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24 Dec, 2019 (Tuesday)

Tongcheng-Elong Holdings (780) continues to expand its user base with low user acquisition cost attributable to the mutually beneficial partnership with Tencent (700). It has also established diversified traffic sources on Tencent-based platforms by leveraging on Weixin-based mini program. Additionally, the Group further extends its reach in lower-tier cities in China based on the effective channels and wide user coverage through Tencent-based platforms. As of September 30, 2019, the percentage of its registered users resided in non-first-tier cities in China maintained at approximately 85.5%. For the three months ended September 30, 2019, the Group has effectively penetrated into lower-tier cities and approximately 63.3% of new paying Weixin users were from tier-3 or below cities, which increased from 58.8% over the same period of 2018. (I do not hold the above stock)
Buy-in Price: $12.50, Target Price: $14.00, Cut Loss Price: $11.70

Q TECH(1478)
Q Tech record a consolidated profit attributable to the Shareholders of RMB181 million for the six months ended 30 June 2019, as compared to a loss of RMB51.29 million over a year ago, due to the following factors: (i) the gross profit margin of overall products improved apparently due to a significant increase of sales volumes of camera modules and the enhancement of product mix of fingerprint recognition module products; (ii) the labour cost has improved, which was mainly attributable to the upgrading of the production automation that has gradually demonstrated results; and (iii) Newmax Technology Co., Ltd., an associated company of the Company, has significantly improved its managing situation for the period from January 2019 to April 2019 and has recorded a profit. The gross profit margin of the integrated products increased significantly compared with the same period of last year, increasing by 7pcts to 8.2% year-on-year, and the net profit margin increased by 5.2pcts to 3.6%. In the second half of the year, driven by customer demand and product structure upgrades, profit growth is expected to continue to maintain high speed.
Buy-in Price: $12.50, Target Price: $16.00, Cut Loss Price: $10.00

Tokyo Rakutenchi Co., Ltd. (8842)
Established in 1937 for the purpose of offering wholesome entertainment to the general public of Tokyo Shitamachi. Opened Koto Theatre and TOHO Cinemas. Currently carries out the real estate leasing-related business, the entertainment service-related business and the F&B / retail business. In their mainstay real estate leasing business, they have expanded the Rakutenchi Building and the east and west buildings of the Rakutenchi Derby Building, etc. mainly located in the Kinshicho district.For 3Q (Feb-Oct) results of FY2020/1 announced on 4/12, net sales increased by 17.4% to 8.296 billion yen compared to the same period the previous year, operating income increased by 70.0% to 1.229 billion yen and net income increased by 2.6 times to 946 million yen. Opened the SEIYU Kinshicho store in Sep 2018 and Kinshicho PARCO in Mar 2019 which has led to an increase in rental revenue. The renewal opening of TOHO Cinemas Kinshicho Rakutenchi has also contributed.For its full year plan, net sales is expected to increase by 12.9% to 10.8 billion yen compared to the previous year and net income to increase by 4.0 times to 1.15 billion yen. The content announced on 4/9 remains unchanged. After the renewal opening of TOHO Cinemas Kinshicho Rakutenchi, they have begun the integrated management as TOHO Cinemas Kinshicho and is currently improving both seat occupancy rate and profitability, etc.Target Price : 6,500 yenBuy Price : 6,210 yenCut-Loss : 6,000 yen

Tuopu Group (601689.CH) - Lightweight and Automotive Electronics Business See Opportunities

Investment Summary

Decline Slowed in the Third Quarter

Tuopu Group recorded a revenue of RMB3766 million in the last three quarters, a 15.50% fall compared with the same period of last year. Among which, Q3 revenue was RMB1328 million, signaling a 3.90% Y-o-Y decrease and a M-o-M increase of 11.30%. Compared with the 25% decrease in the second quarter, the decrease has significantly shrunk.

In terms of net profit attributable to the parent company, it was RMB340 million in the last three quarters, decreasing by 30% year-on-year. Among the RMB340 billion, RMB130 million was in the third quarter, which represented a 30% year-on-year decrease and a 30% month-on-month increase. Compared with the same period of last year, gross profit margin and net profit margin down 1.55 and 3.5 ppts, respectively, mainly attributed to the decline in industry prosperity and the increase in depreciation.

Recovery of Sales Volume of Major Customers Leads to the Improvement of Capacity Utilization Ratio

The improvement in results in the third quarter is resulted from the improved demand from downstream customers. The output of the company's major customers Geely Motor and SAIC GM increased by 9.3% and 3.8%, respectively in the third quarter over the previous quarter. The production of SAIC self and Chang`an Ford also improved compared with the previous quarter, leading to a rebound in the company's capacity utilization. Gross profit margin increased by 0.6 ppts to 26.4% compared with the second quarter, and net profit margin also increased by 1.4 ppts to 9.55% compared with the second quarter. We expect that with the further improvement in sales of major customers in the fourth quarter, the company's profitability will continue to pick up, and net profit growth is expected to be positive.

The company continued to reduce costs and increase efficiency in adversity, and the sales, management and R&D expenses accounted for 14.76% of revenue in the third quarter, which fell by 0.92 ppts compared with the second quarter. The company has a good cash flow with a RMB226 million net flow from its operating activities. Inventories fell 12.9% year-on-year to RMB1.14 billion.

Lightweight and Automotive Electronics Business See Opportunities for Development

The construction of Tesla's Shanghai plant was faster than expected. The trial production began in October and nearly 20,000 vehicles will be produced by the end of the year. As capacity climbs, production will reach 150,000 in 2020 and is expected to exceed 250,000 in 2021. Tuopu supplies Tesla with more than RMB5,000 for each vehicle, and it is estimated that the Model 3 vehicles will bring the company a net profit increment of RMB93 million and RMB180 million in the next two years, respectively, accounting for about 12% and 24% of the company's net profit in 2018. In the field of automotive electronics EVP and IBS, the company's visionary layout brings it a leading position among domestic manufacturers. Tuopu is expected to break through the technological monopoly of foreign giants and realize domestic substitution in the future.

Overall, the Company's lightweight chassis and automotive electronics business are in line with the trend of industry upgrading, which will inject momentum into the company's new round of development.

Investment Thesis

We estimate that the company's net profit in 2019/2020/2021 will reach RMB513 /714/969 million, respectively, with the corresponding EPS being RMB0.49/0.68/0.92. Although the results in 2019 are under pressure, under the acceleration of Tesla's localization, the company's results will usher in an inflection point and we are optimistic about the development prospects of the company's lightweight business and automotive electronics. So, we lift the Company's target price to RMB19, respectively 26/21 x P/E for 2019/2020/2021, a "Accumulate" rating. (Closing price as at 19 Dec)


Price war among peers

Raw material price increase

New business risk


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Recommendation on 24-12-2019
Price on Recommendation Date$ 17.440
Suggested purchase priceN/A
Target Price$ 19.000
Writer Info
Zhang Jing
(Research Analyst)
Tel: (+86 21 51699400-103)

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