 2016 and

2017 by 14.8% and 9.5%, respectively, owing to the 26.7% and 18.8% upward revision in turnover of flip-chip CMs.

Mark Po, CFA — Senior Analyst

(852) 3698-6318

[email protected]

Wong Chi Man, CFA — Head of Research

(852) 3698-6317

[email protected]

TMT Sector-Software 2015 results better than expected. Sentiment is improving despite low visibility.

BUY

Close: HK$3.02 (Mar 22, 2016)

Target Price: HK$3.79 (+25.6%)

Share Price Performance

Market Cap US$324m

Shares Outstanding 832m

Auditor KPMG

Free Float 28.8%

52W range HK$2.11-4.73

3M average daily T/O US$2.8m

Major Shareholding Chairman (45%)

Hahn & Co. (26%)

March 23, 2016

Source: Bloomberg, CGIS Research

Key Financials

(in USDm)2013 2014 2015 2016E 2017E

Revenue 813.9 886.5 980.2 1,070.4 1,205.6

Change (YoY %) 53.3 8.9 10.6 9.2 12.6

Gross Profit 103.2 112.1 136.9 146.9 165.4

Gross Margin % 12.7 12.6 14.0 13.7 13.7

Net Profit 50.2 53.2 60.7 67.4 75.0

Net Margin % 6.2 6.0 6.2 6.3 6.2

EPS (Basic) 0.07 0.07 0.07 0.08 0.09

Change (YoY %) 200.9 6.0 2.6 11.1 11.3

DPS $0.000 $0.000 $0.000 $0.012 $0.018

ROE (%) 44.4 32.0 25.4 21.1 19.8

Dividend Yield (%) - - - 3.14 4.66

PER (x) 5.8 5.4 5.3 4.8 4.3

PBR (x) 2.1 1.5 1.1 0.9 0.8

FCF Yield (%) 1.60% 3.70% 1.66% 1.54% 2.01%

Capex (m) (15.8) (21.5) (36.9) (36.9) (51.7)

Free cash flow per share 0.0 0.1 0.1 0.0 0.1

Net Gearing (%) 54.8 5.0 Net Cash Net Cash Net Cash

0

50

100

150

200

250

0

2

4

6

8

10

Mar15 May15 Jul15 Sep15 Nov15 Jan16

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

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Figure 1: Results highlights

Source: Company, CGIS Research

Figure 2: Key assumptions for Cowell

Source: Company, CGIS Research

2015 Results Highlights (US$ m) 1H 2014 2H 2014 1H 2015 2H 2015

Revenue 279 607 460 520

Cost of sales and services (249) (526) (400) (443)

Gross profit 30 82 60 77

Other income and other gains and losses 2 0 2 1

Distribution and selling expenses (2) (4) (2) (5)

Administrative expenses (16) (18) (26) (28)

Finance costs (1) (2) (1) (1)

JV & Associates 0 0 0 0

Profit before tax 13 58 33 44

Income tax expense (3) (11) (7) (10)

MI 0 0 0 0

Profit for the period 10 47 26 34

Owners of the Company 10 47 26 34

Gross margin (%) 10.8 13.5 13.0 14.8

Operating margin (%) 5.0 9.9 7.4 8.6

Net Margin (%) 3.5 7.7 5.7 6.6

2011 2012 2013 2014 2015 2016F 2017F

Turnover (USDm)

Flip-chip 0 225.0 588.5 646.8 802.5 844.9 950.1

COB 306.8 289.5 214.3 227.6 164.9 181.4 181.4

Optical components 16.4 13.0 11.1 12.1 12.8 14.1 14.1

SiP Products 1.1 3.5 0 0 0 30.0 60.0

Total 323.1 527.5 813.9 886.5 980.2 1,070.4 1,205.6

YoY Change (%)

Flip-chip 161.6 9.9 24.1 5.3 12.5

COB (5.6) (26.0) 6.2 (27.5) 10.0 0

Optical components (14.4) 9.0 5.8 10.0 0

SiP Products - 100.0

Total 63.3 54.3 8.9 10.6 9.2 12.6

Gross margin (%)

Flip-chip 6.0 13.5 13.8 15.0 14.9 14.9

COB 9.9 8.5 9.2 9.0 8.0 8.0 8.0

Optical components 33.2 34.2 37.2 19.9 27.5 27.5 27.5

0 0 0 0 0 9.0 15.0

Net margin (%) 5.9 3.1 6.2 6.0 6.2 6.3 6.2

Cost (USDm)

S,G&A (14.3) (25.9) (34.4) (39.2) (57.2) (62.5) (70.4)

Financial Expenses (1.0) (4.4) (5.2) (3.1) (1.6) (1.8) (2.0)

YoY Change (%)

S,G&A 80.5 33.0 14.0 45.9 9.2 12.6

Financial Expenses 363.9 17.9 (40.4) (47.9) 9.2 12.6

CAPEX (USDm) 8.7 50.7 15.8 21.5 36.9 36.9 51.7

Net Gearing (%) 50.7 148.8 54.8 5.0 Net Cash Net Cash Net Cash

Sales volume (m units) 105.3 146.8 197.6 193.4 197.4 203.3 213.5

ASP (US$) 2.9 3.5 4.1 4.5 4.9 5.0 5.3

YoY Change (%)

Sales volume 39.4 34.6 (2.1) 2.1 3.0 5.0

ASP 20.4 15.9 11.3 8.4 3.0 5.0

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Figure 3: Earnings projection

Sources: Company, CGIS Research

Income Statement (USDm) FY2013 FY2014 FY2015 FY2016F FY2017F Cash Flow Statement (USDm) FY2013 FY2014 FY2015 FY2016F FY2017F

Revenue 814 887 980 1,070 1,206 Net Income 68 70 78 86 96

Growth yoy% 53.3% 8.9% 10.6% 9.2% 12.6% Depreciation & Amort. 11 13 15 18 21

Gross Profit 103 112 137 147 165 Change in Working Capital (27) 22 (15) (29) (15)

Growth yoy% 124.3% 8.6% 22.1% 7.3% 12.6% Cash from Ops. 52 105 79 76 102

Selling General & Admin Exp. (34) (39) (57) (62) (70) Capital Expenditure (16) (22) (37) (37) (52)

Others Operating Expenses/Items (0) (3) (1) 2 1 Sale of Property, Plant, and Equipment - - - - -

Operating Income 68 70 78 86 96 Change in Investing Acitivities (1) (1) (12) 50 (8)

Growth yoy% n.a. n.a. n.a. n.a. n.a. Cash from Investing (16) (23) (48) 13 (59)

Interest Expense (5.2) (3.1) (1.6) (1.8) (2.0) Net increase in bank borrowings (20) (30) (51) 4 6

Interest and Invest. Income 0.6 0.3 0.4 0.8 0.9

Income/(Loss) from Affiliates 0 0 0 0 0 Issuance of Common Stock 0 0 41 0 0

Other Non-Operating Inc. (Exp.) 0 0 0 0 0 Common Dividends Paid 0 0 0 0 (10)

Impairment of Goodwill - - - - - Special Dividend Paid - - - - -

Gain (Loss) On Sale Of Invest. - - - - - Other Financing Activities (10) (20) (21) (23) (26)

Gain (Loss) On Sale Of Assets - - - - - Cash from Financing (30) (50) (31) (19) (30)

Income Tax Expense (14) (14) (16) (18) (20)

Minority Int. in Earnings 0 0 0 0 0 Net Change in Cash 6 32 (1) 69 12

Net Income 50 53 61 67 75

Growth yoy% 200.9% 6.0% 14.1% 11.1% 11.3%

Balance Sheet (USDm) FY2013 FY2014 FY2015 FY2016F FY2017F Ratios FY2013 FY2014 FY2015 FY2016F FY2017F

ASSETS Profitability

Cash And Equivalents 45 82 79 146 157 Return on Assets % 12.9% 11.7% 12.7% 13.6% 13.1%

Receivables 167 221 106 115 130 Return on Capital % 22.6% 20.6% 20.4% 19.1% 18.1%

Inventory 55 66 101 131 147 Return on Equity % 44.4% 32.0% 25.4% 21.1% 19.8%

Other Current Assets 26 21 43 0 0

Total Current Assets 294 390 329 392 434 Margin Analysis

Net Property, Plant & Equipment 96 103 113 132 162 Gross Margin % 12.7% 12.6% 14.0% 13.7% 13.7%

Long-term Investments - - - - - SG&A Margin % 4.2% 4.4% 5.8% 5.8% 5.8%

Other Intangibles - - - - - EBIT Margin % 8.5% 8.0% 8.0% 8.2% 8.0%

Deferred Tax Assets, LT - - - - - EBITDA Margin % 10.0% 9.6% 9.8% 10.0% 10.0%

Other Long-Term Assets 10 13 11 11 12 Net Income Margin % 6.2% 6.0% 6.2% 6.3% 6.2%

Goodwill - - - - -

Accounts Receivable Long-Term - - - - - Asset Turnover

Total Long Term Assets 106 116 123 143 174 Total Asset Turnover 2.0x 1.8x 2.2x 2.0x 2.0x

Total Assets 400 506 453 535 608 Fixed Asset Turnover 7.7x 7.6x 7.9x 7.5x 6.9x

Accounts Receivable Turnover 5.0x 4.6x 6.0x 9.7x 9.8x

LIABILITIES & EQUITY Inventory Turnover 14.8x 13.4x 9.7x 8.2x 8.2x

Accounts Payable 123 210 115 125 141

Accrued Exp. - - - - - Liquidity

Short-term Borrowings 122 92 41 45 50 Current Ratio 1.1x 1.2x 2.0x 2.2x 2.1x

Curr. Port. of LT Debt - - - - - Quick Ratio 0.9x 1.0x 1.4x 1.4x 1.4x

Curr. Income Taxes Payable - - - - - Avg. Days Sales Out. 75.1 91.0 39.3 39.3 39.3

Unearned Revenue, Current - - - - - Avg. Days Inventory Out. 24.7 27.2 37.7 44.6 44.6

Other Current Liabilities 15 10 11 12 13 Avg. Days Payable Out. 68.7 78.4 70.2 47.4 46.7

Total Current Liabilities 260 312 167 182 205 Avg. Cash Conversion Cycle 48.1 35.7 40.4 48.3 48.3

Long-Term Debt 0 0 0 0 0 Net Debt to Equity 55% 5% Net Cash Net Cash Net Cash

Def. Tax Liability, Non-Curr. 0 1 0 0 0

Other Non-Current Liabilities 1 1 0 0 0 Growth Over Prior Year

Total Liabilities 260 313 167 182 205 Total Revenue 53.3% 8.9% 10.6% 9.2% 12.6%

Common Stock 3 3 3 3 3 Net Income 200.9% 6.0% 14.1% 11.1% 11.3%

Additional Paid In Capital - - - - - Payout Ratio % 0.0% 0.0% 0.0% 15.0% 20.0%

Retained Earnings 137 189 282 350 400

Treasury Stock

Comprehensive Inc. and Other - - - - -

Minority Interest 0 0 0 0 0

Total Equity 140 192 286 353 403

Total Liabilities And Equity 400 506 453 535 608

4

Figure 4: Peer comparison

Sources: Bloomberg, Company, CGIS Research estimates for covered stocks; Cowell, Sunny Optical, Truly, Q-Tech, FIH and Ju Teng: P/B, ROE,

ROA and Dividend Yield for 2015 and 2016F

Ticker Company

Price Market Cap 2015F 2016F 2017F 2015F 2016F 2017F 2014 2015F 2014 2015F 2014 2015F 2014 2015F

Lcy US$m x x x x x x x x % % % % % %

1415 HK Cowell E Holdings Inc 3.02 323.9 5.3 4.8 4.3 3.0 2.1 1.8 1.1 0.9 25.4 21.1 12.7 13.6 0.0 1.02382 HK Sunny Optical Tech 22.7 3211.6 26.8 20.1 16.2 14.1 13.7 11.2 5.4 4.5 21.5 25.3 11.5 14.0 1.1 1.52018 HK Aac Technologies Holdings In 55.0 8702.7 18.1 15.3 13.3 14.4 12.0 10.4 5.8 5.0 27.2 29.8 20.8 21.1 n.a. 1.8732 HK Truly International Holdings 2.0 742.4 6.8 7.2 6.9 4.2 4.6 4.6 0.8 0.7 16.0 10.0 4.6 4.3 3.5 4.21478 HK Q Technology Group Co Ltd 1.3 169.7 7.4 6.5 6.0 5.0 4.4 3.9 1.0 0.9 28.1 12.3 9.6 6.2 3.8 2.3698 HK Tongda Group Holdings Ltd 1.5 1122.4 12.1 9.0 7.5 8.7 7.0 6.0 2.1 1.8 18.7 22.0 9.4 10.9 2.5 3.4285 HK Byd Electronic Intl Co Ltd 4.7 1360.0 9.0 7.0 6.3 3.3 2.7 2.5 0.9 0.8 9.7 9.2 4.7 5.4 0.0 1.02038 HK Fih Mobile Ltd 3.2 3278.1 14.0 13.0 12.2 1.2 1.4 1.3 0.9 0.8 6.0 5.9 3.6 4.0 0.0 2.9633 HK China All Access Holdings 2.8 653.4 n.a. n.a. n.a. n.a. n.a. n.a. 1.4 n.a. 9.7 n.a. 1.2 n.a. 2.8 n.a.3336 HK Ju Teng International Hldgs 4.0 570.6 5.2 4.4 3.5 4.2 3.5 2.8 0.7 0.6 13.4 14.6 5.5 6.4 3.8 4.6Average 12.4 10.3 9.0 6.9 6.2 5.3 2.1 1.9 16.7 16.1 7.9 9.0 2.2 2.7763 HK Zte Corp-H 14.2 9256.7 12.8 11.2 10.1 9.7 8.6 8.1 1.4 1.6 11.1 13.6 3.4 2.9 n.a. 1.82618 HK Tcl Communication Tech Hldgs 5.5 894.9 6.2 6.5 6.3 5.3 5.2 5.3 1.8 1.4 31.2 24.6 5.7 5.6 9.4 5.9992 HK Lenovo Group Ltd 6.4 9126.2 41.1 9.3 7.6 13.3 4.9 4.3 3.2 2.4 28.8 -2.8 -0.7 0.2 n.a. 2.92369 HK Coolpad Group Ltd 1.3 852.5 14.3 12.8 11.7 6.7 6.3 5.6 0.7 0.8 16.8 39.7 19.6 15.0 0.0 1.92000 HK Sim Technology Group Ltd 0.4 132.0 n.a. n.a. n.a. n.a. n.a. n.a. 0.5 n.a. 1.3 n.a. 1.1 n.a. 0.0 n.a.Average 18.6 10.0 8.9 8.8 6.2 5.8 1.5 1.6 17.8 18.8 5.8 5.9 3.1 3.1002456 CH Shenzhen O-Film Tech Co-A 25.0 3966.8 45.9 30.3 23.2 25.4 19.3 15.7 4.2 4.0 15.0 9.2 3.1 n.a. n.a. 0.4002189 CH Lida Optical & Electronic -A 34.5 1059.0 n.a. n.a. n.a. n.a. n.a. n.a. 13.2 n.a. 2.7 n.a. 2.1 n.a. n.a. n.a.002273 CH Zhejiang Crystal-Optech -A 34.2 2299.8 87.7 53.4 39.2 n.a. n.a. n.a. 5.6 7.1 12.1 7.9 6.0 n.a. n.a. 0.4600071 CH Phenix Optical Co Ltd-A 25.1 918.8 n.a. n.a. n.a. n.a. n.a. n.a. 11.6 n.a. -18.6 n.a. 1.8 n.a. 0.0 n.a.Average 66.8 41.9 31.2 25.4 19.3 15.7 8.7 5.6 2.8 8.5 3.3 n.a. 0.0 0.4011070 KS Lg Innotek Co Ltd 84200.0 1719.2 13.3 9.7 9.9 3.8 3.6 3.8 1.1 1.0 7.5 8.4 2.3 n.a. n.a. 0.4091700 KS Partron Co Ltd 12200.0 570.0 11.1 9.6 8.6 6.1 5.7 5.5 2.0 1.7 16.3 16.2 7.8 n.a. n.a. 2.5009150 KS Samsung Electro-Mechanics Co 59300.0 3821.2 19.1 16.8 16.5 4.7 4.5 4.3 1.1 1.0 11.1 5.3 0.1 n.a. n.a. 1.02301 TT Lite-On Technology Corp 38.1 2743.2 12.7 11.5 10.5 4.7 4.4 3.8 1.2 1.1 8.7 8.9 2.9 n.a. n.a. 5.34915 TT Primax Electronics Ltd 39.8 542.2 9.6 8.3 7.3 5.0 4.3 3.9 1.9 1.6 18.5 17.4 4.9 n.a. n.a. 5.86753 JP Sharp Corp 129.0 1965.2 n.a. n.a. 25.9 16.4 9.6 8.5 n.a. 2.2 7.2 -127.2 -16.4 n.a. n.a. 0.03008 TT Largan Precision Co Ltd 2600.0 10768.8 14.2 11.5 9.3 9.7 7.9 6.3 5.5 4.4 50.7 35.3 33.3 n.a. n.a. 2.73406 TT Genius Electronic Optical Co 61.1 188.2 n.a. 107.2 n.a. 15.7 5.1 n.a. 0.9 0.8 -8.5 -13.6 -6.8 n.a. n.a. n.a.106520 KS Digital Optics Co Ltd 7810.0 132.4 n.a. n.a. n.a. n.a. n.a. n.a. 1.6 n.a. -8.1 n.a. -11.5 n.a. n.a. n.a.053450 KS Sekonix Co Ltd 16200.0 146.8 9.4 8.7 n.a. 6.3 5.9 n.a. 1.3 1.1 12.3 12.6 3.5 n.a. n.a. 0.64901 JP Fujifilm Holdings Corp 4505.0 20761.2 17.3 15.5 14.1 7.1 6.8 6.5 1.0 0.9 4.2 5.5 3.1 3.7 n.a. 1.5Average 13.3 22.1 12.8 8.0 5.8 5.3 1.7 1.6 10.9 -3.1 2.1 3.7 n.a. 2.2

PE EV/EBITDA P/B ROE ROA Div yield

1

China Medical System [867.HK]

BUY

Close: HK$10.68 (Mar 22, 2016)

Target Price: HK$14.29(+34.3%)

Price Performance

Market Cap US$3,425.9m

Shares Outstanding 2,487.2m

Auditor Deloitte

Free Float 49.0%

52W range HK$7.78-15.54


Major Shareholding Lam Kong (46.4%)

Sources: Company, Bloomberg

Cyrus Ng, CFA—Analyst

(852) 3698-6275

[email protected]

Wong Chi Man, CFA—Head of Research

(852) 3698-6317

[email protected]


China Healthcare Sector CMS’s 2015 results were largely in line with expectations: revenue grew 20.7% YoY to RMB3,554.4m and core net profit grew 20.4% YoY to RMB827.9m. In general we expect the core products to start to deliver slower growth than in previous years due mainly to the large base effect and relative maturity of the products. We believe the introduction of new products will become a vital part of the future growth of the com-pany. We expect core EPS to grow 40.3% in 2016E, owing to a significant contribu-tion from newly acquired products, and 18.5% in 2017E. We maintain a BUY rating on CMS with TP unchanged. The TP implies 2016E/17E PER of 21.4x/18.0x.


Slow down in growth of core products: Revenue growth from the top seven

products under the academic promotion model grew 15.3% YoY and together they accounted for 72.3% of total revenue in 2015. The growth was the slowest in the past five years. Management explained this was due to (1) slower growth in the whole healthcare industry, and (2) a diversified sales effort because of new products introduced in 2015. However, we believe the relative maturity of core products and high base effect are the main reasons behind the slowdown. We expect around 15% growth from the core products over the next few years.

Acquisition of new products to become the new growth strategy: With the

expected slowdown in sales of core products and increasing opportunities to acquire high quality products from MNCs, we believe the acquisition of new products has become the main growth strategy for CMS. In 2015, the company acquired 7 new products and launched 4 of them in the market. The 4 new products accounted for 8% of total revenue in 2015. Looking forward, with (1) the recent significant acquisition of Plendil, (2) the launch of the remaining 3 new products, and (3) faster growth of the 4 newly launched products, new products will account for 28.9% of total revenue in 2016.

Mild ASP pressure expected from drug tenders: Core products faced on

average around 5% ASP pressure in the latest tenders. On the whole, manage-ment expects 5 to 10% ASP pressure for the coming round of drug tenders, which should have a relatively small impact on the company.

Slight adjustment in earnings forecast: We slightly turned down our

2016E/17E revenue and net profit forecast by 2.6%/2.5% and 1.2%/2.6% re-spectively mainly due to a slower growth assumption for core products. Never-theless, we still expect core net profit to grow 40.3% and 18.5% in 2016E and 2017E, respectively. 2015-2018E EPS CAGR is 25.6%.

2015 results takeaway: new products and acquisition to aid growth,

maintain BUY

March 23, 2016

0

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0123456789

10111213141516

Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016

(HK$m)(HK$)


Y/E Dec 31 2014A 2015A 2016E 2017E 2018E

Turnover (RMB m) 2,945 3,553 5,384 6,556 7,662

Core net profit (RMB m) 833 997 1,411 1,671 1,990

Core net margin (%) 28.3 28.1 26.2 25.5 26.0

Core EPS (RMB) 0.34 0.40 0.57 0.67 0.80

% Change 28.9 17.2 40.3 18.5 19.1

PER (x) 26.1 22.3 15.9 13.4 11.3

PBR (x) 5.6 4.2 3.6 3.1 2.6

ROE (%) 20.9 18.6 22.4 22.7 23.0

EV/EBITDA (x) 23.8 19.7 13.3 11.1 9.2

2

Figure 1: Revenue breakdown

Source: CGIS Research

77.2% 76.9%72.0% 75.7% 72.3%

55.0% 51.9%

8.0%34.4% 35.8%

22.8% 23.1%28.0% 24.3% 19.7%

10.6% 12.3%

0%

10%

20%

30%

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70%

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100%

2011 2012 2013 2014 2015 2016E 2017E

Top seven products % New products % Other products %

2,249 2,945 3,553 5,384 6,556

28.1%31.0%

20.7%

51.5%

21.8%

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2013 2014 2015 2016E 2017E

RMBm

Revenue YoY (RHS)

Figure 2: Revenue growth


646 833 997 1,411 1,671

22.0%

28.9%

19.7%

41.5%

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2013 2014 2015 2016E 2017E

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Figure 3: Core net profit growth


3

Figure 4: Peer valuation


Price Mkt Cap

Company Ticker HK$ HK$m 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E

CMS 867 10.68 26,564 22.3 15.9 13.4 4.2 3.6 3.1 18.6 22.4 22.7 19.7 13.3 11.1

Fosun Pharm-H 2196 20.55 54,241 18.1 17.9 15.2 2.3 2.2 1.9 13.5 12.9 14.1 29.1 22.9 19.5

Sino Biopharm 1177 6.00 44,473 32.4 24.2 20.5 6.3 5.4 4.3 21.0 25.2 25.7 17.9 13.7 11.1

CSPC 1093 6.91 40,845 31.6 24.3 19.9 4.9 4.5 4.0 16.2 19.5 20.9 18.6 14.4 12.1

Livzon-H 2186 5.94 19,727 27.6 20.4 17.0 3.0 2.8 2.4 17.5 14.9 15.1 17.9 15.1 12.1

Luye 1513 33.25 18,044 20.0 17.7 15.1 2.9 2.5 2.2 15.9 15.2 15.5 18.1 14.7 12.5

Shanghai Fudan-H 1349 6.14 5,667 42.8 32.8 28.1 7.2 6.0 5.2 20.3 20.8 22.0 27.5 23.0 18.9

Lee's Pharm 2348 5.72 4,590 18.8 13.3 10.8 3.2 2.7 2.3 15.2 18.0 19.1 12.5 8.2 6.2

Pionees Pharm 1681 4.04 3,993 15.6 12.7 10.3 2.3 2.2 1.9 15.9 17.6 19.5 N/A N/A N/A

Dawnrays 950 5.90 3,462 16.7 14.4 12.9 3.4 2.9 2.4 21.4 22.1 20.8 N/A N/A N/A

Consun 1345 1.74 2,320 6.4 7.7 6.3 1.5 1.4 1.3 24.5 20.1 22.7 5.1 7.6 6.6

Simple average 22.9 18.3 15.4 3.8 3.3 2.8 18.2 19.0 19.8 18.5 14.8 12.2

Weighted average 25.3 20.3 17.1 4.1 3.6 3.1 17.1 18.7 19.5 20.4 15.8 13.2

PER(x) PBR(x) ROE(%) EV/EBITDA (x)

4

Key financials

Source: Company data, CGIS Research estimates

Balance Sheet Profit and Loss

As at Dec 31 Year as of Dec 31

(RMBm) (RMBm)

Cash & cash equiv alents 244 509 776 664 976 Direct model 2,230 2,854 4,515 5,489 6,388

Inv entories 189 385 339 402 446 Agency model 635 613 685 767 855

Accounts receiv able 876 1,164 1,577 1,921 2,222 Others 80 86 183 300 420

Others 236 57 407 545 462 Revenue 2,945 3,553 5,384 6,556 7,662

Current assets 1,546 2,115 3,099 3,532 4,105 Cost of goods sold (1,291) (1,507) (2,338) (2,834) (3,302)

Property , plant and equipment 254 326 460 624 812 Gross profit 1,655 2,046 3,046 3,722 4,360

Intangible assets 441 1,026 3,034 3,187 3,359 Other gains / (losses) 240 22 53 68 78

Others 2,665 2,931 3,439 3,481 3,530 Marketing expenses (631) (814) (1,222) (1,552) (1,807)

Non-current assets 3,360 4,283 6,933 7,291 7,701 Admin expenses (152) (193) (327) (394) (459)

Operating profit 1,112 1,061 1,550 1,844 2,172

Total assets 4,905 6,398 10,032 10,823 11,806 Net interest income / (expense) 18 (14) (39) (60) (39)

JV, associate and others (1) 17 37 43 51

Accounts pay able 253 393 563 682 795 Pretax income 1,130 1,064 1,548 1,828 2,184

ST borrowings 484 464 1,887 2,576 2,160 Income taxes (87) (68) (128) (144) (176)

Others 52 47 1,141 52 52 Non-controlling interests 3 (1) (9) (13) (18)

Current liabilities 789 903 3,591 3,310 3,007 Net profit 1,046 996 1,411 1,671 1,990

Non-recurring items 213 (1) 0 0 0

Long-term debts 0 0 0 0 1 Core net profit 833 997 1,411 1,671 1,990

Others 126 142 151 153 158 EBIT 899 1,062 1,550 1,844 2,172

Long-term liabilities 126 142 151 153 158 EBITDA 942 1,140 1,751 2,152 2,527

Total liabilities 914 1,045 3,743 3,463 3,165 EPS (RMB) 0.433 0.404 0.567 0.672 0.800

Core EPS (RMB) 0.345 0.404 0.567 0.672 0.800

Shareholders' equity 3,991 5,296 6,225 7,283 8,546 DPS (RMB) 0.137 0.160 0.226 0.267 0.318

Minority interests 0 56 65 78 95

Total equity 3,991 5,352 6,290 7,360 8,641

Cash Flow Key Ratios

Year ended Dec 31 Year to Dec 31 2014A 2015E 2016E 2017E 2018E

(RMBm) Growth (% YoY)

Prof it bef ore tax 1,130 1,064 1,548 1,828 2,184 Sales 31.0 20.7 51.5 21.8 16.9

Depr & amortization 42 78 201 308 355 EBIT 34.0 17.7 45.2 18.8 17.6

Change in working cap. (34) (352) (189) (287) (232) EBITDA 33.1 20.6 53.0 22.7 17.3

Income tax paid (67) (74) (130) (143) (170) Core net prof it 28.9 19.7 41.5 18.5 19.1

Others (230) 4 4 18 (10) Core EPS 28.9 17.2 40.3 18.5 19.1

Operating cash flow 840 720 1,434 1,723 2,126

Profitability (%)

Capex (288) (735) (1,254) (1,714) (715) Gross margin 56.2 57.6 56.6 56.8 56.9

Change in other assets (648) 220 (1,077) (123) 107 EBIT margin 30.6 29.9 28.6 27.9 28.1

Investment cash flow (936) (516) (2,331) (1,837) (608) EBITDA margin 32.1 32.1 32.4 32.6 32.7

Core net prof it margin 28.3 28.1 26.2 25.5 26.0

Net change in debt 170 (20) 1,423 689 (416) ROA 17.0 15.6 14.1 15.4 16.9

Others (320) 303 (537) (688) (790) ROE 20.9 18.6 22.4 22.7 23.0

Financing cash flow (150) 283 886 2 (1,206) Balance sheet ratios

Current ratio (X) 2.0 2.3 0.9 1.1 1.4

Net change in cash (246) 487 (10) (112) 312 Quick ratio (X) 0.6 0.6 0.5 0.4 0.5

Cash ratio (X) 0.3 0.6 0.3 0.2 0.3

Trade & bill receiv ables day s 107.5 104.8 92.9 97.4 98.7

Trade & bill pay able day s 70.3 78.1 74.6 80.2 81.7

Inv entory turnov er day s 50.4 69.6 56.5 47.7 46.9

Total debt to equity ratio (%) 12.1 8.8 30.3 35.4 25.3

Net debt / (cash) to equity (%) 0.8 (0.8) 11.8 19.2 8.8

2018E2018E

2018E

2014A 2015A 2016E 2017E

2014A 2015E 2016E 2017E

2014A 2015A 2016E 2017E

1

Shandong Weigao Group [1066.HK]

BUY

Close: HK$5.18 (Mar 22, 2016)

Target Price: HK$6.78(+30.8%)

Price Performance

Market Cap US$3,099.4m


Auditor Deloitte

Free Float 38.1%

52W range HK$4.11-8.50


Major Shareholding Weigao Holding & man-

agement (50.7%)



(852) 3698-6275

[email protected]


(852) 3698-6317

[email protected]


China Healthcare Sector Weigao’s 2015 revenue and core net profit were largely in line with expectations. Revenue grew 12.1% YoY and core net profit grew 16.8% YoY. For 2016, the com-pany targets around 12% revenue growth, and with expected operating leverage after the completion of the Company’s plant relocation, we expect net profit to grow 17.7% in 2016 and 2015-18E core EPS CAGR of 17.6%. We maintain our BUY rat-ing on the company and TP of HK$6.78. Our target price implies 2016E/17E PER of 19.0x/16.1x.


2015 results review: Revenue grew 12.1% YoY to RMB5,918.9m, and core net

profit grew 16.8% YoY to RMB1,149.8m. Revenue from consumables, orthopae-dic products and haemodialysis products grew 9.8%, 11.1% and 26.0%, respec-tively, with each accounting for 73.4%, 11.1% and 15.5% of total revenue, re-spectively, in 2015. The gross margin improved 0.6ppt to 59.4%, driven mainly by changes in product mix and low oil prices. Excluding the impact of extraordi-nary items, core net margin improved from 18.6% to 19.4%.

Revenue growth guidance for 2016: The company is targeting 9% growth for

consumables, 13% growth for orthopaedic products and 23% growth for haemo-dialysis products. Overall, management is targeting 12% revenue growth in 2016.

Operating leverage to drive bottom line growth: The plant relocation was

completed in 2015. With the ramp up in production, increased utilization and a smaller CAPEX plan (RMB500-600m for 2016) compared to that of previous years, we expect operating leverage improvement to emerge, driving bottom line growth. As a result, we expect future net profit growth to outpace revenue growth.

Orthopaedic business to be listed in A-share market in 2016: After deciding

not to proceed with the spin-off on HKEx, the company is considering listing the business in the A-share market. Management explained the decision was based on two main factors: (1) higher valuations in the A-share market, (2) the effec-tiveness of the stock option stimulation plan.

Downward adjusted 2016E/17E net profit moderately: We adjusted our

2016E/17E revenue and net profit forecasts downwards by 3.4%/3.5% and 2.8%/3.2%, respectively, to better reflect the Company’s revenue targets. We still expect revenue to grow 12.9%/14.7% in 2016E/17E. Given the expected operating leverage improvement, we expect core net profit to grow 17.7%/18.1% in 2016E/17E. We expect 2015-18E core EPS CAGR to be 17.6%.

2015 results in line: stable revenue growth, operating leverage ex-

pected to add to net profit growth

March 23, 2016

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Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016

(HK$m)(HK$)


Y/E Dec 31 2014 2015 2016E 2017E 2018E

Turnover (RMB m) 5,278 5,919 6,685 7,669 8,746

Core net profit (RMB m) 985 1,150 1,353 1,598 1,870

Core net margin (%) 18.7 19.4 20.2 20.8 21.4

Core EPS (RMB) 0.22 0.26 0.30 0.36 0.42

% Change 13.6 16.8 17.7 18.1 17.0

PER (x) 21.5 18.4 15.6 13.2 11.3

PBR (x) 2.1 2.0 1.8 1.7 1.5

ROE(%) 10.0 10.8 11.6 12.5 13.2EV/EBITDA (x) 13.6 11.2 10.0 8.3 6.8

2

5,278

5,919

6,685

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2014 2015 2016E 2017E 2018E

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Revenue YoY (RHS)

Figure 1: Revenue growth


985

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1,598

1,870

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16.8%17.7% 18.1%

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Figure 2: Core net profit growth




Price Mkt Cap PER(x) PBR(x) ROE(%) EV/EBITDA (x)


Weigao 1066 5.18 23,188 18.4 15.6 13.2 2.0 1.8 1.7 10.8 11.6 12.5 11.2 10.0 8.3

Bloomage 963 14.66 5,295 21.5 16.9 14.2 4.2 3.4 2.7 22.7 23.2 21.0 15.7 12.2 9.8

Lifetech 1302 1.29 5,160 56.8 28.4 13.8 135.0 21.2 7.7 85.0 138.6 92.0 34.3 17.8 8.4

Microport 853 3.55 5,081 N/A 35.2 35.2 1.9 2.0 2.0 (0.8) 4.0 6.8 19.3 11.0 N/A

PW Medtech 1358 1.66 2,743 10.7 9.3 7.7 1.0 0.9 0.8 10.6 11.0 11.6 N/A N/A N/A

Simple average 26.9 21.1 16.8 28.8 5.9 3.0 25.7 37.7 28.8 20.1 12.7 8.8


3

Key financials



As at Dec 31 Year ended Dec 31

(RMBm) (RMBm)

Cash & cash equiv alents 2,786 3,712 3,836 4,450 5,350 Consumables 3,957 4,343 4,837 5,415 6,005

Inv entories 915 851 1,153 1,279 1,408 Orthopedics 592 658 698 827 975

Accounts receiv able 2,988 2,948 3,173 3,509 3,828 Blood purif ication products 729 919 1,149 1,427 1,766

Others 111 46 46 46 46 Revenue 5,278 5,919 6,685 7,669 8,746

Current assets 6,799 7,557 8,209 9,284 10,632 Cost of goods sold (2,174) (2,403) (2,746) (3,118) (3,520)

Property , plant and equipment 4,154 4,966 4,886 5,192 5,472 Gross profit 3,104 3,516 3,938 4,551 5,226

Intangible assets 14 10 7 4 1 Marketing expenses (1,417) (1,545) (1,675) (1,902) (2,155)

Others 1,103 986 1,047 1,063 1,088 Admin & other expenses (562) (686) (752) (859) (975)

Non-current assets 5,271 5,963 5,941 6,259 6,561 Operating profit 1,124 1,285 1,511 1,790 2,095

Other gains / (losses) 130 31 63 71 80

Total assets 12,070 13,519 14,150 15,543 17,193 Net interest income / (expense) 21 21 26 29 35

Share of results of JV & associates 0 (3) 10 13 16

Accounts pay able 1,677 1,571 1,760 1,919 2,118 Non-operating items 0 3 0 0 0

ST borrowings 271 370 322 358 406 Pretax income 1,276 1,336 1,611 1,903 2,226

Others 56 60 60 60 60 Income taxes (181) (187) (242) (285) (334)

Current liabilities 2,003 2,002 2,143 2,338 2,584 Non-controlling interests (10) (36) (16) (19) (22)

Net profit 1,085 1,113 1,353 1,598 1,870

Long-term debts 149 649 215 239 271

Others 38 82 0 0 0 Core net profit 985 1,150 1,353 1,598 1,870

Long-term liabilities 188 731 215 239 271

EBIT 1,124 1,285 1,511 1,790 2,095

Total liabilities 2,191 2,732 2,358 2,576 2,855 EBITDA 1,369 1,601 1,782 2,088 2,420

Shareholders' equity 9,848 10,658 11,647 12,803 14,152 EPS (RMB) 0.242 0.249 0.302 0.357 0.418

Minority interests 32 129 145 164 186 Core EPS (RMB) 0.220 0.257 0.302 0.357 0.418

Total equity 9,880 10,787 11,792 12,967 14,338 DPS (RMB) 0.066 0.075 0.091 0.107 0.125


Year ended Dec 31 Year ended Dec 31 2014A 2015E 2016E 2017E 2017E


Prof it bef ore tax 1,276 1,336 1,611 1,903 2,226 Sales 14.4 12.1 12.9 14.7 14.0

Depr & amortization 244 316 271 298 325 Operating prof it 5.6 14.2 17.6 18.4 17.1

Change in working cap. (524) (47) (294) (301) (250) EBITDA 9.3 17.0 11.3 17.2 15.9


Others (114) 28 (118) (42) (51) Core EPS 13.6 16.8 17.7 18.1 17.0

Operating cash flow 711 1,436 1,223 1,569 1,904 Profitability (%)

Gross margin 58.8 59.4 58.9 59.3 59.8

Capex (597) (650) (600) (600) (600) Operating margin 21.3 21.7 22.6 23.3 24.0

Change in other assets (22) 65 55 61 71 EBITDA margin 25.9 27.0 26.7 27.2 27.7

Investment cash flow (619) (585) (545) (539) (529) Core net prof it margin 18.7 19.4 20.2 20.8 21.4

ROA 8.2 8.5 9.6 10.3 10.9

Net change in debt 20 120 (2) 60 80 ROE 10.0 10.8 11.6 12.5 13.2

Others (306) (376) (393) (475) (556) Balance sheet ratios

Financing cash flow (286) (256) (396) (415) (476) Current ratio (X) 3.4 3.8 3.8 4.0 4.1

Quick ratio (X) 1.5 1.9 1.9 2.0 2.1

Net change in cash (195) 595 283 614 899 Cash ratio (X) 1.4 1.9 1.8 2.0 2.1

Cash at beginning of the y ear 2,976 2,786 3,712 3,836 4,450 Trade & bill receiv ables day s 157.8 157.0 154.5 148.9 144.1

Ef f ect f rom f oreign exchange 5 0 0 0 0 Trade & bill pay able day s 136.8 104.5 98.6 93.3 89.8

Cash at the end of the year 2,786 3,381 3,995 4,450 5,350 Inv entory turnov er day s 149.5 146.2 143.9 142.3 139.3

Total debt to equity ratio (%) 4.3 5.1 4.6 4.7 4.8

2018E

2018E

2018E2014A 2015A 2016E 2017E

2014A 2015E 2016E 2017E

2014A 2015A 2016E 2017E

1

China Traditional Chinese Medicine Co. [570.HK]

BUY (unchanged)

Close: HK$4.07 (Mar 22, 2016)

Target Price: HK$5.45 (+33.9%)

Price Performance

Market Cap US2,410.4m


Auditor KPMG

Free Float 38.6%

52W range HK$3.96-7.03


Major Shareholding CNPGC (37.7%)



(852) 3698-6275

[email protected]


(852) 3698-6317

[email protected]

Sources: Company, CGIHK Research

China Healthcare Sector We believe the market has overreacted to the reported stagnant growth of the TCM finished drug business of CTCM. With the conservative assumption that revenue growth will be in line with the industry growth rate, we still expect revenue to double in 2016E from full-year consolidation of CCMG business and grow another 14.5% in 2017E. Therefore, we expect core EPS to grow 93.2%/16.1% in 2016E/17E, respec-tively. The current share price level should already reflect the expected weakness in the TCM finished drug industry. We maintain a BUY rating on CTCM and have ad-justed our TP from HK$6.18 to HK$5.45 based on our DCF model (WACC: 10.1%, terminal growth: 4%). Our TP implies 2016E/17E PER of 16.2x/14.0x.


2015 results review: Revenue grew 40.0% YoY to RMB3,709.4m and core net

profit grew 32.9% YoY to RMB553.7m. The growth in revenue was mainly due to the three-month contribution from the acquisition of Tianjiang Pharm. The market was concerned about the slow growth of the TCM finished drug busi-ness, which was only 1.5% YoY. Management explained the slow growth was

due to changes in the revenue booking method for some products (from 高開 to

低開). Excluding the related impact, the TCM finished drug business grew 8 to

9% in 2015.

Revenue guidance for 2016: TCM finished drug revenue growth is expected to

be faster than the industry growth rate, which we believe will be in high single digits. For the concentrated TCM granules (CCMG) business, revenue growth will be from 15% to 20%.

No expectation the CCMG market will open up in 2016: Although the market

has anticipated the government will open the CCMG market this year, manage-ment believes the market will not be opened in the next two years because of regulatory issues. When the market does open, we expect the company to ben-efit from rapid growth but at the same time to experience margin erosion be-cause of increasing competition.

Downward adjusted 2016E/17E core net profit forecast to reflect the im-

pact of booking method change: We adjusted our 2016E/17E revenue and core net profit forecast downwards by 8.5%/12% and 10.1%/13.8%, respective-ly.

2015 results takeaway: conservative outlook largely priced in, maintain BUY

Y/E Dec 31 2014 2015E 2016E 2017E 2018E

Turnover (RMBm) 2,690 3,709 7,451 8,533 9,744

Core net profit (RMBm) 417 554 1,274 1,480 1,710

Core net margin (%) 15.5 14.9 17.1 17.3 18.0

Core EPS (RMB) 0.16 0.15 0.28 0.33 0.38

% Change 77.1 -10.4 93.2 16.1 19.1

PER (x) 21.0 23.4 12.1 10.4 6.7

PBR (x) 4.9 1.4 1.2 1.1 0.8

ROE(%) 14.0 7.7 10.8 11.3 12.4

EV/EBITDA (x) 24.4 16.7 7.7 6.5 3.2

2

Prce Mkt cap


CTCM 570 4.07 18,249 23.4 12.1 10.4 1.4 1.2 1.1 7.7 10.8 11.3 16.7 7.7 6.5

Fosun Pharm 2196 20.55 54,274 17.8 15.2 13.0 2.2 1.9 1.7 12.9 14.1 14.5 22.9 19.5 16.7

Sino Biopharm 1177 6.00 44,473 24.2 20.5 17.5 5.4 4.3 3.5 25.2 25.7 23.2 13.7 11.1 9.3

CSPC 1093 6.91 40,845 24.3 19.9 16.2 4.5 4.0 3.5 19.5 21.0 22.3 14.4 12.1 9.8

Baiyunshan 874 17.68 33,406 14.7 13.1 11.6 1.6 1.6 1.7 14.4 14.1 14.4 11.0 13.1 11.4

Luye 2186 5.94 19,727 20.4 17.0 13.8 2.8 2.4 2.1 14.9 15.1 15.9 15.1 12.1 9.4

3SBIO 1530 10.30 25,908 35.5 26.0 20.0 4.0 3.6 3.1 17.4 16.2 30.0 26.9 18.0 13.6

Livzon 1513 33.25 18,054 17.7 15.1 12.6 2.5 2.2 2.0 15.2 15.5 16.4 14.7 12.5 10.3

Tong Ren Tang 1666 11.82 15,139 23.3 20.3 17.7 3.3 2.6 2.4 14.3 13.7 14.1 N/A N/A N/A

Hua Han 587 0.84 6,210 12.0 9.3 8.4 0.7 N/A N/A 6.1 6.9 7.3 N/A N/A N/A

Shineway 2877 9.40 7,774 9.6 9.4 9.5 1.2 1.2 1.1 13.4 13.0 12.2 4.1 3.6 3.0

Consun 1681 4.04 3,993 12.7 10.3 8.7 2.2 1.9 1.6 17.6 19.5 20.2 N/A N/A N/A

Purapharm 1498 3.67 826 16.6 10.4 8.1 1.8 1.5 1.3 11.1 14.8 16.1 N/A N/A N/A

Simple average 19.4 15.3 12.9 2.6 2.4 2.1 14.6 15.4 16.8 15.5 12.2 10.0


PER(x) PBR(x) ROE(%) EV/EBITDA (x)



3

Key financials



As at Dec 31 Year ended Dec 31

(RMBm) (RMBm)

Cash & cash equiv alents 439 2,102 3,123 3,413 4,078 TCM f inished drugs 2,690 2,731 2,925 3,206 3,505

Inv entories 418 1,236 1,210 1,352 1,505 CCMG - 979 4,526 5,328 6,239

Accounts receiv able 1,236 3,398 2,925 3,309 3,627 Revenue 2,690 3,709 7,451 8,533 9,744

Others 1 321 513 513 513 Cost of goods sold (1,036) (1,515) (3,026) (3,467) (3,960)

Current assets 2,094 7,057 7,771 8,587 9,724 Gross profit 1,654 2,194 4,425 5,067 5,784

Property , plant and equipment 1,036 1,979 2,306 2,993 3,655 Other gains / (losses) 37 130 29 33 38

Intangible assets 948 3,638 3,510 3,453 3,395 Marketing expenses (903) (1,196) (2,176) (2,486) (2,831)

Goodwill 1,191 5,390 5,390 5,390 5,390 Admin & other expenses (240) (385) (579) (661) (753)

Others 62 349 349 349 349 Operating profit 547 743 1,700 1,953 2,238

Non-current assets 3,237 11,357 11,555 12,184 12,789 Net interest income / (expense) (63) (70) (46) (30) (13)

Non-operating items (4) 1 0 0 0

Total assets 5,332 18,414 19,327 20,771 22,513 Pretax income 481 674 1,654 1,923 2,225

Income taxes (70) (118) (265) (308) (356)

Accounts pay able 540 2,660 2,210 2,387 2,484 Non-controlling interests 2 (18) (115) (135) (158)

ST borrowings 502 1,600 1,090 831 741 Net profit 413 538 1,274 1,480 1,710

Others 92 278 278 278 278

Current liabilities 1,134 4,538 3,578 3,495 3,503 Core net profit 417 554 1,274 1,480 1,710

Long-term debts 671 850 1,334 1,246 1,112 EBIT 549 742 1,585 1,817 2,079

Others 270 1,187 1,187 1,187 1,187 EBITDA 663 954 1,901 2,177 2,486

Long-term liabilities 941 2,038 2,522 2,433 2,299

EPS (HK$) 0.163 0.165 0.285 0.331 0.382

Total liabilities 2,075 6,576 6,099 5,928 5,802 Core EPS (HK$) 0.164 0.147 0.285 0.331 0.382

DPS (HK$) 0.000 0.000 0.000 0.000 3.000

Shareholders' equity 3,184 11,129 12,404 13,884 15,594

Minority interests 73 708 823 959 1,117

Total equity 3,257 11,838 13,227 14,842 16,711


Year ended Dec 31 Year ended Dec 31 2014A 2015E 2016E 2017E 2018E


Prof it bef ore tax 481 769 1,654 1,923 2,225 Sales 92.9 37.9 100.9 14.5 14.8

Depr & amortization 119 199 201 224 248 Operating prof it 105.2 39.0 124.9 14.9 18.2

Change in working cap. (252) (176) 49 (349) (374) EBITDA 7.0 98.9 44.0 99.2 14.8


Others 70 61 46 30 13 Core EPS 77.1 (10.4) 93.2 16.1 19.1

Operating cash flow 325 734 1,685 1,520 1,755 Profitability (%)

Gross margin 61.5 59.1 59.4 59.4 59.3

Capex (106) (300) (591) (853) (853) Operating margin 20.2 20.4 22.8 22.9 23.2

Cash f or acquisition of subsidiaries 0 (5,821) 0 0 0 EBITDA margin 24.6 25.7 25.5 25.5 26.5

Change in other assets 25 (31) 10 22 33 Core net prof it margin 15.5 14.9 17.1 17.3 18.0

Investment cash flow (81) (6,153) (581) (831) (820) ROA 8.0 4.7 6.8 7.4 9.1

ROE 14.0 7.7 10.8 11.3 12.4

Net change in debt (72) 828 (26) (347) (224) Balance sheet ratios

Proceeds f rom new shares 0 6,534 0 0 0 Current ratio (X) 1.8 1.5 2.2 2.5 4.3

Others (77) (65) (56) (52) (46) Quick ratio (X) 0.4 0.5 1.0 1.1 2.3

Financing cash flow (150) 7,296 (82) (399) (271) Cash ratio (X) 0.4 0.5 0.9 1.1 2.3

Trade & bill receiv ables day s 66.5 86.5 64.5 65.8 60.5

Net change in cash 94 1,878 1,021 290 665 Trade & bill pay able day s 49.7 30.8 34.1 32.8 33.2

Cash at beginning of the y ear 345 439 2,102 3,123 3,413 Inv entory turnov er day s 145.0 162.7 129.3 134.9 122.7

Ef f ect f rom f oreign exchange (0) 0 0 0 0 Total debt to equity ratio (%) 36.8 23.3 17.9 15.0 9.0

Cash at the end of the year 439 2,318 3,123 3,413 4,078

2018E

2018E

2018E2014A 2015E 2016E 2017E

2014A 2015E 2016E 2017E

2014A 2015E 2016E 2017E

1

March 23, 2016

Margin compression due to one-off provision for lead pollution. The gross

margin fell from 13.8% in 2014 to 13.3% in 2015, mainly because of a lower gross

margin for the Hong Kong cash construction business, which dropped from 6.6%

to 5.9%. As the government is still investigating the problem of excessive lead in

the drinking water, the Company conservatively made an one-off provision. Man-

agement declined to disclose the exact amount, but admitted that most of the mar-

gin impact is related to the provision. Therefore, we estimate the size to be about

HK$110m.

Faster revenue growth in 2016. The Company’s revenue growth in 2015 was

only 10.1% since (i) some new projects are in the form of JVs and associates,

which do not book revenue; (ii) in 1H15, negotiation of PPP projects was relatively

slow due to the limited experience of the local government. The progress became

much faster in 2H15 when the local government got more familiar with the PPP

model. Therefore, management expects to see faster revenue growth this year.

The Company is also considering more disclosure related to JVs and associates to

improve transparency.

No share placement plan. The Company’s net debt/equity rose to 45.9% at end-

2015, because (i) net assets dropped by HK$1.7bn owing to RMB depreciation (its

financial statements are denominated in HK$); and (ii) capex in 2015 was higher

than originally budgeted by HK$1.37bn because of more investment opportunities

in PPP projects. With stronger cash collection from BT projects, management ex-

pects net debt/equity to drop below 40% this year, and there is no need to issue

new shares. (More on next page)


China State Construction International (CSCI)[3311.HK]

As usual, CSCI reported net profit growth of >20% in 2015 and maintained its guid-

ance of >20% profit growth this year, driven by more public-private partnership (PPP)

projects. It is encouraging to see the Company reported net operating cash inflow in

2015 and management expects operating cash flow to remain a net inflow in the

coming years. Therefore, there is no plan for a share placement. Given the muted

share price performance after the results release yesterday, we believe investors are

looking for new catalysts, especially asset injections, but there is no update at the

moment. We slightly lowered our 2016E EPS by 3% after some housekeeping adjust-

ments, and the DCF-based target price was adjusted from HK$17 to HK$16.50 ac-

cordingly (13.1x 2016E PER, 9.5% WACC, 2% terminal growth). Reiterate BUY.

BUY

Close: HK$11.16 (Mar 22, 2016)

TP: HK$16.50 (+48%)

Results Briefing Takeaway: Still Waiting for Asset Injections

Price Performance

Market Cap US$5,838m

Shares Outstanding 4,056m

Auditor PWC

Free Float 41.3%

52W range $8.99-$15.57

3M average daily T/O

(US$m) 10.5

Major Shareholding China Over-

seas Holding

(58.2%)

Source: Bloomberg

Wong Chi Man—Head of Research

(852) 3698-6317

[email protected]

Livy Lyu—Assistant

(852) 3698 6393

[email protected]


Construction Sector

HK$ m 2012 2013 2014 2015 2016E 2017E

Revenue 21,911 27,286 34,440 37,913 43,679 50,066

Net profit 2,131 2,750 3,457 4,153 5,107 6,171

Net margin 9.7 10.1 10.0 11.0 11.7 12.3

EPS (HK$) 0.55 0.71 0.86 1.02 1.26 1.52

Change (%) 30.4 28.0 21.9 18.8 23.0 20.8

P/E 20.2x 15.8x 13.x 10.9x 8.9x 7.3x

Yield 1.4% 1.9% 2.3% 3.0% 3.4% 4.1%

Source: Bloomberg

0

200

400

600

800

1000

1200

0

5

10

15

20

Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16

(HK$ million)(HK$)


2

Asset injections still under discussion. Because of other major corporate actions at the group level

(e.g. the proposed acquisition of property assets from CITIC by COLI [0688.HK] for a consideration of

HK$37bn), management understands investors’ high expectations regarding CSCI’s potential asset injec-

tions. The Company is studying some operations of infrastructure assets of the parent company and other

investment opportunities related to One-Belt One-Road (OBOR), but there is no update at the moment.

Sustainable investment income. The Company recorded HK$375m in investment gains in 2015. Accord-

ing to management, this is from some property investment projects undertaken in cooperation with COLI

and Shun Tak [0242.HK]. CSCI invested a minority stake in these projects to secure the construction pro-

jects. Management expects to see an investment income contribution from these projects in the next few

years.

Gradual increase in RMB loans. Currently, RMB loans account for 25%-30% of its total borrowings. The

Company will gradually increase the proportion to 40% or above to better match its business mix.

Figure 1: 2015 results highlights

HK$ m 2014 2015

YoY change

(%)

Revenue

Mainland China 14,061 12,953 (8)

Operations of infrastrcture assets 1,456 1,678 15

Cash construction - HK 15,285 16,184 6

Cash construction - Macau 2,256 5,314 136

Far East Global (0830.HK) 1,382 1,784 29

Gross profit

Mainland China 2,976 3,025 2

Operations of infrastrcture assets 600 611 2

Cash construction - HK 1,011 958 (5)

Cash construction - Macau 96 269 179

Far East Global (0830.HK) 88 184 108

Gross margin

Mainland China 21.2% 23.4%

Operations of infrastrcture assets 41.2% 36.4%

Cash construction - HK 6.6% 5.9%

Cash construction - Macau 4.3% 5.1%

Far East Global (0830.HK) 6.4% 10.3%


3

Key Financials

Source: Company, CGIS Research (Note: 2013 figures are restated.)

Figure 2: Rolling forward PER range

Sources: Bloomberg, CGIS Research

HK$bn Jan-Dec 2015 Jan-Dec 2014 YoY change (%)

Infrastructure investment 45.83 37.83 21.1

Affordable housing 22.04 27.26 -19.1

Infrastructure 23.79 10.57 125.1

Cash construction and related 21.58 20.45 5.5

PRC 2.42 0.83 191.6

Hong Kong 13.66 9.14 49.5

Macau 5.50 10.48 -47.5

Far East Global 2.68 1.96 36.7

Total 70.09 60.24 16.4

Figure 3: New contracts awarded


4

6

8

10

12

14

16

18

20

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Rolling forward PER (x) Average

+1 Standard deviation -1 Standard deviation

Profit & loss (HK$ m) 2012 2013 2014 2015 2016E 2017E Cash flow (HK$ m) 2012 2013 2014 2015E 2016E 2017E

Revenue 21,911 27,286 34,440 37,913 43,679 50,066 Prof it bef ore tax 2,541 3,174 4,048 4,756 6,083 7,350

Cost of sales (19,192) (23,540) (29,696) (32,883) (37,377) (42,560) Depreciation and amortization 112 120 320 295 296 335

Gross profit 2,718 3,746 4,743 5,030 6,302 7,505 Tax paid (127) (116) (314) (655) (1,034) (1,250)

Other income 132 150 291 448 480 551 Change in working capital (5,216) (6,304) 812 (2,308) 410 (77)

SG&A (740) (1,042) (1,033) (995) (1,096) (1,257) Other operating cash f low (651) (133) (6,621) (1,787) (3,930) (4,249)

Other expenses 0 0 0 0 0 0 Operating cash flow (3,340) (3,259) (1,755) 301 1,824 2,110

EBIT 2,110 2,854 4,001 4,483 5,687 6,799 Capex (402) (378) (514) (551) (568) (585)

EBITDA 2,384 3,149 4,496 4,831 6,041 7,180 Net (acquisitions)/disposal (61) (228) (1,573) 0 0 0

Finance costs (239) (418) (456) (607) (677) (720) Other inv esting cash f low 6 707 (4) 289 333 355

Inv estment income 239 286 184 384 453 496 Investing cash flow (457) 100 (2,091) (263) (235) (230)

Share of asso/JCEs 432 452 318 496 620 775 Change in debt 3,682 5,736 (508) 2,250 1,750 1,250

Prof it bef ore tax 2,541 3,174 4,048 4,756 6,083 7,350 Net share issues 2,230 0 1 0 0 0

Income tax expenses (405) (503) (660) (655) (1,034) (1,250) Div idends paid (617) (703) (895) (1,339) (1,532) (1,851)

Prof it af ter tax 2,137 2,671 3,388 4,102 5,049 6,101 Other f inancing cash f low (341) (740) 4,574 (607) (677) (720)

Minority interest (5) 79 70 51 59 70 Financing cash flow 4,953 4,294 3,172 304 (459) (1,321)

Net profit 2,131 2,750 3,457 4,153 5,107 6,171 Forex ef f ect/others 4 146 0 0 0 0

EPS (HK$) 0.55 0.71 0.86 1.02 1.26 1.52 Net change in cash 1,160 1,135 (674) 343 1,129 559

DPS (HK$) 0.16 0.21 0.26 0.33 0.38 0.46

Key ratios 2012 2013 2014 2015 2016E 2017E

Balance sheet (HK$ m) 2012 2013 2014 2015 2016E 2017E Sales growth (%) 33.8 24.5 26.2 10.1 15.2 14.6

Cash & cash equiv alent 6,875 8,126 7,452 8,015 9,145 9,703 Gross prof it growth (%) 51.2 37.8 26.6 6.0 25.3 19.1

Inv entories 185 163 160 109 205 233 Net prof it growth (%) 41.4 29.0 25.7 20.1 23.0 20.8

Accounts rev eiv ables 7,109 10,024 12,542 18,170 21,540 24,690 EPS growth (%) 30.4 28.0 21.9 18.8 23.0 20.8

Other current assets 6,995 10,739 14,175 6,113 5,072 5,675 Gross prof it margin (%) 12.4 13.7 13.8 13.3 14.4 15.0

Total current assets 21,164 29,053 34,330 32,407 35,962 40,302 Net prof it margin (%) 9.7 10.1 10.0 11.0 11.7 12.3

Fixed assets 2,191 2,672 2,827 2,772 3,056 3,306 ROAA (%) 6.6 6.1 5.8 6.1 6.9 7.5

Goodwill & intangibles 830 804 778 764 764 764 ROAE (%) 15.8 17.3 17.4 19.6 20.7 21.2

Other non-current assets 13,649 19,921 28,644 34,122 38,165 43,292 Net-debt-to-equity (%) 22.9 28.4 36.8 45.9 39.1 35.7

Total non-current assets 16,670 23,397 32,250 37,657 41,984 47,362 Inv entory turnov er (day s) 3.5 2.5 2.0 1.2 2.0 2.0

Short-term debt 49 262 587 808 897 972 Receiv able turnov er (day s) 118.4 134.1 132.9 174.9 180.0 180.0

Accounts pay bles 7,152 13,020 17,261 21,926 24,065 26,819 Pay able turnov er (day s) 136.0 201.9 212.2 243.4 235.0 230.0

Other current liabiltiies 5,896 9,480 13,372 8,010 9,181 10,614 Quick ratio (x) 1.1 0.8 0.7 0.9 0.8 0.8

Total current liabilities 13,097 22,761 31,221 30,744 34,143 38,405 Current ratio (x) 1.6 1.3 1.1 1.1 1.1 1.0

Long-term debt 9,996 8,600 10,362 13,086 14,052 15,227 Interest-cov erage ratio (x) 8.8 6.8 8.8 7.4 8.4 9.4

Other non-current liabilities 888 4,902 4,999 4,988 4,988 4,988

Total non-current liabilities 10,884 13,502 15,360 18,074 19,040 20,215

Share capital 97 97 100 101 101 101 Key assumptions 2012 2013 2014 2015 2016E 2017E

Reserv e 13,413 15,836 19,730 21,045 24,620 28,940 New contract (HK$ m)* 34,070 43,700 58,280 67,410 76,642 85,583

Shareholders' equity 13,510 15,934 19,830 21,147 24,722 29,042 Backlog (HK$ m) 55,870 74,148 90,520 123,390 159,251 198,066

Minority interests 343 253 168 100 42 2 Backlog-to-sales ratio (x) 2.7 2.9 2.7 3.4 3.8 4.1

Total equity & liabilities 37,835 52,450 66,579 70,065 77,946 87,663 * Contribution f rom Far East Global is not included.

BVPS (HK$) 3.50 4.10 4.94 5.21 6.09 7.16

COMPANY / INDUSTRY NEWS

Analyst: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317); Livy Lyu ([email protected])

CHINA AIRCRAFT LEASING [1848.HK; HK$7.45; NOT-RATED] – 2H15 operations remained on track

Market Cap: US$582m; Free Float: 27%

CHINA AIRCRAFT LEASING (1848.HK; NOT-RATED) 2H15 operations on track. The Company still reported 39% growth

year-on-year (YoY) in leasing income in 2H15 after the sudden de-

parture of ex-CEO Poon Ho Man last June. This demonstrates that

daily operations remained on track.

Weak 2H15 net profit growth due to lower realization income

but more cases this year. The Company’s 2H15 net growth was

only 10% YoY due to only 6% growth in other income because it

postponed some cases of realization. It finished just 2 cases of real-

ization for lease receivables (i.e. securitization of aircraft leasing

contracts and sales to institutional investors) in 2015. Management

explained that since the unexpected RMB depreciation in August

2015, there has been strong demand for US$ assets, and therefore,

the Company believes it can earn more from realization this year

thanks to higher pricing. Management is confident in completing

more realizations in 2016.

Upbeat 2016 aircraft delivery guidance. The Company’s fleet size

at end-2015 was 63, which met its target number announced during

its 1H15 results release. Following the 5-aircraft deal with Air India

and 2-aircraft deal with Air Macau, the company will continue its

globalization plan this year by delivering 2 aircraft to Pegasus Air-

lines (listed airline company in Turkey) and 4 aircraft to Jetstar Pa-

cific (JV of Vietnam state-owned airlines and Qantas). Total delivery

number this year is 17 (revised up from 12 in August 2015 guid-

ance) if there are no pop-up orders. In the long term, management

expects to see a fleet size of at least 176 aircraft in 2022, as the

Company has already ordered 111 aircraft from Airbus so far.

Aircraft disassembly plant still on schedule. Currently, the con-

struction of the CADC (China Aircraft Disassembly Center) is follow-

ing the original plan and should be finished in 2017. The short-term

goal is to build dismantling capacity of 20 aircraft per annum by

2018. The gross margin of the aircraft disassembly business is

guided above 30% when referring to the second-hand aircraft com-

ponents market. According to management, details about the CADC

plan will be released in an official HKEx announcement soon.

Differentiation to protect its business. The Company under-

stands investors’ concern about the potential competition after

some aircraft leasing companies with banking backgrounds com-

plete their IPOs later this year. The Company believes differentia-

tion by offering full service along the value chain of the aircraft life

cycle (e.g. an aircraft disassembly plant) is the best way to protect

and grow its business.

Source: Bloomberg

March 23, 2016

HKD 2014 2015 2016E 2017E

Revenue (m) 897 1,239 2,213 3,397

Net profit (m) 303 380 603 792

Net margin (%) 34 31 27 23

EPS 0.58 0.64 0.95 1.23

ROE (%) 22 19 26 28

Dividend yield (%) 2.1 3.0 4.2 5.5

PER (x) 12.9 11.7 7.8 6.1

PBR (x) 3.8 2.5 1.8 1.4

Gearing ratio on a downward trend since 2013. The

gearing ratio in 2015 declined gradually to 86.7% from

90.3% of 2013. 2016 gearing should drop to a lower level,

if the realization goes well in the following months. So far,

the Company has signed MOUs (Memorandums Of Under-

standing) for 35 aircraft realization of lease receivables

with Bank of Communication and China Construction

Bank.

Valuation. Based on the Company’s business targets, we

believe it should be able to achieve >HK$500m net profit

comfortably in 2016 but the consensus of HK$603m will

depend on the progress of realizations. Based on

HK$500m net profit (31.5% growth), it is trading at 10.2x

2016E PER on fully diluted basis, which looks undemand-

ing considering the high growth.

COMPANY / INDUSTRY NEWS

Figure 1: Peer valuations

Sources: Bloomberg, CGIS Research

Figure 2: 2H15 results highlights


HK$'000 2H15 2H14 Change YOY 1H15 1H14 Change YOY 2015 2014 Change YOY

Finance lease income 554,237 372,693 49% 461,158 342,031 35% 1,015,395 714,724 42%

Operating lease income 114,767 108,385 6% 109,114 73,742 48% 223,881 182,127 23%

Other income 244,564 231,478 6% 65,462 16,636 293% 310,026 248,114 25%

Total revenue 913,568 712,556 28% 635,734 432,409 47% 1,549,302 1,144,965 35%

Interest expense (416,461) (282,907) 47% (337,230) (237,625) 42% (753,691) (520,532) 45%

Depreciation (46,710) (43,791) 7% (44,588) (27,521) 62% (91,298) (71,312) 28%

Other oprating expenses (127,618) (103,629) 23% (95,640) (96,257) -1% (223,258) (199,886) 12%

Operating profit 322,779 282,229 14% 158,276 71,006 123% 481,055 353,235 36%

Other gains/losses (348) 12,197 n.a. (466) 15,283 n.a. (814) 27,480 n.a.

Profit before income tax 322,431 294,426 10% 157,810 86,289 83% 480,241 380,715 26%

Income tax (58,948) (54,559) 8% (41,083) (23,490) 75% (100,031) (78,049) 28%

Profit for the year 263,483 239,867 10% 116,727 62,799 86% 380,210 302,666 26%

Non-controlling interests (4) (56) -93% 49 (28) n.a. 45 (84) n.a.

Net Profit 263,487 239,923 10% 116,678 62,827 86% 380,165 302,750 26%

Operating Margin 35.3% 39.6% 24.9% 16.4% 31.0% 30.9%

Net Margin 28.8% 33.7% 18.4% 14.5% 24.5% 26.4%

Company TickerPrice (Local

currency)

Market cap

(US$m)2014 2015/(E) 2016E 2014 2015/(E) 2016E 2014 2015/(E) 2016E 2014 2015/(E) 2016E

China Aircraft Leasing Group Holdings Ltd 1848 HK Equity 7.45 579 12.6 11.7 7.8 3.82 2.48 1.79 23.6 22.4 26.2 2.1 1.9 2.4

Bohai Financial Investment Holding Co Ltd 000415 CH Equity 6.82 6,517 24.9 17.5 11.8 2.48 - - 11.8 - - 1.4 - -

AerCap Holdings NV AER US Equity 37.93 7,492 7.1 7.3 6.4 1.05 0.94 0.89 15.8 14.5 12.5 3.0 2.7 3.2

Mitsubishi UFJ Lease & Finance Co Ltd 8593 JP Equity 510 4,093 8.2 8.7 8.4 0.88 0.73 0.67 9.4 8.4 8.1 1.1 1.2 1.2

Air Lease Corp AL US Equity 31.94 3,284 11.7 9.9 8.7 1.08 0.98 0.89 8.7 12.6 13.3 2.2 4.1 4.1

Aircastle Ltd AYR US Equity 21.88 1,719 10.2 11.0 11.6 1.01 0.99 0.93 6.0 6.9 8.2 1.6 1.9 3.1

Fly Leasing Ltd FLY US Equity 12.99 436 13.0 9.1 7.9 0.72 0.73 0.65 7.3 1.0 9.5 1.4 0.2 2.0

Avolon Holdings Ltd AVOL US Equity 30.93 2,504 31.4 10.2 9.1 1.13 - - 6.7 - - 1.6 - -

Simple average 14.9 10.7 9.0 1.5 0.9 0.7 11.2 9.5 9.7 1.8 1.8 2.0


PER (x) PBR (x) ROE (%) ROA (%)

Disclaimer

This research report is not directed at, or intended for distribution to or used by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject China Galaxy International Securities (Hong Kong) Co., Limited (“Galaxy International Securities”) and/or its group companies to any registration or licensing requirement within such jurisdiction.

This report (including any information attached) is issued by Galaxy International Securities, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to the institutional clients from the information sources believed to be reliable, but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness.

This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company(ies) referred to herein. Past perfor-mance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regard-ing future performance. The recipient of this report should understand and comprehend the investment objectives and its related risks, and where necessary consult their own independent financial advisers prior to any investment decision.

Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or investment decisions of China Galaxy International Financial Holdings Limited and any of its subsidiaries (“China Galaxy International”), directors, officers, agents and employees (“the Relevant Parties”).

All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. China Galaxy Interna-tional and/or the Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer.

Disclosure of Interests

China Galaxy Securities (6881.hk) is the direct and/or indirect holding company of the group of companies under China Galaxy International.

China Galaxy International may have financial interests in relation to the subjected company(ies) the securities in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies)’ market capitalization.

One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) men-tioned in this report.

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China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or invest-ment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report.

Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies).

Analyst Certification

The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report.

Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong-listed companies cov-ered in this report.

Explanation on Equity Ratings

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China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459

Room 3501-3507, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.

BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :

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