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Investor Notes - Phillip Securities (HK) Ltd
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20 Dec, 2019 (Friday)

            
MICROPORT(853)
Analysis¡G
MicroPort Scientific (853) is principally engaged in the development, manufacture and sale of medical device products in China. In the first half of 2019, the Group`s cardiovascular business, endovascular and peripheral vascular business, and neurovascular business grew rapidly while solid progress in domestic production of orthopedics was achieved. Development of research projects proceeded smoothly and several key products were launched after obtaining the registration certificate. For the six months ended 30 June, 2019, the Group realized a revenue of US$392.6 million, representing an increase of 26.7% as compared with the same period of 2018, and an increase of 33.9% after excluding the impact of foreign exchange. The recorded net profit was US$65.47 million, representing an increase of 175.5%. The Group`s gross profit margin increased to 71.7% from 70.8%, primarily attributable to the optimization of the product sales mix. (I do not hold the above stock)
Strategy¡G
Buy-in Price: $8.20, Target Price: $9.10, Cut Loss Price: $7.70


SINOPHARM(1099)
Analysis¡G
The company is the largest wholesaler and retailer of pharmaceutical and healthcare products and medical devices, and a leading supply-chain service provider in the PRC. In 1H2019, the pharmaceutical distribution business of the company achieved a revenue of RMB164,700.64 million, representing an increase of 22.22% on a YoY basis, and the company successfully acquired 100% equity interest in Anhui Pharmaceutical (Group) Co., Ltd., which effectively promoted the penetration of the business network to lower-tier market in Anhui province, and further improved the company`s business share and service capability in this region. The company keep promoting the ¡§synergetic whole-retail¡¨ pharmaceutical business mode, sales revenue reached RMB8,841.93 million, representing an increase of 24.51% YoY. The company has 1,009 professional pharmacies as at 30 June 2019 with network covering 30 provinces, municipalities and autonomous regions across the country. In addition, the company vigorously developed the medical device distribution business. In 1H 2019, the medical device business of the company achieved rapid growth, with sales revenue reaching RMB29,024.79 million, representing an increase of 35.96% YoY, hence bringing significant contribution to both revenue and profit of the Group. In the future the company will further optimize its principal business, explore its core competitive advantages, diversify its business layout and explore new business mode, in order to consolidate the status in the industry and ensure high quality development of the business through ongoing stable endogenous growth and strategic external expansion.
Strategy¡G
Buy-in Price: $26.00, Target Price: $30.00, Cut Loss Price: $24.30


Murata Manufacturing Co., Ltd. (6981)
Established in 1944 in Kyoto City. Using electronic materials with superior qualities, they carry out the design / manufacture / retail of cutting-edge electronic components and multipurpose high-precision modules, etc. Offers various applications from mobile phones to home appliances, automobile-related applications to energy management systems and healthcare equipment.For 1H (Apr-Sep) results of FY2020/3 announced on 31/10, net sales decreased by 3.5% to 760.938 billion yen compared to the same period the previous year, operating income decreased by 12.9% to 121.393 billion yen and net income decreased by 16.2% to 90.729 billion yen. Sales for their laminated ceramic capacitor for smartphones, surface acoustic wave filter and lithiumion batteries have decreased. Effects from foreign exchange fluctuations have also appeared.Company revised their full year plan during their 1H announcement. Net sales has been lowered from 1.58 trillion yen in the original plan to decrease by 4.1% to 1.51 trillion yen, however, operating income has been raised from 220 billion yen to decrease by 13.8% to 230 billion yen. Company announced on 5/12 that they developed the world's smallest (0201M size) ceramic capacitor with a maximum capacitance of 0.1£gF.Target Price : 7,010 yenBuy Price : 6,500 yenCut-Loss : 6,200 yen



CH ENERGY ENG (3996.HK) - Newly signed contracts keep growing

Company update

Since November 2019, the company and its subsidiaries have signed or awarded a number of new projects, including four domestic projects involving an investment of approximately RMB17.2 billion; eight overseas projects mainly focus on power station projects. Major projects include: 1) China Energy Engineering Group Guangdong Power Engineering Co., Ltd., a subsidiary of China Energy Engineering Group Southern Construction & Investment Co., Ltd. has entered into an EPC contract for the Baltic Sea 324.8MW Wind Farm Project in Poland. The project is located in Słupsk, Poland near the Baltic Sea, and includes 5 specific projects, Its main work comprises power station EPC construction, which includes designing services, manufacturing, supervising, testing, equipment supplying, whole factory constructing, installing, debugging, training, spare parts within the warranty period, consumables and services, etc. The contract amount of the project is approximately EUR568 million. 2) The project is located in Umm Al Quwain, United Arab Emirates. Its main work comprises the construction of a seawater desalination plant with a daily production capacity of 150MIG (approximately 682,000 tonnes/day), including the design, procurement, construction, debugging and testing of seawater intake and drainage ancillary facilities and water storage tanks. The total contract amount of the project is approximately USD625 million, of which the contract amount of Gezhouba International Co. is approximately USD369.5 million. The contract term is 33 months, commencing from the date of construction. 3) The project company is jointly established by the government-funded representative and the social investor, and is responsible for the unified operation. The total investment of the project is approximately RMB5.732 billion, and the term of cooperation is 30 years, including 4 years of construction period and 26 years of operation period. 4) a subsidiary and cooperating parties has entered into an EPC contract for the 1000MW Oil and Gas Combined Cycle Power Station Project in Maysan, Iraq.The project is situated in Maysan Governorate, Iraq. Its main works comprise the design, procurement, and construction of the 1000MW Oil and Gas Power Station. The contract amount of the Project is approximately USD1,200 million. The contract term is 36 months. According to the National Bureau of Statistics, the cumulative annual growth rate of China's fixed asset investment was 5.2% in October 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 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 strategic cooperation agreements with SHIG and Sansha city's government to promote business transformation and development

On November 19, 2019, the signing ceremony of the strategic cooperation framework agreement between China Energy Construction Group Co., Ltd. and Sansha City Government was held in Sansha. According to the agreement, the two sides will carry out comprehensive cooperation in the areas of infrastructure construction and ecological protection in Sansha City, and jointly advance the implementation of relevant major projects. 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. The company actively explores cooperation opportunities, seeks business transformation and development, and lays the foundation for new performance growth points in the future.

Adjust TP to HKD 1.05, degrade to "ACCUMULATE" rating

We adjusted target price to HKD 1.05, corresponding to FY19/FY20/FY21 6.34x/5.94x/5.62x PE, which was +17.98% higher than the current price (HKD 0.89 as of December 13, 2019), degrading to ¡§ACCUMULATE¡¨ rating.

Risk

International business fails expectations;

China infrastructure investment fails expectations;

China electricity investment fails expectations;

Policy risk.

Financials

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Recommendation on 20-12-2019
RecommendationACCUMULATE
Price on Recommendation Date$ 0.890
Suggested purchase priceN/A
Target Price$ 1.050
Writer Info
Leon Duan
(Research Analyst)
Tel: +852 2277 6515
Email:
leonduan@phillip.com.hk

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