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Investor Notes - Phillip Securities (HK) Ltd
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6 Mar, 2020 (Friday)

            
YINCHENG LS(1922)
Analysis¡G
Yincheng Life Service (1922) is principally engaged in the provision of property management services. Its business covers a wide spectrum of properties, including residential properties and non-residential properties. As at 30 April 2019, it managed 197 properties with GFA under management reaching 19.61 million square metre. Its property management services covered 10 PRC cities, including seven cities in Jiangsu Province and three cities in other provinces in the Yangtze River Delta Megalopolis. According to its positive profit alert, the Group is expected to record an increase in the adjusted profit attributable to owners of the Company (i.e. before deduction of listing expenses) for the year ended 31 December 2019 by not less than 40% as compared to the corresponding period in 2018. Such increase was mainly attributable to (i) the increase in the Group`s gross floor area under management; (ii) the increase in revenue generated from the provision of community value-added services; and (iii) the increase in gross profit generated from the provision of property management services to projects of the Group undertaken from independent third party property developers since such projects have now gradually entered into the mature period. (I do not hold the above stock)
Strategy¡G
Buy-in Price: $1.95, Target Price: $2.20, Cut Loss Price: $1.80


361 DEGREES(1361)
Analysis¡G
In recent years, 361 has launched a brand remodeling plan, invested more resources to incubate new brand images, research and develop functional products, and expand consumer groups. The research and development of cushioning running shoes have won awards from many professional evaluation agencies abroad. The company has the right to use the trademark of the high-end ice and snow sports brand ONEWAY in China. In the future, it will use the publicity effect of the Winter Olympics to seize the opportunities for snow and ice sports development. Health management will still be the main driving force for the growth of the sportswear industry in the Mainland after the epidemic. It is estimated that the relevant sales growth rate will exceed double digits from 2021 to 2022. It is estimated that per capita sportswear consumption in the Mainland will reach 290 yuan by 2022.
Strategy¡G
Buy-in Price: $1.40, Target Price: $1.85, Cut Loss Price: $1.10



CEB WATER (1857.HK) - Results of 2019 exceed expectations, price and capacity both rise to promote development

Company Update

As of 2019, the company has invested and held 1 raw water protection project, 3 water supply projects, 96 municipal sewage treatment projects, 12 industrial wastewater treatment projects, 1 leachate treatment project, 8 reclaimed water reuse projects, 6 basin treatment projects and 2 sewage source heat pump projects, while undertaking 2 EPC projects and 1 O&M project. The total design capacity is 850,000 cubic meters of water per day, 5.14 million cubic meters of sewage per day, and 206.6 thousand cubic meters of reclaimed water per day. The sewage source heat pump project can provide heating and cooling services for an area of ​​295,000 square meters. It includes 101 operating projects, 1 completed project, 14 projects under construction, and 16 preparatory projects, of which the daily water treatment capacity of the preparatory projects reaches 1.15 million cubic meters.

In 2019, the company obtained a total of 18 new projects and signed a supplementary agreement, including 1 raw water protection project, 13 sewage treatment projects, 3 reclaimed water reuse projects, 1 sewage pipe network project and 1 existing Supplementary agreement for wastewater treatment projects. The newly increased capacity is 655,000 cubic meters of sewage per day, 85,000 cubic meters of daily water supply, 600,000 cubic meters of daily water supply, and 200 tons of daily sludge treatment and disposal. A total of 10 sewage treatment plants of the company were approved to raise water prices, with price adjustments ranging from 4% to 61%. A total of 18 projects of the company are under construction, with a design capacity of 354,100 cubic meters of sewage per day, 80,000 cubic meters of daily water supply, and 200 tons of sludge per day. 18 projects were completed and put into operation, with a design capacity of 440,000 cubic meters of sewage per day, 40,000 cubic meters of reclaimed water, 150,000 cubic meters of daily water supply, and 50 tons of sludge per day. 31 projects under construction, involving a daily water treatment capacity of about 790,000 cubic meters, and a daily sludge treatment of 250 tons. The company's operating projects have been steadily improved. In 2019, it will treat about 1.43 billion cubic meters of sewage and supply about 17.65 million cubic meters of reclaimed water, an increase of 13% and 10% year-on-year. The company's business capacity has steadily expanded. It has now spread to 10 provinces, municipalities and autonomous regions. Various engineering construction projects have been steadily advanced. The quality of operation and management projects has gradually increased, laying a foundation for the further development of the company's performance.

In 2019, the company recorded revenue of HKD 5.55 billion, a year-on-year increase of 16%, an increase of 2.4 percentage points from the first three quarters of 2019. The increase in revenue was mainly due to an increase of HKD 300 million in construction revenue, an increase of HKD 300 million in operating income, an increase of HKD 76 million in financial revenue, and an increase of HKD 99 million in technical services revenue, representing year-on-year growth of 11%, 25%, 10% and 98%. The above-mentioned increase in revenue was mainly due to the increase in new projects, the operation of some new projects and the increase in water prices of some projects. The company's gross profit was HKD 1.89 billion, a year-on-year increase of 17%, which was 2.1 percentage points lower than the growth rate of gross profit in the first three quarters of 2019. The gross profit margin was maintained at 34% because the revenue share of construction business (about 24% gross profit margin) and operating services (about 47% gross profit margin) was similar to the previous year. Among them, construction revenue, construction contract revenue and technical service revenue totaled approximately 58%. Profit attributable to equity holders of the company was HKD 830 million, an increase of 23% year-on-year, and an increase of 5.9 percentage points from the first three quarters of 2019. The company's various operating indicators exceeded our expectations, reflecting the company's good project growth and cost management capabilities.

We believe that the impact of the new pneumonia epidemic on the company is relatively limited. Although the shutdown of some industrial enterprises has affected the wastewater treatment capacity of the company's industrial park, a slight increase in municipal domestic sewage offsets this impact, and the industrial wastewater treatment capacity is expected to gradually recover in the near future, and I believe that it will soon return to normal levels. In terms of construction projects, the company's resumption of work after the holiday this year has been delayed compared to previous years, but it has gradually resumed work. I believe the government's encouragement of resumption of production will gradually ease the shutdown happening. In addition, the company's liability ratio increased slightly in 2019, an increase of 2.1 percentage points from last year to 57.9%. However, the return on shareholders` equity also increased by 1.4 percentage points to 9.9%, reflecting the improvement of the company's profitability. The dividend payout ratio increased slightly by 2 percentage points to 25%. The company's management believes that there is still room for improvement in the future dividend payout ratio. In addition, the company expects capital expenditure of approximately HKD 3 billion in 2020, which will maintain approximately the same growth rate as in 2019.

Adjust TP and maintain "BUY" Rating

We adjusted our forecast for FY20/FY21/FY22 incomes to HKD 5.936/6.416/7.004 billion, showing increases of 6.93%/8.09%/9.17% YoY; net profit attributable to shareholders were HKD 863/957/1,042 million, with increase of 3.52%/10.97%/8.82% YoY; the corresponding EPS was HKD 0.3090/0.3404/0.3677. The target price was adjusted to HKD 2.51, corresponding to FY20/FY21/FY22 8.11x/7.36x/6.81x PE, which was +47.39% higher than the current price (HKD 1.70 as of March 3, 2020), maintaining a ¡§BUY¡¨ rating.

Risk

Project progress fail expectations; Industry policy; M&A fails expectations.

Financials

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Recommendation on 6-3-2020
RecommendationBUY
Price on Recommendation Date$ 1.700
Suggested purchase priceN/A
Target Price$ 2.510
Writer Info
Leon Duan
(Research Analyst)
Tel: +852 2277 6515
Email:
leonduan@phillip.com.hk

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