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23 Dec, 2019 (Monday)

            
CALC(1848)
Analysis¡G
China Aircraft Leasing Group (1848) continues to implement the asset-light model and launched the China Aircraft Global (CAG) which is principally engaged in the investment of aircraft assets. Additionally, CALC continues to implement the strategic model of the full aviation value chain and makes headway with ARI's aircraft disassembly and aircraft components trading business. At the same time, the MRO business of ARI's joint venture obtained a CCAR 145 maintenance permit from Civil Aviation Administration of China for the line maintenance of the Boeing 737NG and Airbus A320 models. (I do not hold the above stock)
Strategy¡G
Buy-in Price: $8.30, Target Price: $9.30, Cut Loss Price: $7.80


LUYE PHARMA(2186)
Analysis¡G
The company focuses on developing, producing, marketing and selling innovative pharmaceutical products in four of the largest and fast-growing therapeutic areas in China, the United States (US), Europe and other countries or districts, namely oncology, central nervous system (CNS), cardiovascular system, alimentary tract and metabolism. As at 30 June, 2019, the company recorded revenue of RMB3,130.9 million, up 42.1% YoY; gross profit was RMB2,431.9 million, up 38.5% YoY; gross profit margin was 77.7%; Profit attributable to shareholders was RMB766.6 million, up 36.2% YoY. The company's product portfolio consists of over 30 products and centers around 7 key products, 5 of which have patent protection and are indicated for the treatment or prevention of high prevalence medical conditions, including cancer, cardiovascular diseases, diabetes and CNS diseases. The company has established an extensive nationwide sales and distribution network and sold its products to 30 provinces, autonomous regions and municipalities throughout China in 1H2019. As at 30 June 2019, the company had been granted over 232 patents and had over 57 pending patent applications in China, as well as over 671 patents and over 140 pending patent applications overseas. Meanwhile, the company had a pipeline of 41 product candidates in various stages of development in China, and had a pipeline of 10 candidate products in the US, Europe and Japan in various stages of development. In the future the company will further deepened its market penetration and expanded the market share of its key products to maintain its competitiveness.
Strategy¡G
Buy-in Price: $5.70, Target Price: $6.50, Cut Loss Price: $5.30


AEON¡]8267¡^
Established in 1926 as Okadaya in Yokkaichi City, Mie Prefecture. Changed their trade name in 1970 to JUSCO, and established their group name as ¡§AEON Group¡¨ in 1989. As a pure holding company, they focus on the retail business with the GMS (hypermarket) business as their core, and expands various businesses in an integrated manner involving comprehensive finance, developers and services / specialty stores, etc.For 1H (Mar-Aug) results of FY2020/2 announced on 9/10, operating revenue increased by 0.6% to 4.290215 trillion yen compared to the same period the previous year, operating income decreased by 3.9% to 86.326 billion yen and net income decreased by 64.1% to 3.791 billion yen. Effects from a recording of a lump sum correction for the fraudulent accounting / error in the past fiscal year found in the subsidiary of their consolidated subsidiary, Aeon Delight (9787), have appeared.For its full year plan, operating revenue is expected to increase by 1.0% to 8.6 trillion yen compared to the previous year and net income to increase by 5.8% to 25 billion yen. The content announced on 10/4 remains unchanged. On 29/11, company concluded a domestic exclusive partnership agreement with a subsidiary of the UK online supermarket company, Ocado Group. Will establish a new company to reinforce digital, AI and robotics.Target Price : 2,410 yenBuy Price : 2,230 yenCut-Loss : 2,180 yen



Tuopu Group (601689.CH) - Lightweight and Automotive Electronics Business See Opportunities

Investment Summary

Decline Slowed in the Third Quarter

Tuopu Group recorded a revenue of RMB3766 million in the last three quarters, a 15.50% fall compared with the same period of last year. Among which, Q3 revenue was RMB1328 million, signaling a 3.90% Y-o-Y decrease and a M-o-M increase of 11.30%. Compared with the 25% decrease in the second quarter, the decrease has significantly shrunk.

In terms of net profit attributable to the parent company, it was RMB340 million in the last three quarters, decreasing by 30% year-on-year. Among the RMB340 billion, RMB130 million was in the third quarter, which represented a 30% year-on-year decrease and a 30% month-on-month increase. Compared with the same period of last year, gross profit margin and net profit margin down 1.55 and 3.5 ppts, respectively, mainly attributed to the decline in industry prosperity and the increase in depreciation.

Recovery of Sales Volume of Major Customers Leads to the Improvement of Capacity Utilization Ratio

The improvement in results in the third quarter is resulted from the improved demand from downstream customers. The output of the company's major customers Geely Motor and SAIC GM increased by 9.3% and 3.8%, respectively in the third quarter over the previous quarter. The production of SAIC self and Chang`an Ford also improved compared with the previous quarter, leading to a rebound in the company's capacity utilization. Gross profit margin increased by 0.6 ppts to 26.4% compared with the second quarter, and net profit margin also increased by 1.4 ppts to 9.55% compared with the second quarter. We expect that with the further improvement in sales of major customers in the fourth quarter, the company's profitability will continue to pick up, and net profit growth is expected to be positive.

The company continued to reduce costs and increase efficiency in adversity, and the sales, management and R&D expenses accounted for 14.76% of revenue in the third quarter, which fell by 0.92 ppts compared with the second quarter. The company has a good cash flow with a RMB226 million net flow from its operating activities. Inventories fell 12.9% year-on-year to RMB1.14 billion.

Lightweight and Automotive Electronics Business See Opportunities for Development

The construction of Tesla's Shanghai plant was faster than expected. The trial production began in October and nearly 20,000 vehicles will be produced by the end of the year. As capacity climbs, production will reach 150,000 in 2020 and is expected to exceed 250,000 in 2021. Tuopu supplies Tesla with more than RMB5,000 for each vehicle, and it is estimated that the Model 3 vehicles will bring the company a net profit increment of RMB93 million and RMB180 million in the next two years, respectively, accounting for about 12% and 24% of the company's net profit in 2018. In the field of automotive electronics EVP and IBS, the company's visionary layout brings it a leading position among domestic manufacturers. Tuopu is expected to break through the technological monopoly of foreign giants and realize domestic substitution in the future.

Overall, the Company's lightweight chassis and automotive electronics business are in line with the trend of industry upgrading, which will inject momentum into the company's new round of development.

Investment Thesis

We estimate that the company's net profit in 2019/2020/2021 will reach RMB513 /714/969 million, respectively, with the corresponding EPS being RMB0.49/0.68/0.92. Although the results in 2019 are under pressure, under the acceleration of Tesla's localization, the company's results will usher in an inflection point and we are optimistic about the development prospects of the company's lightweight business and automotive electronics. So, we lift the Company's target price to RMB19, respectively 26/21 x P/E for 2019/2020/2021, a "Accumulate" rating. (Closing price as at 19 Dec)

Risk

Price war among peers

Raw material price increase

New business risk

Financials

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Recommendation on 23-12-2019
RecommendationAccumulate
Price on Recommendation Date$ 17.440
Suggested purchase priceN/A
Target Price$ 19.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)
Email:
zhangjing@phillip.com.cn

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