Document 6554748

10 October 2014
Shanghai-HK Stock Connect
Technology Sector
Miles Xie
Technology Sector
(852) 2977 9216
miles.xie@bocomgroup.com
High-quality HK-listed industry leaders will likely be favored
Investment Summary
1. High-quality industry leaders listed in Hong Kong with scarcity value will likely be favored by investors.
2. HK-listed technology stocks are generally more attractively valued than their A-share counterparts.
Sector Attributes
% of index*
5 most representative
stocks in the universe
Valuation
Sector average
A Shares
HK Shares
SSE 180 Index (3.07%)
SSE 380 Index (5.71%)
Sichuan Changhong (600839 CH)
Sanan Optoelectronics (600703 CH)
Hisense Electric (600060 CH)
Jiangsu Changjiang Electronics (600584 CH)
Qingdao Haier (600690 CH)
Hang Seng Composite Large Cap Index (1.41%)
Hang Seng Composite Mid Cap Index (4.57%)
Lenovo (992 HK)
SMIC (981 HK)
AAC Tech (2018 HK)
Digital China (861 HK)
ASM Pacific (522 HK)
A shares: 27.9x 2014E P/E
HK shares: 17.5x 2014E P/E, indicative of notable valuation discount
Fundamental view
Commonalities
A new boom cycle for the global technology sector driven by mobile, smart devices and enhanced connectivity;
Benefitting from huge demand from China; and
Rising competitiveness and market position of the Chinese companies across the global industry chain
Differences
The A-share market (including Shenzhen Stock Exchange) has
more technology stocks.
A-share listed technology stocks are mainly private companies
with smaller scales and higher valuations.
A)
Trading strategies
Source: Factset, Company
The HK market has industry leaders with scarcity value, some of
which possess global competitiveness.
HK-listed technology stocks enjoy notable valuation advantage.
Watch Qingdao Haier (600690.CH), given
Its leadership in the China refrigerator and washing machine
industries; and
Foray into e-commerce with Alibaba
*Approximate representations as of Sept 14, 2014.
HK)
Buy Lenovo and SMIC, given:
Lenovo is a leader in the global PC industry; and
SMIC benefits directly from the rise of China’s semi-conductor
industry.
Valuation Summary
Company
Stock
name
ticker
Rating
TP
(HK$)
Lenovo
992.HK
BUY
13.00
SMIC
981.HK
BUY
2018.HK
Digital China
ASM Pacific
CP
––––– EPS –––––
EPS Consensus
–––––– P/E ––––––
–––––– P/B ––––––
FY14E
FY14E
FY15E
FY14E
FY15E
(HK$/RMB)
(RMB)
(RMB)
(RMB)
(RMB)
(x)
(x)
(x)
(x)
(%)
11.82
0.062
0.079
0.087
0.100
16.2
14.2
4.1
3.4
2.2
0.81
0.79
0.000
0.004
0.005
0.006
19.3
15.5
1.14
1.06
0.0
NEUTRAL
46.70
46.20
1.41
1.83
2.02
2.30
19.5
17.2
5.2
4.4
2.2
861.HK
NEUTRAL
8.10
7.35
1.065
0.593
0.791
0.862
9.9
9.1
0.9
0.8
2.3
522.HK
BUY
92.00
77.85
1.73
1.40
3.69
4.67
22.8
18.0
4.3
3.8
1.0
Sichuan Changhong
600839.CH
NR
NA
4.33
0.11
0.10
0.10
0.14
45.6
32.1
1.4
1.4
0.2
Sanan
600703.CH
NR
NA
14.80
0.72
0.68
0.68
0.94
22.6
16.4
2.9
2.6
1.2
Hisense
600060.CH
NR
NA
11.76
1.21
1.13
1.13
1.24
10.3
9.4
1.4
1.3
2.0
Jiangsu Changjiang
600584.CH
NR
NA
11.93
0.01
0.23
0.23
0.39
51.9
30.1
3.3
3.0
0.6
Qingdao Haier
600690.CH
NR
NA
16.78
1.53
1.69
1.69
1.97
9.3
8.0
2.3
1.9
3.4
AAC Tech
FY15E
Yield
FY14E
FY15E
Source: Company, BOCOM Int’l estimates (H shares), Bloomberg consensus estimates (A shares)
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1
10 October 2014
Lenovo Group (992.HK)
LT
BUY
Neutral
Solid leadership in the PC industry; X86 server business promising
BUY
SELL
Stock
Miles Xie
Last Closing: HK$11.68
Tel: (852)2977 9216
Upside: 11.3%
miles.xie@bocomgroup.com
Target Price: HK$13.00→
Technology Sector
Financial Highlights
Stock data
Y/E 31 Mar
2012
Revenue (USD m)
29,574
YoY growth (%)
37
Net profit (USD m)
473
EPS (USD)
0.047
Vs. Consensus (+/- %)
Na
EPS growth (%)
65
P/E (x)
30.3
P/B (x)
5.9
Dividend yield (%)
1.3
Source: Company data, BOCOM Int’l estimates
2013
33,873
15
635
0.062
Na
32
23.0
5.4
1.7
2014
38,707
14
817
0.079
na
28
17.9
4.8
2.2
2015E
42,551
10
903
0.087
2.3
10
16.2
4.1
2.1
2016E
45,397
7
1,036
0.100
-0.9
15
14.2
3.4
2.4
52w High (HK$)
12.70
52w Low (HK$)
7.62
Market cap (HK$m)
125,803.82
Issued shares (m)
10,589.55
Avg daily vol (m)
38.97
1-mth change (%)
-4.19
YTD change (%)
25.98
50d MA (HK$)
11.66
200d MA (HK$)
9.91
14-day RSI
51.11
Source: Company data, Bloomberg
Why we like the stock in the sector
Lenovo is a top player in the global PC industry with solid leadership in the China market. It continues to expand its global
market share and enhance profitability. By acquiring the X86 server business of IBM, it is expected to replicate its success
in PC in the server market. In mobile Internet, Lenovo has made steady progress in smartphones and tablets. The
acquisition of Motorola’s mobile business from Google will accelerate its mobile Internet business development.
Strengths:
−
−
Weaknesses:
Leadership in the global PC industry;
Successful M&A track record
Opportunities:
−
−
Needs to strengthen the mobile Internet business;
High reliance on the China market
−
−
Threats:
Likely to replicate its success in the PC market after acquisition of IBM’s X86
server business;
Consolidation and matching of quality resources
Growth outlook of the PC business is threatened by mobile Internet;
Heightened competition
−
−
Source: BOCOM Int’l
Profit & loss (USD m)
Year ended 31 Mar
Cash flow (USD m)
2012
2013
Revenue
29,574
33,873
Less: Operating cost
-26,128 -29,800 -33,643 -36,964 -39,436
Operating tax
Sales expense
2014 2015E 2016E Year ended 31 Mar
38,707
42,551
45,397
-107
-170
-197
-221
-254
Balance sheet (USD m)
2012
2013
582
Add: Depreciation and amortization
Provisions for impairment of assets
Net profit
2014 2015E 2016E Year ended 31 Mar
2012
2013
2014 2015E 2016E
801
1,014
1,105
1,269
3,758
3,454
3,858
4,066
78
92
110
167
163
Financial assets held for trading
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
A/C receivable
2,994
3,458
3,619
3,596
3,671
Monetary fund
4,397
-1,691
-1,888
-1,900
-2,064
-2,179
Loss on changes in fair value
n.a.
n.a.
n.a.
n.a.
n.a.
Inventory
1,218
1,965
2,701
2,218
2,248
Administrative expense
-730
-847
-1,403
-1,574
-1,680
Finance expense
43.5
42.9
81.0
73.8
64.1
Financial assets held for sale
n.a.
n.a.
n.a.
n.a.
n.a.
Other expenses
-453
-624
-732
-808
-863
Gain from investment
n.a.
n.a.
n.a.
n.a.
n.a.
Fixed assets
392
480
667
651
638
Investment and exchange gain
n.a.
n.a.
n.a.
n.a.
n.a.
Minority interest
n.a.
n.a.
n.a.
n.a.
n.a.
Other non-current assets
4,040
4,492
4,957
5,124
5,373
Operating profit
584
800
1,052
1,148
1,313
Total assets
18,949
Finance expense
-43
-43
-81
-74
-64
Total profit
582
801
1,014
1,105
Less: Income tax
-107
-170
-197
Net profit
473
635
817
Change in operating cash flow
1,389
-823
273
-180
-109
15,861
16,882
18,357
18,265
Cash flow from operating activities
1,940
20
1,432
1,021
1,193
Short-term debts
63
176
445
499
551
1,269
Cash flow from investment activities
-837
-245
-584
-495
-492
Account payable
4,178
3,724
4,860
4,175
4,171
-221
-254
Cash flow from financing activities
-316
-68
-430
-318
-370
Notes payable
n.a.
n.a.
n.a.
n.a.
n.a.
903
1,036
Net change in cash
787
-294
418
208
331
Other current liabilities
n.a.
n.a.
n.a.
n.a.
n.a.
0
303
10
10
7
n.a.
n.a.
n.a.
n.a.
n.a.
13,413
14,202
15,332
14,665
14,690
33
33
1,650
1,650
1,650
Retained earnings
2,328
2,633
1,360
1,953
2,634
Shareholders’ equity
2,448
2,680
3,025
3,599
4,259
Long-term debts
Other non-current liabilities
Total liabilities
Share capital
Source: Company data, BOCOM Int’l estimates
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2
10 October 2014
Qingdao Haier (600690.CH)
Leader in the refrigerator and washing machine industry likely to benefit from
the Stock Connect
Miles Xie
Last Closing: RMB 16.78
Tel: (852) 2977 9216
miles.xie@bocomgroup.com
Technology Sector
Financial Highlights
Stock data
Y/E 31 Dec
Revenue (RMB m)
YoY growth (%)
Net profit (RMB m)
EPS (RMB)
EPS growth (%)
P/E (x)
P/B (x)
Dividend yield (%)
2011
73,853
14
2,690
0.888
20
18.9
4.4
2012
79,857
8
3,270
1.079
22
15.6
3.3
2013
86,488
8
4,168
1.532
27
12.2
2.5
2014E
96,514
12
5019
1.693
11
9.3
2.3
3.4
2015E
108,669
13
5885
1.973
17
8
1.9
3.8
Source: Company data, estimates based on Bloomberg consensus
52w High (RMB)
22.77
52w Low (RMB )
13.63
Market cap (RMB m)
48,872.77
Issued shares (m)
3,029.93
Avg daily vol (m)
20.58
1-mth change (%)
-2.42
YTD change (%)
-17.28
50d MA (RMB )
16.19
200d MA (RMB )
16.74
14-day RSI
47.05
Source: Company data, Bloomberg
Why we are interested in the stock
Leadership in the China refrigerator and washing ssssmachine industries; and
Cooperation with Alibaba in e-commerce
Strengths:
−
−
Weaknesses:
Positioned as the leader of the Chinese refrigerator and washing machine
industry;
Strong product innovation capability
Opportunities:
−
−
Slowing growth of the white goods sector;
Success of cooperation with Alibaba remains to be seen
−
−
Threats:
Cooperation with Alibaba in e-commerce;
Consumption upgrade in smart home appliances and products
Fluctuations in raw material prices;
Muted end-user demand
−
−
Source: BOCOM Int’l
Profit & loss (RMB m)
Year ended 31 Dec
Cash flow (RMB m)
2011
2012
Revenue
73,853
79,857
Less: Operating cost
-56,589 -59,904 -64,804
Operating tax
Sales expense
2013 2014E 2015E Year ended 31 Dec
86,488
96,514 108,669
Net profit
Balance sheet (RMB m)
2011
2012
2013 2014E 2015E Year ended 31 Dec
2,690
3,270
4,168
5,019
5,885
Monetary fund
2011
2012
12,890
16,284
20,626
2013 2014E 2015E
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Add: Depreciation and amortization
578
628
647
n.a.
n.a.
Financial assets held for trading
n.a.
n.a.
n.a.
Provisions for impairment of assets
n.a.
n.a.
n.a.
n.a.
n.a.
A/C receivable
3,091
4,197
4,327
n.a.
n.a.
-13,170 -14,818 -15,750
n.a.
n.a.
Loss on changes in fair value
n.a.
n.a.
n.a.
n.a.
n.a.
Inventory
5,981
7,099
6,864
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
31,394
39,700
49,547
n.a.
n.a.
8,390
9,989
11,469
n.a.
n.a.
39,784
49,688
61,016
n.a.
n.a.
n.a.
n.a.
Administrative expense
n.a.
n.a.
n.a.
n.a.
n.a.
Finance expense
n.a.
n.a.
n.a.
n.a.
n.a.
Financial assets held for sale
Other expenses
n.a.
n.a.
n.a.
n.a.
n.a.
Gain from investment
n.a.
n.a.
n.a.
n.a.
n.a.
Fixed assets
Investment and exchange gain
n.a.
n.a.
n.a.
n.a.
n.a.
Minority interest
n.a.
n.a.
n.a.
n.a.
n.a.
Other non-current assets
4,471
5,544
6,820
n.a.
n.a.
Change in operating cash flow
2,233
731
947
n.a.
n.a.
Total assets
-53
-116
-106
n.a.
n.a.
Cash flow from operating activities
6,200
5,519
6,510
n.a.
n.a.
Short-term debts
1,144
1,098
1,174
n.a.
n.a.
4,417
5,428
6,714
n.a.
n.a.
Cash flow from investment activities
-4,512
-1,182
-1,376
n.a.
n.a.
Account payable
16,937
21,078
25,856
n.a.
n.a.
-767
-1,068
-1,163
n.a.
n.a.
Cash flow from financing activities
755
-469
-925
n.a.
n.a.
Notes payable
n.a.
n.a.
n.a.
n.a.
n.a.
2,690
3,270
4,168
5,019
5,885
2,443
3,869
4,210
n.a.
n.a.
Other current liabilities
25,969
31,341
38,006
n.a.
n.a.
670
759
717
n.a.
n.a.
2,252
2,921
3,016
n.a.
n.a.
Total liabilities
28,221
34,262
41,022
n.a.
n.a.
Share capital
2,685
2,685
2,721
n.a.
n.a.
Retained earnings
8,341
11,129
14,467
n.a.
n.a.
536
1,613
2,806
n.a.
n.a.
Operating profit
Finance expense
Total profit
Less: Income tax
Net profit
Net change in cash
Long-term debts
Other non-current liabilities
Shareholders’ equity
Source: Company data, estimates based on Bloomberg consensus
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3
Technology Sector
BOCOM International
11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong
Main: + 852 3710 3328
Fax: + 852 3798 0133
Rating System
Company Rating
www.bocomgroup.com
Sector Rating
Buy: Expect more than 20% upside in 12 months
LT Buy: Expect more than 20% upside but longer than 12 months
Neutral: Expect low volatility
Sell: Expect more than 20% downside in 12 months
Outperform (“OP”): Expect more than 10% upside in 12 months
Market perform (“MP”): Expect low volatility
Underperform (“UP”): Expect more than 10% downside in 12 months
Research Team
Head of Research
@bocomgroup.com
Raymond CHENG, CFA, CPA, CA
(852) 2977 9393
@bocomgroup.com
raymond.cheng
Strategy
Economics
Hao HONG, CFA
Miaoxian LI
(852) 2977 9384
hao.hong
(852) 2977 9212
yangqingli
Fei WU
(852) 2977 9392
fei.wu
Shanshan LI, CFA
(86) 10 8800 9788 - 8058
lishanshan
Tony LIU
(852) 2977 9390
xutong.liu
Li WAN, CFA
(86) 10 8800 9788 - 8051
Wanli
Alfred LAU, CFA, FRM
(852) 2977 9235
alfred.lau
Toni HO, CFA, FRM
(852) 2977 9220
toni.ho
Luella GUO
(852) 2977 9211
luella.guo
(86) 21 6065 3606
louis.sun
(852) 2977 9209
lizhiwu
(852) 2977 9216
miles.xie
Geoffrey CHENG, CFA
(852) 2977 9380
geoffrey.cheng
Ian FENG
(852) 2977 9381
Yinan.feng
(86) 21 6065 3675
wei.yao
Banks
Consumer Discretionary
Property
Phoebe WONG
(852) 2977 9391
phoebe.wong
Anita CHU
(852) 2977 9205
anita.chu
Consumer Staples
Renewable Energy
Summer WANG
(852) 2977 9221
summer.wang
Shawn WU
(852) 2977 9386
shawn.wu
Johnson SUN
(852) 2977 9203
johnson.sun
Milo LIU
(852) 2977 9387
milo.liu
(852) 2977 9389
liwenbing
Healthcare
Louis SUN
Telecom & Small/ Mid-Caps
Insurance
Zhiwu LI
Technology
Internet
Miles XIE
Transportation & Industrial
Yuan MA
(86) 10 8800 9788 - 8039
yuan.ma
Connie GU, CPA
(86) 10 8800 9788 - 8045
conniegu
(852) 2977 9243
jovi.li
Metals & Mining
Jovi LI
miaoxian.li
Oil & Gas/ Gas Utilities
Qingli YANG
Jerry LI
(86) 10 8800 9788 - 8043
Automobile
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Wei YAO
4
Technology Sector
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