Investor Notes - Phillip Securities (HK) Ltd

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18 Dec, 2018 (Tuesday)

QINGDAO PORT(6198)
Analysis：
Qingdao Port International Co. (6198) announced that it has been notified by the China Securities Regulatory Commission that its Proposed A Share Offering has been approved. The number of shares to be issued under the Proposed A Share Offering shall not exceed 454,376,000 shares. The proceeds will be used for the development of an oil storage project and new berths at Dongjiakou port area and the purchase of new equipment. For the nine months ended September 2018, the Group recorded revenue of RMB8.618 billion, representing an increase of 13.5% as compared to the same period in 2017. Net profit attributable to shareholders increased 16.9% to RMB2.844 billion. (I do not hold the above stock)
Strategy：
Buy-in Price: $4.65, Target Price: $5.05, Cut Loss Price: $4.45

CHINA CRSC(3969)
Analysis：
China Railway Signal & Communication Corporation is a leader in the globalrail transportation control system market. During FY2012-17, its revenue reportedCAGR of 26.7%. Railway business maintains relatively rapid growth. From 2012 to 2017, the revenue from railway industry grew at a CAGR of 13.7%. In 2017, railway business revenue reached RMB16.6bn, accounting for about 48% in topline. Since industry entry barriers is high, the company`s market share is ranked at the first. We predict that in future the company`s railway revenue will maintain a relatively rapid growth, mainly benefiting from the growth of railway investment and the renewal of high-speed rail control system.
Strategy：
Buy-in Price: $5.75, Target Price: $7.10, Cut Loss Price: $5.00

Kingsoft (3888.HK) - 18Q3 Reporting Losses; Expected Improvement Next Year

Investment Summary

Kingsoft reported loss in 18Q3, given game revenue declined, while cloud services and WPS software delivered notable growth. We maintain the target price of HK$18.8, BUY rating. (Closing price at 14 Dec 2018)

Business Overview

Losses in 18Q3. Kingsoft reported revenue in 18Q3 of RMB1,537.7mn, up by 18% yoy and 14% quarter-over-quarter. Revenues from online games, cloud services, WPS office software accounted for 44/39/17%, respectively. Gross profit decreased by 7% to RMB694.5mn, up 3% from 18Q2. Gross profit margin was 45%, 12ppts lower than 17Q3 and 5ppts lower than the previous quarter, mainly due to changes in business portfolio. The loss attributable to the parent company is RMB59.3mn (2017Q3: 238.5mn; 18Q2: 100.9mn). Before deducting the cost of share package, the loss attributable to the parent company amounts to RMB21.6mn, representing a net loss rate of -1% (2017Q3: 306.7mn, 12%; 18Q2 138.9mn, 10%).

Online game revenue declined. The revenue of 18Q3 online game business was RMB678.3mn, down by 9% yoy and up 17% qoq. It is because that existing games entered natural decline period, though the decrease is partly offset by the rising contribution of newly launched mobile games (mainly due to the contribution of JX II released on iOS platform in July). Daily average peak concurrent users is about 0.7 million, down 16% yoy and 9% qoq. The average monthly paying accounts is RMB3.4mn, down 16% yoy and up 5% qoq.

Cloud business has grown significantly. It contributes RMB603.3mn in revenue, up 68% yoy and 29% qoq. The growth is mainly due to the steady increase in mobile video and Internet businesses.

WPS office software revenue maintained momentum. This segment reported revenue of RMB256.1mn, up by 29% yoy and down 13% qoq. The growth was mainly attributed to the rapid growth of revenue from WPS Office personal value-added services. By providing members with useful functions and content services, the company improves user stickiness. The decline in revenue was mainly due to seasonal effect.

Valuation & Risks

We maintain our target price of HK$18.8. Next year is likely to experience improvement. New games (JX II and JX III mobile) will be launched in 19H1, and revenue from game business is expected to recover in 2019. Monetization of WPS office software will continue through providing more qualified value-added services to users. Cloud business will continue to expand leveraging on exploring advantage areas. Downside risks include: Revenue growth fails expectations; Exchange rate risk; Policy risks.

Financials

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Recommendation on 18-12-2018
Recommendation	BUY
Price on Recommendation Date	$ 12.320
Suggested purchase price	N/A
Target Price	$ 18.800

Writer Info

Eurus Zhou
(Research Analyst)

Tel: +852 2277 6515

Email:
euruszhou@phillip.com.hk

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