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

AK Medical Holdings (1789) is principally engaged in the developement, manufacturing and sale of orthopedic joint implants, related surgical instrument and 3D-printed products. The Group is the first orthopedic company which launched 3D-printed metal implants approved by NMPA in the PRC market. According to its positive profit alert, the Board expects to record a significant increase in revenue by over 50% for the year ended 31 December 2019 as compared to the revenue for the year ended 31 December 2018; and net profit attributable to shareholders is expected to record a significant increase by over 80%. The increase in revenue was primarily due to the strong demand of the China market led by further penetration of the performing of joint surgeries into more hospitals in the mainland China and the products of the Group acquired certain market share from products of foreign brands, thanks to its leading technology and high quality products. The increase in net profit was primarily due to the effect of economies of scale and by taking effective costs control measures. (I do not hold the above stock)
Buy-in Price: $15.00, Target Price: $17.00, Cut Loss Price: $14.00

Ping An GoodDoctor is the largest Internet medical and health platform in China. Through the mobile platform, the company provides online medical and health services, such as family doctor services, consumer medical services, health malls, and health management and interaction. The company has established a nationwide network of medical service providers, covering approximately 3,100 hospitals (including more than 1,000 tertiary hospitals), as well as approximately 1,100 medical examination centers, 500 dental clinics and 7,500 pharmacies. The company`s family doctor service, mobile platform and service provider network make the company an important online portal entry, forming the company`s vibrant medical and health ecosystem. The breadth and depth of the company`s user base and user participation, technical strength and service provider network have formed substantial competition barriers.
Buy-in Price: $68.00, Target Price: $80.00, Cut Loss Price: $61.00

INES Corp (9742)
Established in 1964. Provides a seamless service from planning and development of information systems and networks, to post-operation and maintenance. The core product is ¡§WebRings¡¨, a web-based integrated administrative system for local governments.For 3Q (Apr-Dec) results of FY2020/3 announced on 30/1, net sales increased by 12.5% to 29.713 billion yen compared to the same period the previous year, and operating income increased by 83.7% to 2.214 billion yen. Demand for system modification following the revision of various laws in the public sector, and the expansion of BPO operations by public institutions had contributed to increase in net sales, while the elimination of unprofitable projects had contributed to increase in profit.Company adjusted its full-year plan upwards on 30/1. Net sales is expected to increase by 11.4% to 42.5 billion yen (original plan 42.0 billion yen) compared to the previous year, and operating income to increase by 38.3% to 3.0 billion yen (original plan 2.0 billion yen). Public sector business will account for 38.2% of sales by business segment. On 26/2, it was reported that work to standardize the specifications of administrative systems, such as resident records, local taxes, long-term care insurance, used by 1,700 local governments nationwide had started. There will therefore be higher expectations for increased orders to this company which has strong dealings with local governments.Target Price : 1,571 yenBuy Price : 1,421 yenCut-Loss : 1,326 yen

GAC (2238.HK) - The Epidemic has a Short-term Hurt, But the Effect will be Limited in the Long Run

Investment Summary

Sales Volume maintain Steadily in 2019: Japanese JVs Maintained Strong Momentum While Self-Brand Gradually Improved since H2

Domestic automobile market trend was downward through 2019 with an overall decrease of 9%. GAC outperformed the industry due to strong Japanese JV brands, achieving a sales volume of 2.0622 million for the year, down by approximately 4% yoy. The sales volume of GAC Honda was 771,000 units, up by 4% yoy. Among popular vehicle models, average monthly sales of the 10th generation Accord was approximately 20,000 units. Annual sales volumes of both Crider and Vezel exceeded 100,000 units. The sales volume of GAC Toyota for the year was 682,000 units, increasing by 17.6% yoy, which was a lot higher than the average. Hot models like Levin, Camry, CHR, and Highlander were best sellers in respective segments.

Compared with that of Honda and Toyota, annual sales volumes of joint venture brands like GAC Fiat and GAC Mitsubishi showed different ranges of decline. Sales volume of GAC Fiat in 2019 was 73,900 units, down by 40.96% yoy, while sales volume of GAC Mitsubishi for the year was 133,000 units, down by 7.64% yoy.

Annual sales volume of self-brand GAC Trumpchi was 384,600 units, down by 28.14% yoy. Product upgrade and actively reducing dealer inventory were the theme of 2019. It came to our attention that monthly sales has slightly improved since 2019H2.

The Epidemic has a Short-term Hurt on Automobile Market, But the Effect will be Limited in the Long Run

It was estimated that automobile sales in the first quarter of 2020 will be strongly suppressed by the epidemic. We predicted that sales volume of automobiles will decrease by more than 40% yoy in 2020Q1 and a rebound will not come until April. However, the epidemic also emphasizes the convenience of having a private car, which might help boost demand of first-time car buyers. In the medium term, suppressed demand of purchasing vehicles will be frequently released starting from the second quarter. Pro-consumption Policy introduced by government later will also be helpful of stimulating consumption potential. But the epidemic will definitely have a negative effect on the annual sales volume as it will have on macro economy. Industry recovery that was supposed to happen in later half of 2019 will be accordingly postponed. The effect epidemic had on market will be limited in the long run because a trend of industrial chain marching towards middle and high-end part of the value chain characterized as four modernization (intelligent, distributed, mobile, and participatory) remains unchanged. The fact that whether automobile manufacturers can make prospective and timely adjustments in response program, marketing model and supply chain management will be a critical factor of measuring their future competitive strength.

Policies Introduced by Guangzhou Government to Support Automobile Industry will Benefit GAC the Most

A policy on automobile consumption was introduced by Guangzhou government in early March, which indicates that quota of vehicle licence will soon increase 100,000. Meanwhile, allowance up to RMB10,000 will be distributed to individual consumers if they purchase new-energy vehicles and RMB3,000 allowance will be distributed to those replacing their old vehicles with new ones on China VI vehicle emission standards. We believe that the policy will promote consumption in Guangzhou City and as an automobile manufacturer with biggest market share in the area, GAC will benefit the most from it. It is possible that governments in other domestic cities might follow suit in the future.

Japanese joint venture brands are estimated to maintain a strong momentum of growth through 2020. GAC Honda Breeze launched in November last year and GAC Toyota Wildlander launched in February this year will continue to enhance product matrix of joint ventures in 2020. Furthermore, GAC Toyota will launch EV version of CHR and Mirai hydrogen-powered vehicle this year, while GAC Honda will launch the 4th generation Fit, Inspire Hybrid, Avancier Facelift and other new models. The production expansion project of GAC Toyota and GAC Honda is expected to be put into production at the end of the year. Each of the production capacity will increase by 120,000 to 240,000 units, which will accumulate strength for the development in the next stage. The new generation of Trumpchi is quite competitive compared with competitors. It was launched in November last year and went into mass production smoothly, which helped dramatically improve sales of GAC self-developed brand. Its future performance is worth looking forward to.

Investment Thesis

We revised the Company's 2019/2020/2021 earnings forecast. We give the "Accumulate" rating with the target price to HKD 9.5, equivalent to 11/9.8/7.7x P/E and 1.1/1.0/0.9x P/B ratio in 2019/2020/2021. (Closing price as at 9 March)


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Recommendation on 13-3-2020
Price on Recommendation Date$ 8.660
Suggested purchase priceN/A
Target Price$ 9.500
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)

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