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28 Oct, 2019 (Monday)



COFCO MEAT(1610)
Analysis¡G
COFCO Meat`s business includes feed production, pig breeding, slaughtering, production and distribution of fresh pork and meat products, and import and sale of frozen meat products. The company is one of the first companies in China to adopt large-scale pig farming. In the recently released CPI index data, pork prices rose by 69.3% year-on-year in September. COFCO Meat released the 2019Q3 Operational Express¡G live pig production was 265,000 heads, down 60.4% year-on-year; fresh pork sales were 35,000 tons, down 28.1% year-on-year. Although the amount of live pigs fell sharply, in the third quarter of 2019, the company`s average price of commercial pigs was 22.22 yuan / kg, much higher than the company`s average pork price of 11.41 yuan / kg in the first quarter of this year and the average price of pork in the second quarter of 13.9 yuan. /kg. It is expected that the performance of the company in the third quarter will be significantly better than the first half.
Strategy¡G
Buy-in Price: $2.80, Target Price: $3.60, Cut Loss Price: $2.30


Shiseido Co., Ltd (4911)
Established in 1872 in Ginza, Tokyo, as the first western-style pharmacy in Japan. Manufactures and sells cosmetics, cosmetic tools, toiletry products, beauty products, beauty foods, medicines, etc. Boasts the largest scale in Asia as a cosmetic manufacturer, with operations in 120 countries and regions. Brands include ¡§Shiseido¡¨, ¡§Clé de Peau Beaut顨 etc.For 1H (Jan-Jun) results of FY2019/12 announced on 8/8, net sales increased by 6.0% to 564.647 billion yen compared to the same period the previous year, operating income decreased by 3.0% to 68.98 billion yen, and net income increased by 10.0% to 52.452 billion yen. All regions achieved growth if the impact of advanced shipments associated with the introduction of a core information system for the US business, and the withdrawal from the Amenities Goods business, were excluded. Company has revised its full year forecast upwards during the 1H performance announcement. Current income for the period is expected to increase by 35.2% to 83.0 billion yen from the original plan of 75.5 billion yen. Company announced on 8/10 its acquisition of US Drunk Elephant Holdings. Drunk Elephant is a skincare brand that has a strong following among young people, and is therefore expected to strengthen the foundation of the US business.Target Price : 8,850 yenBuy Price : 8,550 yenCut-Loss : 8,282 yen



Dongfeng (489.HK) - Attractive valuation

Investment Summary

Interim Result Increased Slightly by 5%

Dongfeng Motor recorded sales revenue of RMB48,447 million in H1, down approximately 16.4% from approximately RMB57,922 million in the same period last year. The decline in revenue was mainly due to the decline in sales revenue of Dongfeng Peugeot Citroen. In addition, the weakness of passenger vehicle business of Dongfeng Liuzhou Motor Co., Ltd. also caused some drag. The net profit attributable to stockholders reached RMB8.5 billion, up 5.3% yoy, with EPS of RMB0.99. The Company continued to distribute a steady interim dividend: 10 cents per share.

Multiple Factors Interwove to Push the Result Higher Against the Trend

The result of the Company rose against the background of weak market in H1. The main factors include:

1) The total cost decreased by 18.5%, more than the revenue decrease, mainly due to the outstanding profit performance of commercial vehicles and the rapid development of auto finance business. As a result, gross profit decreased slightly, by only 3.2% or RMB260 million yoy. Gross margin increased by 2.2 ppts to 16.1% yoy.

2) Due to the decrease in advertising expenses in H1, the sales expenses continued to decrease by 11.4% or RMB324 million yoy. As there was no gas, water and electricity charges accrued in the same period last year during the period, and the technology transfer fee of DFPSA decreased, other expenses decreased by RMB870 million.

3) Profit attributable to affiliated enterprises increased by RMB697 million or 11.45% yoy, mainly due to the lower base because of recall of Dongfeng Honda passenger vehicles and provisions set aside for large-value asset impairment in the same period last year.

These positive effects were offset partly by the following factors:

1) Due to the increase in interest expenses and unfavourable exchange direction, financial expenses increased by RMB166 million yoy.

2) The decrease in interest income resulted in a decrease of RMB380 million in other operating income. Available-for-sale financial assets increased by RMB340 million.

Overall Sales Beat the Big Market, with Japanese-series Brands Being the Main Driving Force

According to the total sales volume, the market share of the Company in H1 was approximately 11.2%, up by 0.5 ppts yoy. The market share of passenger vehicles and commercial vehicles increased by 0.3 and 0.8 ppts, respectively. In H1, the Company sold approximately 1,374,400 vehicles, down approximately 9% yoy, lower than the industry average by approximately 3.4 ppts. Specially, 1.134 million passenger vehicles were sold, down 11.3% yoy, lower than the industry average by approximately 2.7 ppts. The sales volume of Sedan, SUV and MPV models decreased by 6.2, 13.6% and 30.7% yoy, respectively. According to brands, Japanese joint ventures were the main driving force of sales volume: The sales volume of Dongfeng Motor Co., Ltd. (DFL) decreased by 1.7%, the sales volume of DFPSA decreased by 60%, and the sales volume of Dongfeng Honda increased by 13.3%.

The sales volume of commercial vehicles reached 240,500 vehicles, up 3.9% yoy, 8 ppts higher than the industry; the sales volume of medium heavy trucks decreased by 0.8% yoy, lower than the industry average by 5 ppts, while the sales volume of light trucks increased 14.5% yoy, leading by 16.2 ppts.

Long-term and Arduous Task to Improve French Brands

In terms of sales in Q3, Japanese brands remained strong, while DFL continued to rise against the trend but its growth rate narrowed, with sales volume up 5% yoy to 377,000 vehicles; Dongfeng Honda surged 21.7% to 212,000 vehicles. The sales volume of French vehicles decreased by 40% yoy to 28,000 vehicles. Driven by heavy trucks and light trucks, the commercial vehicle sector recorded a good growth rate, with sales volume up 11% yoy in Q3. In response to the declining trend of French vehicles, the shareholders of China and France have launched a six-year meta-plan to make all-round adjustments in the organization structure, models and marketing to reduce the management level. In the next three years, 14 new vehicles will be launched and a dual-brand collaborative sales strategy will be implemented to restore the annual sales volume to 400,000 vehicles. We believe that in the current vehicle market environment, it is a long-term and arduous task to achieve this objective.

Investment Thesis

In accordance with the latest data, we adjust the Company's EPS forecast, and target price to HK$9, equivalent to 5.0/4.7x P/E ratio in 2019/2020. The "Buy" rating is given. (Closing price as at 24 October)

Financials

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Recommendation on 28-10-2019
RecommendationBuy
Price on Recommendation Date$ 7.430
Suggested purchase priceN/A
Target Price$ 9.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)
Email:
zhangjing@phillip.com.cn

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