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16 Sep, 2014 (Tuesday)

            
TK GROUP( 2283)
Analysis¡G
TK Goup (2283) is mainly engaged in designing and manufacturing molds and plastic components, and is one of the leaders in the plastic components solution provider. Benefited by the economic recovery in Europe and America, the business of the Group in these areas in 1H2014 recorded growth, total revenue was up 12.3% yoy to HKD 528 mil, of which 43.5% was contributed by the mold manufacturing business which increased 31.5% yoy to HKD 230 mil. This growth is mainly lead by boarder customer base and increased orders by existing customers, especially in mobile and portable device industry, medical and domestic electric industry. Profit attributable to shareholders in 1H2014 rose 36.9% yoy to 53.1 mil. The 2014 net profit is expected to reach 152 mil, up 25.6%. Forecasted PE ratio is 7.7x.
Strategy¡G
Buy-in Price: $1.30, Target Price: $1.50, Cut Loss Price: $1.20

COSCO PACIFIC( 1199)
Analysis¡G
The State of Council mentioned in a recently released document, aiming to build an international competitive shipping system to cope with exporting and importing demand. As at the end of 2013, the shipment throughput of China reached 11.8 mil tones, in which 8 of the world¡¦s 10 largest port (according to shipment throughput) is included. In terms of the figures, the China harbor industry possesses a size advantage. Cosco Pacific (1199) engaged in operating terminals, manufacturing and leasing of container, the revenue in 1H2014 increased 11.4% yoy, with net profit excluding extra-ordinary business up 9% yoy. The management believed that the shipment throughput will experience an uptrend in 2H2014 due to the rebound of demand in Europe and America.
Strategy¡G
Buy-in Price: $10.30, target Price: $12.50, Cut Loss Price: $10.00


Sa Sa International (178) - Still Struggle in the nearest future

-Revenue grew 14.2% YoY to HK$ 8,756.1 million with GPM of 46.5% while profit was up 13.3% YoY to HK$ 935.2 million. Final and special dividends per share proposed were 14.5 HK cents.

-The changing travel pattern and shopping behaviour of Mainland China tourists pose structural threat to the revenue generation.

-The weak performance in Mainland China market showed Sa Sa Int`l was still struggling in strategy formulation.

-We changed the investment rating from ¡§Accumulate¡¨ to ¡§Reduce¡¨.

Financial Highlights

Sa Sa Int`l reported FY14 revenue grew 14.2% YoY to HK$ 8,756.1 million with a stable gross profit margin of 46.5% (2013: 46.4%). The revenue from Hong Kong and Macau market of HK$7,122.1 million grew 16.7% YoY and contributed 81.3% of the total revenue while the Mainland China's and worldwide sales inched up 2.67% YoY and 4.62% YoY respectively, lowering their contributions to 4.2% and 14.5% of the total revenue in FY14 (2013: 4.6%; 15.8%). The overall profit was up 13.3% YoY to HK$935.2 million with the net profit margin of 10.7% (2013: 10.8%). The profit growth in Hong Kong & Macau market has been slightly offset by the loss in Mainland China market and the sluggish growth in other segments. Final and special dividends per share proposed were 14.5 HK cents.

How we view this

The extended weak performance on the international sales showed Sa Sa Int`l still struggled in establishing a right business strategy. The situation was even worse in the Mainland China market due to high tax rate on imported cosmetic products. We forecast FY15 revenue grows 8.2% with a stable gross profit margin. We are cautious with the sustainability of the revenue growth afterwards based on (1) the lack of the effective strategy on Mainland China market; and (2) changing travel pattern and shopping behaviour of Mainland China tourists.

Investment Action

We expect Sa Sa Int`l managed to achieve a 2-year revenue CAGR of 9.12% and 9.22% EPS CAGR in 2015-16, factoring in the tough business environment in the nearest future. Our TP of HK$ 5.07 is based on 13x FY16 P/E, implying potential 12.7% capital downside to last close. Thus, we changed the investment rating from ¡§Accumulate¡¨ to ¡§Reduce¡¨. Upside risk is higher-than-expected sales growth and unexpected stimulus program. Downside risk is lower-than-expected sales revenue and worse-than-expected business environment.

Weak performance in Mainland China market

The extended profit loss in Mainland China market and the 3.7% drop of SSG in FY14 revealed Sa Sa Int`l was still in trouble with the market penetration. The management attributed the weak performance to the relative inexperienced new staff, weaker execution abilities and sudden changes in management, with the belief that the strategy of more focus on House brand products was on the right track. Although Sa Sa Int`l has operated in Mainland China for almost a decade, we believe Sa Sa Int`l still suffers in the nearest future since the structural problems still exist. The Chinese government has imposed on top of 17% VAT, 30% consumption tax and 10% import duty on foreign cosmetic products in China. The high tax rates hamper Sa Sa Int`l pricing strategy and makes the imported cosmetic products relatively unattractive in China.

The changing travel pattern and shopping behavior of Mainland China tourists

Sa Sa Int`l plays a leading role in Hong Kong and Macau cosmetic markets, which contributed 81.3% of total revenue to the Group. The Mainland tourists are still the primary customer group for the revenue generation in the market. The FY14 annual report showed the number of transactions of Mainland China tourists increased by 26.9% while the average sales value per ticket decreased by 2.8%, suggesting the travel pattern and shopping behavior of the Mainland China tourists has been changing given that the total sales increased. We believe the numbers of Mainland China tourist arrivals directly affect the number of transactions of Mainland China tourists. According to statistics from Hong Kong Tourism Board, Mainland tourist arrivals rose by 15.5% for the first seven months of 2014. Still, when we analyzed the 5-year growth rates and the numbers of Mainland China tourists of each month, there was a slowdown of outbound Chinese tourist growth and we believe the trend continues in the nearest future.

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Recommendation on 16-9-2014
RecommendationReduce
Price on Recommendation Date$ 5.810
Suggested purchase priceN/A
Target Price$ 5.070
Writer Info
Alan Fong
(Research Analyst)
Tel: (+852) 2277 6765
Email:
alanfong@phillip.com.hk

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Phillip Research - Hong Kong ½÷¥ß¬ã¨s³¡ ¡V ­»´ä¤Î¤¤°ê
Company Stock Code Last Update Suggestion Target Price Price on Recom
Mainland Financial Xingyu Chen (86) 2151698900-105chenxingyu@phillip.com.cn
Haitong Securities683711/09/2014Buy16.412.86
Bank of Communications332802/09/2014Buy7.25.63
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
TravelSky69615/09/2014Accumulate8.737.9
BYD121104/09/2014Accumulate6057
Mainland Property Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Greentown China390011/08/2014Accumulate88.16
NEW WORLD CHINA LAND91719/06/2014Accumulate5.55.12
Insurance Xingyu Chen (86) 2151699400-105chenxingyu@phillip.com.cn
New China Insurance133615/08/2014Buy36.628
New China Insurance133616/07/2013Buy30.1422.2
Properties  
China State Construction International Holdings Ltd331116/05/2014Buy15.813.16
Hysan Development001418/03/2014Accumulate36.833.35
Hotels and Entertainment Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Galaxy Entertainment2716/07/2014Accumulate7262.95
Galaxy Entertainment Group2716/04/2014Accumulate7868.7
New Energy  
CT Environmental Group136305/09/2014Accumulate7.86.53
China Everbright Int`l25721/08/2014Accumulate11.9410.92
Food, Beverage and Retail  
Sa Sa International17816/09/2014Reduce5.070.000
Samsonite International SA191012/09/2014Accumulate3126.55
Telecommunications  
Coolpad Group236910/09/2014Accumulate1.961.68
Tongda Group69829/08/2014Buy1.371.07
Oil and Gas Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Jutal Offshore Oil Services330303/09/2014Buy3.83.04
Anton Oilfield Service333731/07/2014Accumulate5.24.51
Software & Service Kay Ng (852) 2277 6751kayng@phillip.com.hk
PAX GLOBAL TECH32708/09/2014Buy9.557.88
Yestar International Holdings239326/08/2014Neutral7.27.49

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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