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31-03-2015(Tue) 30-03-2015(Mon) 27-03-2015(Fri) 26-03-2015(Thu) 25-03-2015(Wed)
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31 Mar, 2015 (Tuesday)

            
C FIBER OPTIC(3777)
Analysis:
The 2014 sales for all product categories of China Fiber (3777) were on the rise, causing the overall revenue rose 24.4% to RMB 2.208 billion. Profit attributable to shareholders increased by 27.8% to RMB 425 million. Overall gross margin was 30.7%, up 1.9 percentage points over the same period in 2013, mainly due to the impact of continuous implementation of vertical integration. In December last year, the Group entered into a framework agreement with a subsidiary of China Telecom Corporation, to cooperate in the construction and operation of FTTH broadband network infrastructure. The Group and China Telecom will share the broadband revenue generated from these FTTH broadband networks for a period of 7 years, to ascend the Group from a telecom equipment manufacturer to a constructor and an operator of broadband access networks. It is expected that this new broadband revenue sharing business model will be expanded to other target cities in various provinces in China. Calculated with the basic earnings per share of RMB 27 cents, historical PE is only 6.2 times. (I do not hold the above stock)
Strategy:
Buy-in Price: $2.05, Target Price: $2.30, Cut Loss Price: $1.95

CEB BANK(6818)
Analysis:
CEB announced 2014 annual results, profits increased by 8% y-y to RMB28.8 billion, with the DPS of RMB0.186. Net interest income and non-interest income increased stably by 14% and 28% y-y. NIM grew 14ppts to 2.3%. On the other hand, CEB's asset quality continued to go down, NPLs amounted to RMB15.525 billion, up RMB5.496 billion compared with the beginning of the year, NPL ratio increased obviously from 0.86% to 1.19%. In all, CEB's performance met our expectation, and we increase the target price to HK$5.20, maintain Buy rating.
Strategy:
Buy-in Price: $4.32, Target Price: $5.20, Cut Loss Price: $3.70


Industrial Securities (601377.SH) - Rapid profit growth with strong advantages in investment and research

Summary

-Last week Industrial Securities (IS or the Group) had the investor presentation, and according to annual results, IS's profit increased sharply benefited from the rapid development of the market environment, better than our previous expectation. By the end of 2014, IS's net profit grew 166% approximately y-y to RMB1.78 billion, equivalent to the EPS of RMB0.34, and especially, incomes of proprietary trading and brokerage increased significantly;

-In addition, the management stated that IS's main advantages relied on investment and research. By the end of 2014, the Group's investment gains increased by 81% y-y to RMB1.628 billion. As one of major three key strategies, IS's research ended up at the sixth best domestic research team in 2014 from the seventh in 2013;

-Meanwhile, IS's asset also increased sharply, total assets grew around 102% y-y to RMB73.488 billion, and net assets increased by 13% to RMB14.683 billion, with the parent company's net capital of RMB13.571 billion. Due to the rapid growth of businesses currently, IS faces the large demand of the capital, and therefore the Group announced the rights issue of RMB10-15 billion in A Shares, and the capital pressure would go down obviously after the rights issue;

-Recently, CSRC stated domestic banks would have the license of brokerage in future, and the market believe it would increase the competitive pressure to brokerage firms, bur the management said the network advantage of banks would be diminished under the current development trend of internet finance, the key is the professionalization of the service and quality;

-In our view, even the banks get the brokerage license in the short term, the impact would be small on the brokerage firms, meanwhile, considering the same major shareholder of both IB and IS, Financial Bureau of Fujian Province, it would be very helpful for the business development due to the possibility of the business integration. Moreover, considering the positive development of the market in 2015, we have the confidence in IS's performance in future, and estimate its 12-m target price to HK$25.00, around 66% higher than the current price, equivalent to 26.0xP/E and 4.0xP/B in 2016 respectively, recommend Buy rating. (Closing price as at 27 March 2015)

Strong profit growth in 2014 with the core competitiveness of investment and research

IS's profit increased sharply benefited from the rapid development of the market environment, better than our previous expectation. By the end of 2014, IS's net profit grew 166% approximately y-y to RMB1.78 billion, equivalent to the EPS of RMB0.34, and especially, incomes of proprietary trading and brokerage increased significantly.

The incomes of proprietary trading increased sharply by 222% approximately y-y to RMB1.34 billion. Operating incomes of securities and future businesses grew 52.66% y-y to RMB2.4 billion. In addition, the margin trading increased rapidly, amounted to RMB13.81 billion in 2014, up 228% significantly, with the market share of 1.35% from 1.22% in 2013, and interest incomes increased by 179% to RMB570 million. The management estimated IS's margin trading would continue to increase sharply in 2015, currently, the amount is larger than that of the whole year of 2013, with the amount of RMB19 billion. Therefore, we believe IS's margin trading is going to increase significantly this year.

Investment banking business increased rapidly, especially for the underwriting of equity and bond, the incomes increased by 51% y-y to RMB550 million. Meanwhile, gains of equity investment and changes at fair value amounted to RMB1.882 billion, up 201% y-y approximately.

As one of major three key strategies, IS's research ended up at the sixth best domestic research team in 2014 from the seventh in 2013, the management stated IS would continue to focus on investment and research, not only for the public funds, but also for the private funds and overseas clients.

IS's asset also increased largely, total assets grew around 102% y-y to RMB73.488 billion, and net assets increased by 13% to RMB14.683 billion, with the parent company's net capital of RMB13.571 billion. Due to the rapid growth of businesses currently, IS faces the large demand of the capital, and therefore the Group announced the rights issue of RMB10-15 billion in A Shares, and the capital pressure would go down obviously after the rights issue. However, the profits should be diluted in the next two years due to the increase of the capital, and we estimate IS's net profit would maintain the rapid growth as over 100% in 2015.

Recently, CSRC stated domestic banks would have the license of brokerage in future, and the market believe it would increase the competitive pressure to brokerage firms, bur the management said the network advantage of banks would be diminished under the current development trend of internet finance, the key is the professionalization of the service and quality.

IS is one of domestic brokerage firms who gains the qualification of internet business. The management stated that the Group was studying the realistic strategy, and the key was the changes of the business culture and concepts of the management, and the construction of the service platform. Internet finance will mainly rely on the customer experience, and the competitive advantage is the differentiation strategy, and IS will focus on the private wealth management and institutional investors. Due to the high base of the clients in the private wealth management, IS made great efforts to develop the products, including the construction of the product platform, IT, R&D of mobile terminal, and the construction of the industry platform and so on.

Risk

The large volatility of profits of stock brokerage business and investment banking business;

Capital pressure increases due to the growth of the financing demand, which affects the business development in future;

The increase of the competition in the industry, with the lack of the talent reserve, and the experience of internationalization;

Share price decreases sharply due to the deterioration of markets in the short run.

FINANCIALS

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Recommendation on 31-3-2015
RecommendationBuy
Price on Recommendation Date$ 15.030
Suggested purchase priceN/A
Target Price$ 25.000
Writer Info
Xingyu Chen
(Research Analyst)
Tel: +86 21 5169 9400 – 105
Email:
chenxingyu@phillip.com.cn

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Phillip Research - Hong Kong 輝立研究部 – 香港及中國
Company Stock Code Last Update Suggestion Target Price Price on Recom
Mainland Financial Xingyu Chen (86) 2151698900-105chenxingyu@phillip.com.cn
Industrial Securities60137731/03/2015Buy25.000.000
Industrial Bank24/03/2015Buy2517.63
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
Fuyao Group360627/03/2015Accumulate19.7
Dongfeng48912/03/2015Accumulate1411.82
Mainland Property Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
COUNTRY GARDEN200718/03/2015Accumulate3.32.9
Gemdale Group60038311/03/2015Accumulate9.89.14
Insurance Xingyu Chen (86) 2151699400-105chenxingyu@phillip.com.cn
CPIC260111/11/2014Buy33.728.1
New China Insurance133615/08/2014Buy36.628
Properties  
FORTUNE REIT77814/10/2014Accumulate7.326.92
Hysan Development001418/03/2014Accumulate36.833.35
Hotels and Entertainment Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Wisdom Group166105/01/2015BUY6.554.6
Galaxy Entertainment2719/11/2014Accumulate5651.75
New Energy  
Dynagreen Env133030/03/2015Accumulate5.444.83
Huaneng Renewables95823/03/2015Accumulate2.92.7
Food, Beverage and Retail  
Samsonite International SA191026/03/2015Accumulate30
Samsonite International SA191025/03/2015Accumulate3026.55
Telecommunications  
Hi Sun Technology81813/03/2015BUY2.862.2
ZTE76326/02/2015BUY21.2417.1
Oil and Gas Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
SPT Energy125124/02/2015Reduce1.51.74
CIMC ENRIC389927/10/2014Buy107.67
Software & Service  
Goldpac Group331518/02/2015N/A4.77
KINGDEE INT`L26802/12/2014Accumulate2.752.45

Information contained herein is based on sources that Phillip Securities (Hong Kong) Limited and/or its affiliates ( the “Group”) believe to be accurate. The Group does not bear responsibility for any loss occasioned by reliance placed upon the contents hereof. The Group (or its employees) may have interests in relevant investment products. For details of different products’ risks, please view the Risk Disclosures Statement on http://www.phillip.com.hk.

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