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Zhong Ke San Huan Alert:1H16results beat,Hold reiterated on valuation

发布时间:2016-08-21    研究机构:德意志银行

ZKSH 1H16results beat DBe

Zhong Ke San Huan announced 1H16results after market close on 19August.Its 1H16revenue arrived at RMB1,670m, down 3.6% YoY and 6% HoH,achieving 43% FY16DBe and 41% of Bloomberg consensus. Zhong Ke SanHuan recorded a NPAT of RMB153mn, up 16% YoY. It beat DBe but wasbelow market consensus, representing 56% FY16DBe and 45% of Bloombergconsensus. The stock is trading at RMB16.24, 62x 2016EPS. We reiterate Holdon valuation.

Gross profit margin further improved

Although the magnet price almost remained flat in 1H16and average price ofPrNd oxide was 5% higher in 1H16over 2H15, Zhong Ke San Huan managedto improve its gross profit margin from 23.9% in 2H15to 25.1% in 1H16, up1.2ppt. More details about cost control and efficiency improvement need to befurther detailed by the management.

Plentiful net cash and healthy operation cashflow

Zhong Ke San Huan maintained its simple and transparent business model inthe turbulent market conditions, creating a healthy cashflow from operation ofRMB238mn in 1H16. In addition, holding a net cash as large as RMB1,543mnas of the end of 1H16, Zhong Ke San Huan kept intact its capability andflexibility to further expand its business in the future.

Hold reiterated on valuation

Although downstream EV sales in China is booming, the Zhong Ke San Huanstill have not largely benefitted from that so far as the Company mainly sold itsmagnet products to component suppliers for foreign brand OEMs. The stock iscurrently trading at 62x/43x 2016/2017E EPS and 4.2x/4.0x 2016/2017E BVPS.We reiterated Hold on valuation. Risks: worse/better-than-expectedcompetition in the industry and slower/faster-than-expected penetration intothe EV market.

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