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Investor Notes - Phillip Securities (HK) Ltd
Past Investor Notes  
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8 Apr, 2020 (Wednesday)

China Feihe (6186) principally focuses on the production and sale of dairy products and sale of nutritional supplements. The Group offers a diversified portfolio of products which caters to a wide range of customer base at different prices. In addition to super-premium and premium, the Group also offers a portfolio of well-known brands spanning the regular infant milk formula series as well as other products such as dairy products for adults and students. The Group continues to optimize its production arrangements to increase its capacity and efficiency. As at 31 December 2019, the Group had six production facilities to manufacture its products with a designed annual production capacity of 126,800 tonnes in total. In anticipation of the increasing demand for its products, the Group is expanding two of its existing production facilities and constructing two new production facilities. (I do not hold the above stock)
Buy-in Price: $12.80, Target Price: $14.00, Cut Loss Price: $11.70

Hong Kong Television Network Limited (1137.HK) used to be a media company but has shifted its focus to e-commerce business in Hong Kong during the past years. And it has become the largest e-commerce platform in Hong Kong, which mainly due to its innovative strategy and robust logistic systems. Despite the fact that HKTV doubled its net loss to 290 million HKD in fiscal 2019 from fiscal 2018`s 133 million HKD due to its expansion plan, HKTV`s 2019 EBITDA loss/ GMV on completed orders improved to -8.1%, a 5% YoY improvement. Also, its joined gross income from direct merchandise sales and concessionaire sales had risen from FY18`s 344 million HKD to FY19`s 550.5 million HKD, a 59.9% increase. As the COVID-19 epidemic spread among Hong Kong since January 2020, the traffic volume of online shopping has begun to boost. HKTVmall`s total monthly merchandise orders for January, February, and March 2020 increased by 24.7%, 42.6%, and 10.2% month-on-month, respectively, and surged by 49.6%, 169.3%, and 131.9% year-over-year. Although such high growth rates may not be sustainable in the future, we predict the transaction volume would extend its growth momentum. And the 2020 annual EBITDA should turn positive, which helps stabilize market sentiment and drive the stock price up.
Buy-in Price: $4.90, Target Price: $5.40, Cut Loss Price: $4.65

SIA (600009.CH) - Epidemic impacts short-term 1H Earning, but bearish maybe overreacted

Investment Summary

Annual Net Profit Increased by 20% Approximately

The preliminary earnings estimate of Shanghai Airport Authority (SAA) revealed that the Company recorded a revenue of RMB10.944 billion in 2019, up by 17.52% yoy. The net profit attributable to listed shareholders was RMB5031 million with an increase of 18.9% yoy and basic EPS was RMB2.61 with an increase of 18.64% yoy. Revenue recorded in the third and fourth quarter was RMB2752 million and RMB2737 million, respectively, with an increase of 14.9% yoy and 14.1% yoy, while the net profit attributable to the parent company were RMB1295 million and 1036 million, respectively, with an increase of 15.7% yoy and an decrease of 5.1% yoy.

Result Growth Slowed down in the Fourth Quarter due to the Increased Costs

Operating cost such as utilities has increased since the launch of satellite terminal in September. In the meantime, the decline of regional routes was enlarged, leaving revenue basically flat qoq and the result of the fourth quarter lower than expectation. Annual cost of SAA in 2019 was RMB5.41 billion, up by 18.3% yoy. The cost in the fourth quarter soared up by 37.8% yoy or RMB460 million yoy and reached RMB1.64 billion, among which the increment of depreciation incurred by the launch of satellite terminal was approximately RMB160 million and the increment of operating and labour costs was approximately RMB300 million.

Production Plummeted Sharply Affected by Coronavirus Pandemic

Aircraft movements in January and February of 2020 were down by 2.4% yoy and 61.7% yoy, respectively, while the passenger volume were down by 5.4% yoy and 81.5% yoy, respectively. The decline was scaled up sharply affected by coronavirus pandemic. The decline of aircraft movements in January and February was 30.7% yoy in total, while the decline of passenger volume was 42.8% yoy in total. Domestic routes were weaker than international routes in January, but stronger in February. Domestic flights have been in the process of slow recovery since domestic outbreak was under control. However, international flights are expected to take more time to recover due to the fact that overseas outbreak is still severe and measures taken by all countries to block the traffic have become more aggressive. It is estimated that the result of the first quarter will experience a drastic decline with the impact of coronavirus pandemic on throughput and increased cost incurred by satellite terminal.

Short-term Impact does not Change the Logic of Long-term Growth

Civil Aviation Administration launched a series of measures on 9th March, including 10% drop of landing charge in class I and class II airport, wavier of all parking charge and 8% drop of differential between purchase and sale price of aviation kerosene, which will generate negative impact on aeronautical income of airport companies. However, as a world-class aviation hub in Shanghai free trade zone build by government with all efforts, we are still looking forward to government support like rescue policies and tax reduction.

The short-term impact caused by coronavirus pandemic will not change the consumption upgrading trend of medium and high-end crowd in the future. The logic of Company's growth remains unchanged. The potential of non-aviation business is still enormous with tax-free products of all categories and enhancement of management capabilities.

Investment Thesis

Taking into account the short-term outbreak affecting the Company's aviation and non-aviation business, as well as cost pressure, we have reduced the EBITDA per share forecast of Shanghai Airport in 2020/2021. The target price is revised to RMB 70, with the estimation of a 32.6/17.3x multiple respectively, and the "Accumulate" rating is maintained.


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Recommendation on 8-4-2020
Price on Recommendation Date$ 62.540
Suggested purchase priceN/A
Target Price$ 70.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)

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