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14 Feb, 2024 (Wednesday)

            
AVICHINA(2357)
Analysis¡G
AviChina Industry & Technology (2357) is principally involved in the research, development, manufacture and sale of aviation products and the delivery of aviation engineering services such as planning, design, consultation, construction and operation. It has 3 business segments, namely aviation entire aircraft, aviation ancillary system and related business, aviation engineering services. The products of its aviation entire aircraft include helicopter, general aviation products and trainer aircraft. The core competitiveness of the Group's helicopter products continues to increase and the Group further enhances its international competitiveness in general aviation products. The twin-engine turboprop commuting-type Y-12F aircraft was awarded the type certificate by the European Aviation Safety Agency (EASA), which marked the first time for a domestic aircraft to obtain EASA type certificate. The trainer business of the Group made new progress. The first CJ-6 civil aircraft produced by Jiangxi Hongdu Aviation Industry Co., Ltd. obtained the standard airworthiness certificate (AC), marking the first time that the CJ-6 civil aircraft was put into operation in the civil aviation market since it obtained the production permit (PC). The aviation ancillary system and related business of the Group develops steadily and the business scope of the Group's aviation engineering services business continues to expand. AVIC CAPDI won the bid for the second final assembly line project of 27 Airbus A320 series aircraft to better meet the market demand for Airbus aircraft. (I do not hold the above stock)
Strategy¡G
Buy-in Price: $3.05, Target Price: $3.40, Cut Loss Price: $2.90


MELCO INT`L DEV(200)
Analysis¡G
Melco International (00200) net revenues totalled HK$13.04 billion for the six months ended 30 June 2023, an increase of 116.4% YoY. The increase in net revenues was primarily attributable to the relaxation of COVID-19 related restrictions in Macau in January 2023, the openings of Studio City Phase 2's Epic Tower and indoor waterpark in April 2023, as well as the launch of residency concerts at Studio City in the same month which led to improved performance in the casino and hospitality operations. During the same period, the company generated Adjusted EBITDA of HK$3.20 billion, compared to Adjusted EBITDA of HK$168.2 million for the six months ended 30 June 2022. While loss after tax was HK$1.40 billion, compared to loss after tax of HK$4.58 billion for the six months ended 30 June 2022. The relaxation of social-distancing measures and the reopening of borders worldwide since the beginning of 2023 has allowed the company to see a sustained improvement in business momentum. Specifically, in Macau, visitor arrivals have increased significantly, while turnover in the company's premium direct VIP segments outperformed the same period in 2019. Outside of Macau, the mass market segment is also driving recovery in the Philippines, with gaming volume at City of Dreams Manila continuing to outperform 2019 levels. Furthermore, in Cyprus, the Group opened City of Dreams Mediterranean to the public in July 2023, following a successful soft opening in June 2023. Looking forward, the global travel and tourism industry had a positive start to 2023, which is expected to lead a significant recovery in all core markets where the company operates.
Strategy¡G
Buy-in Price: $5.68, Target Price: $6.08, Cut Loss Price: $5.31



Sinotruk (3808.HK) - Positive Profit Alert Beating, With a New High Share

Company Profile

As one of the leading heavy truck manufacturers in China, Sinotruk specializes in the heavy trucks, light trucks, buses and related major powertrains and parts. With heavy trucks as the main products, the Company serves a wide range of customers in the infrastructure, construction, container service, logistics, mining, steel and chemical industries.

Investment Thesis

Expects NP to Grow by Max. 2.4x in 2023, Beating the Consensus

Recently, Sinotruk has released an announcement on positive profit alert, according to which, the Companys expect its NP will grow by 200-240% from RMB1.67 billion in 2022 to approximately RMB5.01 billion - RMB5,678 million in 2023, exceeding the market expectation. This growth was mainly attributed by the management to demand recovery in the heavy duty truck industry along with considerable momentum of exports. Meanwhile, by seizing opportunities on the market, and continuously adjusting the product and business structures, the Company achieved a massive growth in product sales, with the proportion of high-end products continuously growing and the profitability significantly enhanced. Our analysis shows that the massive growth in sales drove an increase in the capacity utilization rate, and the growth in net profit was tremendously higher than the growth in sales.

The Sales and the Growth in Sales Were Industry-leading, with the Market Share Reaching a New High

The heavy duty truck market generally showed a slowly upward trend in 2023, as the sales began to rise slowly in the second quarter, and ten YoY positive increases were recorded in monthly sales from February on. According to CAAM's statistics, the total sales for China's heavy duty truck industry reported 910 thousand in 2023, representing an YoY increase of 36% or 239 thousand. Specifically, the cumulative sales of new energy heavy duty trucks grew by 31.5% to 33 thousand, the cumulative sales of exported heavy duty trucks grew by 60% to 275 thousand, and the cumulative sales of LNG heavy duty trucks grew by 310.8% to 152 thousand. Obviously, the market increase was mainly attributed to the export market and the booming sales of LNG heavy duty trucks. In this context, Sinotruk sold 234 thousand heavy duty trucks in 2023, a number that was better than the industry's average. Meanwhile, the YoY increase reached 47.5%, which was significantly higher than the industry's average (36%). Furthermore, Sinotruk's share in the domestic heavy duty truck market was 25.74%, up 2.2 ppts over the same period last year and remaining to rank first. Sinotruk also delivered an impressive performance in both the export market and the sub-market of LNG heavy duty trucks: On the one hand, relying on Sinotruk International's network layout, the Company's exported sales exceeded 130 thousand, accounting for more than half of the total sales; on the other hand, in the sub-market of LNG heavy duty trucks, the Company ranked second among industry peers in terms of sales and had a market share of 17.7%. As the ASP of LNG heavy duty trucks was RMB80 thousand - RMB100 thousand higher than that of normal heavy duty trucks, the Company's sale structure and profitability significantly improved. For 2024, we expect that continuous recovery will remain to be the main trend of the heavy duty truck market, and the total sales will reach one million - 1.1 million.

The Share Incentive Scheme with High Criteria Demonstrated Our Confidence in Growth

At the same time, the Company released its share incentive scheme, according to which, the Company intends to grant approximately 1% of the total share capital in the form of restricted shares to no more than 194 employees at the price of RMB6.896 per share. As for the granting criteria, 30%/30%/40% of the restricted shares will be granted for 2024/2025/2026, respectively, if the income is no less than RMB94.8 billion/RMB109.1 billion/RMB125.5 billion and the return on sales ratio is no less than 7.5%/8%/8.5% (namely, the profit from sales is no less than RMB7.11 billion/RMB8.73 billion/RMB106.7 billion), respectively. Sufficient incentives have further improved the Company's mechanism for income distribution, and conduce to the enthusiasm of key employees and the continuous growths in the Company's future business performance. Additionally, an average annual profit growth rate of approximately 20% also reflects the management's strong confidence in the future business development of the Company..

The Industry Is Likely to Bottom out

In February 2023, China ended a 21-month consecutive decline in heavy truck sales, with the growth rate turning positive from negative to a yoy increase of 15%.The sales in March and April increased significantly yoy by 49.6% and 83%, respectively.

Valuation & Investment Suggestion

In terms of the domestic economic situation, China needs to boost its economy after the pandemic. With the further implementation of the government's policies to stabilize the economy, infrastructure investment and logistics demand will maintain the momentum of rally, which will provide a foundation for the recovery of the heavy truck market. Secondly, since the implementation of the National VI emission standard in July 2021, the heavy truck industry has fallen into a downturn for one and a half year. While, the heavy trucks in the previous round of peak consumption have gradually entered the replacement period. In addition, the stricter emission regulations of the industry, the overload transportation governance, and the elimination of backward and old models will play a positive role in the recovery of the industry.

We expect the Company to continue to benefit from the recovery of the domestic heavy truck industry and the growth trend of the export market. In the medium to long term, there are opportunities for value enhancement in some segmentations of heavy trucks brought by innovation. We revised the Company's EPS in 2023/2024/2025 to be 1.92/2.22/2.58 yuan, respectively, and adjust the target price to HKD 24.1, corresponding to 10/8.6x P/E and 1.4/1.2x P/B in 2024/2025, a `BUY` rating. (Closing price as at 5 February)

Risk

The economic recovery was less than expected, resulting in lower than expected sales of heavy trucks

Overseas market risk, adverse exchange direction risk

Risk of significant increase in raw materials

Financials

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Recommendation on 14-2-2024
RecommendationBUY
Price on Recommendation Date$ 17.460
Suggested purchase priceN/A
Target Price$ 24.100
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)
Email:
zhangjing@phillip.com.cn

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