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Investor Notes - Phillip Securities (HK) Ltd
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25 Nov, 2019 (Monday)

CPMC Holding (906) recently announced the results of arbitration application filed by the Group at Hong Kong International Arbitration Centre against Wong Lo Kat with regard to Wong Lo Kat`s failure to perform its undertaking to inject the JDB Trademarks to Qingyuan JDB Herbal as its asset capital contribution. The arbitration results are favorable to CPMC Holding as CPMC Investment will receive an indemnification of the amount of RMB229 million from Wong Lo Kat as well as the injection of JDB Trademarks into Qingyuan JDB Herbal. After receipt of the above arbitral awards, the Group has conducted effective communication with the JDB Group. The Group will closely cooperate with the JDB Group and jointly promote the proposed listing plan of JDB Group. (I do not hold the above stock)
Buy-in Price: $3.20, Target Price: $3.50, Cut Loss Price: $3.05

China Tower`s 19H1 revenue reached RMB 37.98 billion, up 7.5% yoy; net profit increased by 110.6% yoy to RMB 2.55 billion. Domestic mobile phone manufacturers such as Huawei and Xiaomi have said that they will launch new mobile phones soon. The 5G landing time is getting closer and closer, and the demand for base station construction will increase accordingly. As of the end of July, the company has completed the construction and delivery of 7863 5G base stations, and the operators have opened 6324 5G base stations. It is expected that by the end of 2019, more than 10,000 5G base stations will be built.
Buy-in Price: $1.60, Target Price: $2.30, Cut Loss Price: $1.30

United Arrows Ltd (7606)
Established in 1989. Operates multi-brand shops that market a broad mix of designer brand products, private label brand men's and women's clothing and accessories, and miscellaneous items that have been sourced in keeping with the company's distinctive sensibility. Brands include ¡§UNITED ARROWS¡¨ etc.For 1H (Apr-Sept) results of FY2020/3 announced on 6/11, net sales increased by 3.9% to 74.576 billion yen compared to the same period the previous year, operating income increased by 28.8% to 3.903 billion yen, and net income increased by 29.2% to 1.942 billion yen. In addition to the increase in sales derived from new store openings, online shopping also grew 20.7% YoY. Improved profit margins at some consolidated subsidiaries and outlets had also contributed to higher profits.For its full year plan, net sales is expected to increase by 3.3% to 164.24 billion yen compared to the previous year, operating income to increase by 8.2% to 11.97 billion yen, and current income to increase by 4.4% to 6.7 billion yen. Details announced on 9/5 remain unchanged. Company has decided to merge ¡§Designs¡¨, its consolidated subsidiary. ¡§Designs¡¨ has been promoting ¡§BLAMINK¡¨, an original brand. Sales per customer is over 100,000 yen, but that could not cover HQ expenses, resulting in losses. Expects to improve performance through efficiency improvement post integration.Target Price : 3,960 yenBuy Price : 3,450 yenCut-Loss : 3,000 yen

Geely (175.HK) - The trend of product mix upgrading continued with the newly-launched models grow steadily

Investment Summary

Wholesale Sales Volume Stopped Falling in October yoy

In October, the wholesale sales volume of Geely reached 130,000 units, up 1% yoy. The overseas sales volume of the sub-market was 2,986 units, up 123% yoy; the domestic sales volume was 127,000, down 0.4% yoy, a sharp decrease compared with 9% last month. From January to October this year, the total sales volume of Geely was 1,088,290, down 14% from 1,265,844 units in the same period last year, reaching 80% of the annual sales target of 1.36 million units. In view of this year's peak season ahead of schedule and the usual year-end sales promotion of the car companies, we believe that the company is quite sure to achieve the annual goal.

Compared with the previous month, sales volume of Geely in October continued the recovery trend since June, up 14% mom. Among them, overseas sales rose 11% mom, while domestic sales rose 14% mom.

The trend of product mix upgrading continued with the newly-launched models grow steadily

Influenced by the slowdown of market growth and other factors, many models of Geely have seen a year-on-year decline in sales, but still rank good in peers. The Company sold more than 10,000 units per month for five models, and the upgrading trend of the product line continues. Compared with the same period last year, sales growth mainly comes from new models BinYue/LYNK03/ Jihe/JiaJi/XingYue (+23,636 units yoy), and old models BoYue/Vision X3 (+1,725 units). BoYue, which has widened its price range with its new model Bo Yue pro, has saw more than 20,000 units again for two consecutive months.

The sales decrease mainly comes from DihaoGL/ Vision sedan/LYNK0102/ Vision SUV/ BoRui/ Dihao (-26,213 units): the sharp decline in sales volume of DihaoGL is mainly caused by the sales diversion of BinRui, which has the similar positioning to DihaoGL, and the total share is not reduced. The larger decline in Vision sedan is due to the older models and the price reduction of competitors.

Benefited from the sinking of channels, the short-term old models improved significantly on a month on month basis

Compared with last month, the new models BinRui and BinYue grew faster (+ 3,328 units mom). It is worth noting that the old models including Vision SUV/Vision X3/Dihao/ DihaoGS have contributed to the main mom increase (+10,777 units). We believe that the main reasons are as follows: 1) the sinking of channels and the recovery of demand in tier 3, 4 and 5 cities. 2) benefited from the launch of Dihao GSe, although it is diversified by BinYue, DihaoGS still leads the sales trend of crossover SUV for domestic selfbrands; 3) the bottleneck problem of the production capacity of the Luqiao Factory for Vision X3 has been solved.

Unlike the past, the Company is cautious in stock, and the inventory of dealers is maintained at a healthy level of about 1.5 to 2 months.

Integration of engine business and platform strategy will help to further reduce costs and increase efficiency

The Company plans to merge its engine business with Volvo as an independent business sector, focusing on fuel and hybrid power, while providing engines and hybrid power systems for Volvo, Geely, Proton, Lotus, London electric vehicles and LYNK & Co to enhance the technical competitiveness of the Company's products. Volvo Auto China will focus on the R&D of electric products, with a clearer division of research and development, and the scale effect will be further improved.Between the end of the year and the first half of next year, Geely is expected to release 5-6 new models, including the new SUV "ICON" from the BMA platform, the LYNK & CO 04/05 from the CMA platform, the Preface sedan, the second geometric series model from the PMA platform, and the business MPV model VF12.It is expected that with the launch of more new modular platform products, the R & D and production costs will be greatly reduced.

Investment Thesis

We think the current domestic car market has obvious signs of slow recovery, but the fierce price competition in the car market will still be the main pressure affecting the profitability of car companies in the future. As the leader of the self-owned brands, Geely Auto has strong advantages in cost control, model development and other aspects. We adjusted the Company's valuation multiple to reflect the improvement in sentiment after the car market trough. We revised our target price to HK$16, equivalent to 14.4/12.5 P/E ratio in 2019/2020, and we give the rating of Cautiously Accumulate. (Closing price as at 21 November)


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Recommendation on 25-11-2019
RecommendationCautiously Accumulate
Price on Recommendation Date$ 15.000
Suggested purchase priceN/A
Target Price$ 16.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)

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