Sectors:

Air & Automobiles (Zhang Jing),

Consumer & Property Management (Timothy Chong)

TMT (Samuel Sung)

TMT & Education (Research Department)

Automobile & Air (ZhangJing)

This month I released 3 updated reports of Tuopu (601689.CH), Wanfeng (002085.CH) and Fuyao (3606.HK) which got success by their unique Competitive edge. Among them, we highly recommend Tuopu.

In 2020, Tuopu Group reported operating revenue of RMB6.51 billion, up by 21.5% yoy; net profit attributable to the parent company was RMB630 million, up by 37.7% yoy; earnings per share was RMB0.60. In the first quarter of 2021, benefiting from the strong industry rebound and the continued sales volume of Tesla models, Tuopu Group reported operating revenue of RMB2,426 million, up by 100.8% yoy. Net profit attributable to the parent company was RMB246 million, up by 116.4% yoy. The net profit was in the upper limit of the interval of the Company's previous result forecast (RMB220 million to RMB260 million).

In recent years, on the basis of the original business of shock absorbers and interior functional parts, the Company has proactively arranged the module of the lightweight chassis system and the automotive electronics business as the future Ŗ+3" strategic development projects, in order to adapt to the trend of electrification, intellectualization and lightweight of vehicles.

Relying on its excellent vehicle synchronisation R&D capabilities, strategic forward-looking arrangement and other comprehensive factors, as well as early binding of strong downstream customers, the Company has begun to enter the order harvesting period and continued to steadily expand its market share. The Tier 0.5 strategy pioneered by the Company has achieved demonstrative success. The matching amount of single vehicles was relatively high. New orders have increased significantly compared with previous years, which provides guarantee for the Company's rapid and sustainable development in the future.To meet the demand for orders, the Company accelerated the construction of Xiangtan base, Ningbo Hangzhou Bay New Area base Phase II and Phase III, and Ningbo Yinzhou District production base. In 2021, the Company will complete the construction of 1,500 mu of factory under construction and start the planning of the next 1,500 mu of industrial park.

In addition, in 2020, the Company's business was extended to the new energy vehicle thermal management relying on the technical homology of electronic control and related precision manufacturing capabilities in the IBS process of the automotive electronics business in the previous period. At present, the Company has successfully developed products such as heat pump air conditioners, electronic expansion valves, electronic water valves, electronic water pumps, and gas-liquid separators. In the future, the Company is expected to become an overall solution provider in the new energy vehicle thermal management. The overall matching value of single vehicles is as high as RMB6,000 to RMB 9,000. We expect that the Company will continue to benefit from the trend towards electrification and intellectualization of vehicles and enter a stage of rapid growth.

Consumer & Property Management (Timothy Chong)

I have released two update reports covering NISSIN FOOD (1475.HK) and Topsport Int`l (6110.HK) this month. Among them, we highly recommend Topsport Int`l (6110.HK).

Topsports INT`L announced on May 24 the company's annual results for the year ended February 28, 2021. The company's annual revenue was approximately CNY 36.01 billion, an increase of 6.9% Yoy (2020: CNY 33.69 billion), which was slightly lower than our previous expectation (previous expectation: CNY 37.37 billion), it was approximately 3.6% lower. The company's cost control during the period was adequate, and its OPM improved by 1.3 pcts Yoy, offsetting the slower revenue growth. The adjusted net profit for the year was CNY 2.77 billion, an increase of 16.4%, which was in line with our expectations (previously expected: CNY: 27.67) Billion). The company proposes to distribute 12 cents per share for the final period. Together with the interim dividend, the dividend payout ratio is approximately 54% (excluding special dividends). The annual dividend (including one special dividend) totals 64 cents per share.

During the epidemic, the company continued to expand its online membership and provided diversified membership activities and services through global consumer reach. As of February 28, 2020, the company's cumulative registered members increased by 3.6 million quarterly to 40.9 million. In-store retail sales contributed by Q1/Q2/Q3/Q4 members accounted for 96.7%/97.3%/97.1%/95.3% of the total. The Topsports sports app has been online for more than a year. As of February 28, the number of users has exceeded 2.7 million to build a user community and increase customer stickiness. In the second half of the fiscal year, an online community "Tao Ker" will be added for members to share here. Exchange experiences and create an online sports lifestyle community. In the future, the company will focus on online and offline integration to achieve seamless interaction with consumers in physical and virtual scenarios, including increasing the coverage of store-based social programs and opening mobile cashier tools.

TMT (Samuel Sung)

This month, I have released 1 research report, Sunny Optical (2382.HK).

In 2020, the company successfully reached the top in the handset lens set industry, becoming the highest shipment volume in the world, surpassing its largest competitor in the optical segment business, Taiwan Largan. The company remains optimistic about its HLS shipment volume in 2021 and has given a 15%-20% growth guidance. The company aims to gain more market share in 2021 to consolidate its current position in terms of shipment volume. For handset camera modules, it currently ranks second in the market share, with a market share of approximately 14% and its growth space is broader than other businesses. The company aims to have the highest shipment volume this year, 2021. The shipment volume guidance is increased by 20%-25% yoy.

The VLS is currently in a stage of upgrading and development. The company entered the VLS field in 2004 and now ranks no. 1 in the world in terms of shipments, with a global market share of 34%, significantly leading other competitors in the industry. In 2021, the growth shipment volume guidance of VLS is 20-25%. In terms of production capacity, it is expected to increase from 6kk to 7kk per month. The company's current global market share in ADAS has more than 50%. With the development of electric vehicles and unmanned driving systems in the future, the company can rely on its relatively high industry technology and experience to maintain its position as the top company in the market.

We believe that the company has sound fundamentals and steady growth in various businesses, the volume of the shipment is expected to continue to rise, but it is difficult to make a breakthrough in a short period due to the epidemic. At present, the company's main source of income is smartphone-related products. From the perspective of the medium and long-term in the future, it is expected that the company's vehicle-related products will become a strong growth point and the shipment of VLS will be expected to increase significantly.

TMT & Education (Research Department)

This month, We have released 2 update reports, China Youzan (8083.HK) and Weimob Inc (2013.HK). Between them, we highly recommend Weimob (2013.HK).

According to the company's announcement, the company's revenue from Subscription Solutions in 1Q21 represented an increase of over 100% as compared to 1Q20, which beat the market expectation. Further, as at the end of 1Q21, the number of paying merchants increased by approximately 21.9% as compared to 1Q20. The attrition rate was approximately 4.3%, with corresponding annualized attrition rate at 17.2%, which represented a huge improvement as compared to the 26.1% in 2020. On the other hand, the revenue from Merchant Solutions in 1Q21 was up by over 50% YoY.

According to the announcement on 25th of May, the company placed 156 million new shares with placing price at HKD 15.00, which represents a discount of approximately 6.6% to the closing price of 24th of May. The placing has been completed on 1st of June. At the same time, the company has proposed to issue USD 300 million of zero coupon guaranteed convertible bonds due 2026, with initial conversion price of HKD 21.00, which represents a premium of approximately 30.8% over the closing price of 24th of May. The placing and bond issuance will raise USD 600 million for the company and the proceeds will be used for improving the company's comprehensive research and development capabilities, upgrading the company's marketing system, supplementing working capital and general corporate purposes. The new share placing and the bond issuance recorded 8 times and 5 times subscription, respectively and many well-known and long term institution investors have shown interest, which fully demonstrated their recognition of the company's long term value. We believe the company will have sufficient capital for product R&D as well as M&A in various vertical industries, in order to further consolidate its competitive advantages in the market.

We maintain our previous forecast on 2021-2023 Subscription Solutions revenue and adjust our forecast on 2021-2023 targeted marketing gross billing to HKD 15.8/20.8/26.9 billion (previous forecast was HKD 15.2/19.9/25.7 million). But since we expect the company to invest in PaaS and TSO continuously in the foreseeable future, we cut our 2021-2023 adjusted Net profit forecast to HKD 55/184/515 million (previous forecast was HKD 184/347/766 million). We maintain our 2022 targeted marketing target PE of 18x and 2022 subscription solution target PS of 23x, adjust TP slightly downward to HKD 26.46 (-0.9%), to reflect our more optimistic view on the company's targeted marketing business and to reflect the dilution effect as a result of the newly issued shares. The TP corresponds to adjusted PE of 966x/290x/103x in 2021/2022/2023, respectively. We maintain Buy rating.

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