Investor Notes - Phillip Securities (HK) Ltd
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6 Nov, 2019 (Wednesday)

In the first half of 2019, CG Services achieved outstanding performance. Operating income increased rapidly and gross profit margin increased. The company achieved revenue of approximately RMB 3,515.7 million, an increase of 74.4% year-on-year. Gross profit was approximately 1.378 billion yuan, an increase of 75.3% year-on-year. The gross profit margin was approximately 39.2%, an increase of 0.2 percentage points year-on-year. Profit attributable to shareholders was 871 million yuan, an increase of 73.41% over the same period last year. CG Services` property management services covers more than 300 cities in 31 provinces, municipalities and autonomous regions in China and overseas. The total contract management area is approximately 584.2 million square meters, and the total charge management area is approximately 216.8 million square meters. Managed a total of 1,055 property projects and provided property management services to approximately 2.3 million homeowners. The property management industry continues to grow in management area, and the degree of regulation and marketization continues to increase. At the same time, market share is clearly concentrated in main companies. On the one hand, as the concentration of real estate enterprises increases, the market share of main companies naturally increases. On the one hand, industry mergers and acquisitions appear, further promoting the concentration. CG Services, as a leading company in the property management industry, has great growth potential.
Buy-in Price: $27.80, Target Price: $31.00, Cut Loss Price: $25.00

Cybernet Systems Co., Ltd (4312)
Established in 1985 when the Japanese corporation of US Control Data Corp (CDC), a pioneer in supercomputers, established the cybernet service business as a separate company. Handles the Solutions Service Business through the provision of software and technical services. A leading company in CAE (Computer Aided Engineering).For 1H (Jan-Jun) results of FY2019/12 announced on 7/8, net sales increased by 9.8% to 11.798 billion yen compared to the same period the previous year, operating income increased by 55.0% to 1.624 billion yen, and net income increased by 10.1% to 1.049 billion yen. Both the CAE Solution Service and the IT Solution Service had performed well. The US development subsidiary and Asian sales subsidiaries had also been contributing to sales.Company has revised its full year forecast upwards on 24/10. Net sales is expected to increase by 8.0% to 21.3 billion yen compared to the previous year (original plan 20.0 billion yen), operating income to increase by 31.8% to 1.98 billion yen (original plan 1.52 billion yen), and current income to turn positive at 1.25 billion yen (original plan 958 million yen), against the loss of 656 million year the previous year. The annual dividend forecast is also increased from 15.38 yen to 20.06 yen.Target Price : 840 yenBuy Price : 723 yenCut-Loss : 644 yen

Hengan (1044.HK) - Sanitary napkin business is expected to improve in 2H, e-commerce and other businesses grow fast

Investment Summary

Investment Highlights

Its interim revenue of FY2019 increased by 6.3% y.o.y., mainly driven by tissue paper and the other businesses. The sanitary napkin business was down 4.6% due to the impact of traditional channel reform, which is in line with our expectations. Traditional channel accounted for over 60% of sanitary napkin revenue. During the period, the company increased its efforts to transform the traditional sales channels, encourage small sales team to sell products directly to retailers and provide upgraded and premium products.

Although the reform has brought about an adjustment period to the sanitary napkin business, it is beneficial to business in the long run. At the same time, the business will be repositioned as feminine care product business, the new product line including cotton pads and makeup remover will be launched in the near future, and the mask will also be launched in 2H of this yea.

During the period, GPM decreased by 2.3 ppt y.o.y. to 37.3%, mainly due to the increase in percentage share of other business, which is with lower GPM, by 3.7 ppt to 13.8%. Thanked to the fall in the price of wood pulp, GPM of the tissue paper business was only slightly reduced by 0.8 ppt y.o.y. to 25%.

We expect that the price of wood pulp will continue to fall and be at a low level in 2H of the year, and Hengan will continue to optimize the product mix and increase the proportion of high-margin products, offsetting the negative impact of increased market competition and potential depreciation of the RMB. We expect that GPM of the tissue paper business will improve significantly in 2H of the year. During the period, brand promotion was intensified, resulting in an increase of the percentage share of distribution costs and administrative expenses by 1.6 ppt y.o.y. to 18.8%.

The management team still maintains the guidance of mid-to-high single digit growth in revenue and tissue paper business this year. It also expects as the price of wood pulp falls, the price war of low-priced products such as roll paper will be more intense to seize market share in 2H. It plans not to directly reduce the product price, but will launch promotion activities.

In 1H, sales of e-commerce platforms for paper towels and disposable diapers were strong, driving the former's revenue grew by 7.4%, and the latter's decline narrowed to 7.4%. E-commerce platform accounted for over 40% of the sales of disposable diapers, and sales of e-commerce channel increased by more than 10% y.o.y. The overall e-commerce business revenue increased by more than 50% y.o.y., and the contribution to overall revenue increased by 6.1 ppt. to 19.4%. We maintain Buy rating with a target P/E of 18x and a target price of 70.6. (current price as of November 4, 2019)

Investment Thesis, Valuation & Risk

We maintain Buy rating with a target P/E of 18x and a target price of 70.6. The risks that need to be watched include top-line growth rate missing from expectation, wood pulp prices fluctuating sharply, industry competition increasing significantly, and Ameba units missing sales target. (current price as of 4th November, 2019)


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Recommendation on 6-11-2019
Price on Recommendation Date$ 56.000
Suggested purchase priceN/A
Target Price$ 70.600
Writer Info
Tracy Ku
(Research Analyst)
Tel: +852 2277 6516

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