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Investor Notes - Phillip Securities (HK) Ltd
Past Investor Notes  
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8 Jun, 2021 (Tuesday)

            
CHINA GAS HOLD(384)
Analysis¡G
China Gas Holdings (384) has recently entered into strategic cooperation agreement with different partners. For instance, the Group has entered into a strategic cooperation with Beijing Beiran Enterprises Group, pursuant to which, both parties will exploit their respective advantages in the clean energy service industry chain to coordinate development in the field of energy services for mutual benefit and win-win situation. Separately, the Group has entered a strategic cooperation with Green Energy Technology, pursuant to which both parties will leverage their respective competitive edges to strengthen an all-round cooperation in various areas, including distributed photovoltaic, building integrated photovoltaics(¡§BIPV¡¨), energy storage and electric vehicle charging projects, green hydrogen and other clean energy applications, along with research and utilisation of new energy. (I do not hold the above stock)
Strategy¡G
Buy-in Price: $28.50, Target Price: $32.00, Cut Loss Price: $27.00


MING YUAN CLOUD(909)
Analysis¡G
Ming Yuan CL (909) provides enterprise-grade ERP solutions and SaaS products to property developers and other industry participants along the real estate value chain in China. The market for software solutions to property developers in China is relatively concentrated, with the top 5 players accounted for 39.3% of market share in 2019. The company is the obvious leader in the sector with market share of 18.5%, way higher than that of the player with the second highest market share (Kingdee International) by 12.2 ppts. The company is the obvious industry specific software solution provider in the sector. Compared with its generic competitors, it has advantages of being more specialized. We are optimistic about the company's future prospect.
Strategy¡G
Buy-in Price: $38.00, Target Price: $41.50, Cut Loss Price: $36.00



Nissin Foods (1475.HK) - Epidemic drives product demand, domestic high-end market grows well

Investment Summary

On May 11, Nissin Foods announced its financial results (unaudited) for the three months ended March 31, 2021. In 1Q21, company revenue was approximately HK$964 million, an increase of 9.0% Yoy. The GPM was 32.1%, which was flat as the same period last year. The net profit attributable to the parent recorded HK$93 million, a Yoy decrease of 5.8%, mainly due to the increase in administrative expenses and marketing and promotion expenses during the period. The net profit attributable to the parent decreased by 1.5 ppts to 9.7% Yoy.

Revenue increased YoY, Hong Kong business revenue returned to normal

Nisshin Foods` revenue in the 1Q21 increased by 9.0% Yoy. By region, the company's revenue from Hong Kong business recorded HK$336 million, a Yoy decrease of 6.3%. This was mainly due to the high base last year and the sales volume of instant noodles in bags decreased this year. Comparing to 1Q19, an increase of 4.1% was recorded. The revenue of China business increased by 19.5% Yoy to HK$629 million. The appreciation of the CNY led to a boost in revenue. If calculated in CNY, it increased by 11.4% Yoy, mainly due to the organic growth of instant noodle business and the distribution business. The revenue side is in line with our previous expectations. After the extraordinary growth of Hong Kong business last year, it began to return to normal scale this year, while the domestic business continued to benefit from consumption upgrades and maintained double-digit growth. The company's expenses during the period increased, resulting in an increase in revenue but a decrease in net profit. The company recorded a net profit of HK$93 million, a Yoy decrease of 5.8%. The administrative expense ratio increased by approximately 1.0 ppts to 6.94%, and the sales and distribution expense ratio increased by approximately 0.7 ppts to 12.03. %, the NPM decreased by 1.3 ppts Yoy to 10.8%.

Raw material costs continue to rise, management lowers performance guidance

The continuous rise in the prices of raw materials such as palm oil and flour has brought cost pressures to the company. The company's palm oil inventory is only sufficient for the company to use until March. In Q2, the company is expected to face greater cost pressures. as of 20 May 2021, the average price of Chinese palm oil increased by more than 80% Yoy to CNY 9,153 per ton, rising to a high in the past ten years. The continued increase in cost is expected to put greater pressure on the company's gross profit in the second quarter. The company may adjust the portion of products and adopt large-scale purchases to control costs and ease the pressure of rising costs in the future. The management lowered the guidance for the full-year performance. The revenue from the mainland China business was lowered from the original +10% to MSD-HSD growth, and the annual net profit was lowered from +10% to +5%.

Invest in a new production line in Hong Kong to improve management efficiency

On May 11, the company announced that it would invest approximately HK$194 million to integrate the company's production facilities in its production plant in Tai Po Industrial Estate, Hong Kong, and invest in the installation of new smart production lines to increase production capacity and management efficiency, and provide additional storage area can help reduce production costs in the long run. The construction period of the investment is expected to be completed in 2023. The utilization rate of the Hong Kong plant is higher than 80%, which can effectively improve production efficiency after further investment.

Valuation and investment thesis

Affected by the epidemic in 2020, the company's annual revenue performance was excellent. In Q1 of 2021, Hong Kong business revenue decreased by 6.3% Yoy. It is expected that in 2021, the company's revenue from business in Hong Kong will continue to return to a normal scale. The company has a large market share in the Hong Kong market and can maintain a certain level of income, but the company's income growth space is also limited. On the other hand, the company's business income in China increased by 19.5% Yoy. In an environment of upgrading domestic consumption levels, the company has a competitive advantage in the high-end instant noodle market. The company's main competitors in the industry are Uni-President Foods and Master Kong, which have a stable position in the domestic market and are expected to grow at a relatively low level in the future. Nisshin Foods is in its early stage in China. China's domestic market share is low, and the company's domestic revenue in CNY has recorded double-digit growth in the past three years. Overall, we expect the company's revenue growth to slow in 2021. We maintain our previous expectations. The company's FY21/FY22 net profit attributable to the parent is HK$322/377 billion, and FY21/FY22 EPS are 29.93 HK cents/35.08 HK cents. According to our DCF valuation model, the target price is maintained at HK$7.54 , Corresponding to FY21/FY22 target P/E of 25.19x/21.49x, maintain the buy rating.

(Current price as of 2 June)

Financials

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Recommendation on 8-6-2021
RecommendationBUY
Price on Recommendation Date$ 6.110
Suggested purchase priceN/A
Target Price$ 7.540
Writer Info
Timothy Chong
(Research Analyst)
Tel: (+ 852 22776515)
Email:
timothychong@phillip.com.hk

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