Investor Notes - Phillip Securities (HK) Ltd

18 Jul, 2022 (Monday)

JOINN(6127)
Analysis：
JOINN LABORATORIES (6127) is principally engaged in the provision of non-clinical studies services, clinical trial and related services and sales of research models. According to its positive profit alert, from January to June 2022, the net profit attributable to the shareholders of the Company (RMB340.9570 million to RMB402.4510 million) will increase by approximately RMB187.2221 million to RMB248.7161 million, representing a period-on period increase of approximately 121.8% to 161.8% as compared with the corresponding period of last year. The growth is mainly attributable to the fact that the Company continues to maintain its advanced and leading position in the field of innovative drugs, especially on the biomolecule drug evaluation and continues to develop new evaluation methods and technical means to provide strong research and development support for the innovative pharmaceutical companies. (I do not hold the above stock)
Strategy：
Buy-in Price: $78.00, Target Price: $90.00, Cut Loss Price: $73.00

YIP`S CHEMICAL(408)
Analysis：
Yip's Chemical（00408）based on preliminary assessment of the unaudited consolidated management accounts for the five months ended 31 May 2022, the net profit is expected to be lower than that for the six months ended 30 June 2021 Interim Period by over 60% which is mainly attributable to Profit of the solvents business for the corresponding period last year was unusually high due to a temporary imbalance of supply and demand of solvent products. Yet the net profit for the five months ended 31 May 2022 is still in line with the historical average profit level excluding the exceptional circumstances last year. In addition, a non-recurring increase in fair value of the investment property in Fanling in the sum of HK$66 million was recorded in the 2021 Interim Period and the said property was subsequently disposed of during the year ended 31 December 2021. The Company's spin-off of Bauhinia Variegata Ink for listing on the Shenzhen Stock Exchange is progressing in an orderly manner and has completed two rounds of responses to questions from the Shenzhen Stock Exchange, which may serve as a catalyst for positive results in the second half of the year.
Strategy：
Buy-in Price: $4.52, Target Price: $5.10, Cut Loss Price: $4.10

Fuyao Glass (3606.HK) - FY2022 Q1 Core Earnings See Strong Performance

Investment Summary

Revenue Hits New High in Q1, Core Earnings See Strong Performance

According to the results report for Q1 2022, Fuyao Glass reported operating revenue of RMB6.55 billion, up 14.8% yoy, a new record for the same period and significantly outperforming the overall growth rate of the automobile industry (+2%). We believe that the increase in the unit price of the Company's products and the Company's global expansion of its market share against the trend are the main reasons. The Company also reported a net profit of RMB870 million, up 1.9% yoy and up 58.4% qoq, with a growth rate lower than that of revenue, mainly due to RMB appreciation, increasing freight charges and the rising price of sodium carbonate, the raw material.

In Q1, the Company recorded a gross margin of 35.75%, down 4.85 ppts yoy, mainly due to changes in accounting standards (inclusion of transportation charges in operating cost), RMB appreciation, increasing freight charges and the rising price of sodium carbonate, the raw material. In particular, increasing freight charges/the rising price of sodium carbonate, the raw material/RMB appreciation caused gross margin to fall by approximately 0.76/1.1/0.81 ppts, respectively. Meanwhile, RMB appreciation led to RMB135 million of exchange loss from financial expenses (which was only RMB70 million in the previous period). If the impacts of such factors were ignored, the total pre-tax profit was up 24.4% approximately yoy, and core earnings showed a strong performance.

Product Unit Price Continues to Rise as Product Mix Goes Up

The Company continued to promote product technology upgrading and increase the added value of products, and has been maintaining a high R&D investment ratio in the industry. Driven by them, ASP continued to rise. In 2021, the proportion of high-value-added products, including ceiling glass, HUD, camera glass, coated glass and tempered soundproof car door glass, increased by 3.31 ppts approximately and the ASP of automobile glass increased by 3.8 ppts. In Q1 2022, the proportion of high-value-added products increased by 6.2 ppts approximately, and ASP increased by 9.2% yoy. Specifically, the ASP of the Company's automobile glass continued to grow from RMB132/m2 in 2013 to RMB180/m2 in 2021, and is expected to exceed RMB200/m2 in 2024. In the future trend of automobile glass to be safe, comfortable, energy-saving, environmentally friendly, intelligent and integrated, the Company will continue to reinforce its competitiveness and capability against risks.

Overseas Business Continues to Improve

Overseas competitors have been downsizing automobile glass business in recent years, while Fuyao Glass has been actively upscaling the business with increasing competitiveness. In 2021, the Company's global market share increased by 3 ppts to 31% over the previous year, and it is expected that it will continue to increase to 34% in 2024. In Q1 2022, Fuyao Glass reported a yoy increase of 17.2% and 18.1% in its domestic and overseas revenue, respectively. In particular, the revenue of Fuyao Glass America amounted to USD167 million, up 24% yoy, and its net profit margin was 8% approximately, up 1 ppt approximately from 7% approximately in 2021. The FYSAM plant in Germany also saw its losses further narrowed, and expects to turn losses into gains in H2 as orders are gradually put into production, and it is expected to become the Company's most resilient business in the future.

Headwinds to Gradually Ease, Result Expected to be Stronger since H2

We expect the cost headwinds to gradually ease as sodium carbonate price and freight charges come down from their highest peaks. Furthermore, the trend of RMB exchange rate has been benefiting the Company's performance since the beginning of this year and the Company saw a continuous growth of its global market share and a continuous rise in its product unit price and profitability, which, as we expect, will drive the Company's performance to continue to go stronger in H2. The Company has also raised funds to enter the field of photovoltaic glass, and has been expanding its product scope to open room for long-term sustainable development.

Investment Thesis

Overall, considering the steady leading position, continuous optimization of the product structure and a high dividend rate, we give the "BUY" rating, with a revised target price to be HK$49, equivalent to 26/20.6/16x P/E for 2022/2023/2024E. (Closing price as at 14 July)

Risks

Demand for automobiles keeps sluggish; cost of raw materials increases; RMB appreciates

Catalyst

Success market development of overseas automobile market; rebound of domestic demand for automobile; depreciation of RMB

Financials

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Recommendation on 18-7-2022
Recommendation	BUY
Price on Recommendation Date	$ 39.250
Suggested purchase price	N/A
Target Price	$ 49.000

Writer Info

Zhang Jing
(Research Analyst)

Tel: (+86 21 51699400-103)

Email:
zhangjing@phillip.com.cn

Enquiry : 2277 6666 OR investornotes@phillip.com.hk
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