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Investor Notes - Phillip Securities (HK) Ltd
Past Investor Notes  
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15 Oct, 2019 (Tuesday)

China Suntien Green Energy (956) is principally engaged in the investment, development, management and operation of wind power projects and sales of natural gas, as well as construction of natural gas pipelines. For the third quarter of 2019, total power generation of the Group on a consolidated basis amounted to 1,416,140.87MWh, representing an increase of 13.85% over the corresponding period of 2018. The sales volume of gas of the Group on a consolidated basis for the 2019 third quarter amounted to 493,761,800 cubic meters, representing an increase of 18.77% over the corresponding period of 2018. In order to transit from high-speed to high-quality development, the Group will accelerate the construction of key projects that have already commenced so that they may be put into operation as soon as possible, carefully select follow-up projects so as to avoid investment risk. (I do not hold the above stock)
Buy-in Price: $2.15, Target Price: $2.40, Cut Loss Price: $2.00

During 1H2019, the Group's Residential and Enterprise service revenue increased by 11% and 16%, respectively. Residential business prospered as the Group successfully extended value-for-money multi-play services to strong customer base, which continued to grow beyond the 1 million mark in 1H2019. Enterprise business also sustained strong growth as fuelled by new wins across different customer industry sectors while sustaining stable growth in SME and enterprise customer base. As a result, Group revenue, EBITDA and Adjusted Free Cash Flow increased year-on-year by 19%, 22% and 26%, respectively, to $2,219 million, $723 million and $299 million. Throughout the interim period, fibre coverage was extended to more than 23,000 additional homes, 42% of which were in rural areas, including villages not previously served by high-speed fibre broadband service. Likewise, 43 commercial buildings were added to the coverage of fibre network, extending the reach to more Enterprise Solutions customers. As at the end of February 2019, fibre network reached over 2.3 million homes and over 2,400 commercial buildings in Hong Kong. In addition, the Group believes that the merger with WTT Holding Corp shall bring the combined Group's business to new heights, in terms of extended customer reach, wider service offerings and enhanced market competition in the enterprise space.
Buy-in Price: $14.80, Target Price: $16.50, Cut Loss Price: $14.60

Fujifilm Holdings Corp (4901)
Established in 1934 when Dainippon Celluloid's (current Daicel) photographic film business was separated. A holding company with Fuji Film and Fuji Xerox under its umbrella. Developing the Imaging Solutions, Healthcare & Material Solutions and Document Solutions businesses based on fundamental technologies cultivated through its silver halide photography knowhow.For 1Q (Apr-June) results of FY2020/3 announced on 8/8, net sales decreased by 5.2% to 535.326 billion yen compared to the same period the previous year, operating income increased by 0.7% to 37.113 billion yen, and net income decreased by 48.2% to 14.662 billion yen. Medical systems and regenerative medicine sector grew, and the profitability of the Document Solutions business had improved. Net income decreased due to loss on valuation of equity securities.For its full year plan, net sales is expected to increase by 2.0% to 2.48 trillion yen compared to the previous year, operating income to increase by 14.4% to 240.0 billion yen, and current income to increase by 12.2% to 155.0 billion yen. Company announced on 26/9 that it would start a contract development and manufacturing service for peptides that support pharmaceutical research and development in response to increasing functionality and purity of peptides.Target price : 4,850 yenBUY price : 4,450 yenCut-Lost price : 4,100 yen

BYD (1211.HK) - Short-term Profit under Pressure, and Long-term Growth Potential

Investment Summary

Decreased Sales Volume of New Energy Vehicles in July/August Due to Many Factors

The advance consumption caused by the subsidy decline overdraws the demand for China NEVs in H2. The macro-economy is weak. The China-US trade dispute has suppressed the potential purchase demand of some consumers. The wait-and-see atmosphere is strong. The rapidly developing NEV market in recent years has also begun to be affected. BYD, as the industry leader, is also facing an impact. On the other hand, the subsidy policy changes in the last year led to ¡§low before and high after¡¨ of its NEVs sales. We expect that the yoy growth rate from H2 will hardly improve under the trend of ¡§high before and low after¡¨ this year. BYD's sales of NEVs decreased by 11.8% in July and 23.4% in August to 16,567 and 16,719, respectively.

Facing Fierce Competition, but Negative Marginal Effect of Subsidy Decline is Diminishing

We believe that the negative effects on vehicle enterprises will be further reduced by 2020, as the state subsidy for NEVs has been reduced to between RMB10,000 and RMB25,000 at present. Enterprises with scale advantages win the battery cost, output efficiency and component cost, and have stronger anti-risk capability.

Short-term Profit under Pressure, and Long-term Growth Potential

In 19H1, the Company recorded a net profit of RMB1,455 million, up 203.61% yoy, mainly due to the large increase in sales of NEVs. In H1, the Company sold 228,000 vehicles, up 1.6% yoy, including 141,000 new energy passenger vehicles, up 98% yoy, and its market share in NEVs rose from approximately 20% in 2018 to 24% in the period. The Company simultaneously announced that the performance range for 2019 Q3 was between RMB100 million and RMB300 million, down 71% to 90% yoy, mainly due to the subsidy decline and the decline in the automobile market, which affected the demand for NEVs.

Facing the increasing number of competitors, BYD started to accelerate the introduction of new models and continue to open up its supply chain system to enhance its competitiveness with ten years of deep cultivation in the local market. In H1, the Company introduced a new generation of Tang EV, Song MAX plug-in, Yuan EV, and e-series products "e1" and SUV models "S2", which mainly focus on the middle and low-end market. In H2, the Company will successively introduce models such as e2, e3 and new Qin EV to further improve the product layout.

In July 2019, BYD has reached a cooperation with Toyota to jointly develop electric vehicles for the Chinese market. As domestic and international leaders in electric vehicles, both sides have their own unique technological advantages and rich R&D experience in the fields of automobiles and energy batteries, motors, and electric controls. This cooperation will have a far-reaching impact on the Company's long-term development and the competitive pattern of the industry.

Investment Thesis

Although the results of BYD in 2019Q3 are below expectation, the technological improvement, transformation and implementation of BYD in recent years have activated its overall competitiveness again. We are optimistic about the more stable and sustainable growth of the Company in the future. As the latest estimates, we revise the target price to HKD44, which corresponded to 2.0/1.9x P/B 36.8/35.5 x P/E ratio for 2019/2020. We give the rating of ¡§Accumulate¡¨. (Closing price as at 10 October)

2019H result

Revenue Increased by Approximately 15%, and Contribution of NEVs Increased to 42%

BYD recorded a revenue of RMB59,215 million in 2019 H1, up 14.06% yoy. Among the revenue components, the business of automobiles and related products was RMB32,238 million, up 16.06% yoy; mobile phone components and assembly business amounted to RMB23,002 million, up 15.15% yoy; revenue from rechargeable batteries and photovoltaic business was approximately RMB3,975 million, down 4.46% yoy. The three major businesses accounted for 54.45%, 38.84% and 6.71% of the total revenue, respectively. Specially, the NEV business recorded a revenue of approximately RMB25,111 million, up 38.84% yoy, accounting for 42.41% of the revenue.

Doubled Profits with Increased Volatility in Performance

In H1, the Company recorded a net profit of RMB1,455 million, up 203.61% yoy, mainly due to the large increase in sales of NEVs. In H1, the Company sold 228,000 vehicles, up 1.6% yoy, including 141,000 new energy passenger vehicles, up 98% yoy, and its market share in NEVs rose from approximately 20% in 2018 to 24% in the period. The Company simultaneously announced that the performance range for 2019 Q3 was between RMB100 million and RMB300 million, down 71% to 90% yoy, mainly due to the subsidy decline and the decline in the automobile market, which affected the demand for NEVs.

Overall Improved Gross Margin and Decreased Period Expense

In H1, the Company's comprehensive gross margin was 17.14%, increased by 1.21 ppts yoy. The increase in gross margin in the automobile sector was partially offset by the decrease in gross margin in the mobile phone sector. Benefiting from the large increase in sales volume driven by NEVs and the obvious scale effect, as well as the low base caused by policy changes in the same period last year, the gross margin of the automobile business was 23.2%, increased by 4.5 ppts yoy; mobile phone business was affected by fierce competition and declining demand from some customers, with gross margin decreased by 3.9 ppts to 8.6%; rechargeable batteries and photovoltaic business still have losses.

The Company's cost control was good, with a period cost rate of 13.38%, decreased by 1 ppts yoy. The sales expense rate, administration expense rate and financial expense rate were 3.7%, 3.33% and 2.34%, respectively, down 1.15%, up 0.08% and down 0.17 ppts yoy, respectively.

Cash flow from operating activities recorded a net outflow of RMB2,064 million, mainly due to increased accounts receivable and increased purchases of goods. In H2, cash flow is expected to improve as state subsidies are in place. The Company expanded against the trend, with R&D investment and capital expenditure increasing continuously. During the reporting period, the R&D investment was approximately RMB4 billion, with a capital expenditure of RMB10.9 billion, mainly for the expansion of battery capacity and the development of automobile projects.


Sales of NEVs is not as good as expected

Cloud Rail business risk

Slow-down of Hand-set components business


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Recommendation on 15-10-2019
Price on Recommendation Date$ 38.100
Suggested purchase priceN/A
Target Price$ 44.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)

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