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Zhuzhou Times New Material Technology:Significant FX exposure;earnings growth could come under pressure in 2016

发布时间:2016-06-16    研究机构:瑞银证券

We expect FX losses on euro-denominated loans to lower '16 net profit by 39%.

Currently, 42% of the company's (TMT) revenue comes from overseas. In addition, ithas 200m in euro-denominated loans. Overseas revenue and costs are only minimallyimpacted by FX movements, as both are settled in foreign currency. We believe FXmoves will mainly affect TMT's net profit through its euro-denominated liabilities. Basedon the UBS macro team's forecast of 8% depreciation in the RMB/EUR this year, weestimate that the company will record FX losses of about Rmb126m on its 200m ineuro liabilities in 2016, cutting full-year net profit by ~39%.

Softer wind power market, but share increases could support revenue growth.

With the surge in wind power installation now over, growth is set to fall in wind powermarket. UBS's utilities team estimates that cumulative installed wind power capacity inChina will log a slower ~11% CAGR in 2015-20. We expect further consolidation inthe wind turbine blade manufacturing space. Although TMT is a late entrant, its marketshare has been consistently rising. Also, TMT has continued to make breakthroughs inwind turbine blade R&D, boosting its competitiveness. We expect its market share tokeep rising, providing some support to top-line growth. We forecast wind powerproduct revenue of Rmb3bn/3.2bn/3.2bn in 2016/17/18, up 10%/6%/0% YoY.

BOGE: Integration continues, but notable GPM improvement unlikely in S-T.

The gross margin of BOGE Rubber & Plastics (BOGE) is worse than peers' due to highlabour costs. On top of that, TMT also entered into a number of employee welfareagreements when it acquired BOGE. BOGE contributes ~50% of the company'srevenue but has a lower gross margin than the rail transit and wind power productbusinesses, resulting in a negative impact on overall gross margin. TMT is currentlyexpanding BOGE's capacity in China. We expect overall gross margin to improve in2016/17/18, though probably not to a significant degree.

Valuation: Slightly lifting PT to Rmb15; maintain Neutral rating.

BVPS has risen sharply due to 2015's strong earnings beat and higher working capitalfollowing the private placement. Given recent CNY weakness against EUR, we factor infurther FX losses in our 2016 earnings forecasts. Although we are trimming our2016/17/18E EPS by 8%/4%/1%, we slightly raise our 2016E BVPS to Rmb6.0. Ournew PT of Rmb15 is based on 2.5x 2016E P/BV (old PT based on 2.4x 2016E P/BV,Rmb5.78 BVPS). We are upbeat on TMT's long-term potential, but near-termbreakthroughs look unlikely. We view current valuation as fair & maintain Neutral.

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