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5 Nov, 2019 (Tuesday)



XIAOMI(1810)
Analysis¡G
Xiaomi Group`s adjusted net profit for the first half of the year was 5.716 billion yuan, a year-on-year increase of 49.8%. The adjusted net profit for the second quarter was 3.64 billion yuan, a year-on-year increase of 71.7%. Gross profit margin increased to 14.0% from 12.5%. As of June 30, 2019, the company`s total cash reserves have reached RMB 51.1 billion. From the perspective of specific business, Xiaomi`s revenue mainly comes from four sectors - smart phones, IoT and consumer goods, Internet services, and overseas income. As of the end of the second quarter, Xiaomi`s smartphone revenue reached 32 billion yuan, a year-on-year increase of 5.0%, sales of 32.1 million units, ranked fourth in global shipments, and market share increased to 9.7%. IoT and consumer goods business revenue reached 14.9 billion yuan, up 44% year-on-year and 24.17% quarter-on-quarter; Internet service revenue was 4.6 billion yuan, up 15.7% year-on-year and 6.98% quarter-on-quarter;Other parts of the revenue was 1.4 billion yuan, an increase of 89.9%, mainly due to the rapid growth of financial technology services and Youpin e-commerce platform. Xiaomi`s current price is at an all-time low, below the industry level. On October 28, Xiaomi was included in the Hong Kong Stock Connect program. After experiencing all bad news, Southbound is a good news for Xiaomi.
Strategy¡G
Buy-in Price: $9.00, Target Price: $10.20, Cut Loss Price: $8.00


Hagoromo Foods Corp (2831¡^
Established in 1947 after founding the tuna canning business in 1931. Trademarked the ¡§Sea Chicken¡¨ product name in 1958. Has the Food Business that manufactures and sells canned foods, pasta, packaged cooked rice, bonito shavings and seaweed.For 1Q (Apr-Jun) results of FY2020/3 announced on 14/8, net sales increased by 3.3% to 20.978 billion yen compared to the same period the previous year, and operating income increased by 8.5% to 703 million yen. Sales of mainstay tuna products, which account for 46% of sales, increased 8.5% YoY. Along with this, the strong sales of new products with high gross margin, and lowering of advertising expenses had contributed to increased sales and profits.For its full year plan, net sales is expected to increase by 0.6% to 80.4 billion yen compared to the previous year, and operating income to increase by 21.8% to 1.9 billion yen. Although there is a tendency for the boom in canned mackerel to push results positively, new products such as ¡§oil-free sea chicken¡¨ that do not use oil are also selling well. The rise in price of longfin tunas, the main raw material, as a result of seawater temperature fluctuations has been absorbed by the price increase with effect from the 1/10 shipment. We can expect increased demand for canned food when evacuating during disasters. Let's look forward to the performance of President Goto who assumed office on 15/10.Target Price : 2,750 yenBuy Price : 2,650 yenCut-Loss : 2,570 yen



CH ENERGY ENG (3996.HK) - Newly signed contracts keep growing, promising in business transformation

Company update

For the nine months ended September 30, 2019, the company recorded revenue of RMB 159.19 billion, showing an increase of 5.40% YoY; gross profit was RMB 21.10 billion, showing an increase of 8.94% YoY; gross profit margin was 13.26%, increasing 0.43 ppts YoY. We expect that the performance increase was mainly due to the growth of the construction and contracting segment and the industrial manufacturing segment businesses, while the increase in gross profit margin was mainly attributable to the faster growth of related sectors with higher gross profit margins. The net profit attributable to owners was RMB 3.19 billion, showing a YoY decrease of 3.32%, which was slightly slower than that of 1H2019.

Newly signed contracts maintained steady growth and sufficient reserve in hand orders

In 2019Q3, the company's new contract value was RMB 357.95 billion, a YoY increase of 11.73%, which was further accelerated compared with the new contract in 1H2019. When divided by region, the newly signed domestic contract amounted to RMB 235.71 billion, accounting for 65.85% of the total new contract, increasing 11.82% YoY; the international new contract amount was equivalent to RMB 122.24 billion, accounting for 34.15% of the total new contract, increasing 11.56% YoY. When divided by business, the newly signed contract value of power engineering business was RMB 217.92 billion, accounting for 60.88% of the total new contract value, increasing 13.70% YoY; the newly signed contract value of non-power engineering business was RMB 140.04 billion, accounting for 39.12% of the total amount of newly signed contracts, which resumed growth with an increase of 8.80% YoY. According to the National Bureau of Statistics, the cumulative annual growth rate of China's fixed asset investment was 5.4% in September 2019, maintaining moderate growth. However, the current downward pressure on the economy is increasing, government is expected to continue introducing relevant policies to increase the infrastructure investment to drag the bottom of the economy. In addition, the growth rate of aggregate financing to the real economy is rising steadily, and the monetary policy remains stable and loose, which will benefit the development of the infrastructure sector. We expect that the new contract value of the company will continue to grow steadily.

Signed a strategic cooperation agreement with SHIG to promote business transformation and development

On July 26, 2019, the company has entered into a strategic cooperation framework agreement with Shandong Heavy Industry Group Co., Ltd. (SHIG). Both parties unanimously agreed to establish a comprehensive strategic co-operative partnership in various aspects such as engineering construction and equipment procurement, international business, high-end equipment and industrial park construction, new energy, capital cooperation, technological services as well as talent cooperation. The two parties would fully utilize their respective advantages in various aspects such as their technology, capital, talents, management, market and resources, achieving a win-win situation with mutual benefits and joint development. It is understood that SHIG is a Shandong Provincial state-owned enterprise, and is a Chinese leading and internationally renowned automobile and equipment manufacturing group. Its business covers six major segments including powertrain system, automobile, engineering machinery, intelligent logistics, luxury yacht and financial service. SHIG owns Weichai Power (2338.HK, 000338.SZ), Weichai Heavy Machinery (000880.SZ), Shantui Construction Machinery (000680.SZ), Zhongtong Coach (000957.SZ), Asiastar Coach (600213.SH) , Germany KION Group (KGX.DE) and many other listed companies. Weichai heavy-duty engine, Shantui bulldozer, Zhongtong Coach, SHACMAN heavy-duty truck, FAST heavy-duty gearbox, Hande heavy-duty axle, Torch sparking plug, Ferretti yachts, KION forklift, Linde hydraulics and Dematic etc. are well-known brands at domestic and abroad.

Cut TP to HKD 1, maintain "BUY" rating

We adjusted our forecast for FY19/FY20/FY21 incomes to RMB 238.9/247.6/256.9 billion, showing increases of 6.65%/3.65%/3.74% YoY; net profit attributable to shareholders were RMB 4.5/4.8/5.1 billion, with increase of -1.76%/6.74%/5.58% YoY; the corresponding EPS was RMB 0.15/0.16/0.17. The target price was adjusted to HKD 1.00, corresponding to FY19/FY20/FY21 6.04x/5.65x/5.36x PE, which was +25.00% higher than the current price (HKD 0.80 as of November 1, 2019), maintaining a ¡§BUY¡¨ rating.

Risk

International business fails expectations;

China infrastructure investment fails expectations;

China electricity investment fails expectations.

Financials

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Recommendation on 5-11-2019
RecommendationBUY
Price on Recommendation Date$ 0.800
Suggested purchase priceN/A
Target Price$ 1.000
Writer Info
Leon Duan
(Research Analyst)
Tel: +852 2277 6515
Email:
leonduan@phillip.com.hk

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