Yum Cha 飲 茶 April 28, 2017 INDICES Closing DoD% Hang Seng Index 24698.5 0.5 HSCEI 10261.3 (0.5) Shanghai COMP 3152.2 0.4 Shenzhen COMP 1900.0 0.5 Gold 1264.1 (0.4) BDIY 1134.0 (1.1) Crude Oil, WTI(US$/BBL) 49.2 0.4 Crude Oil, BRENT(US$/BBL) 51.4 (0.7) HIBOR, 3-M 0.9 (0.3) SHIBOR, 3-M 4.3 0.1 RMB/USD 6.9 0.1 DATA RELEASES DUE THIS WEEK April 29 Manufacturing PMI April 29 Non-manufacturing PMI Source: Bloomberg TALKING POINT - MGM CHINA Q1 RESULTS MGM China (2282.HK, HK$16.98), 56%-owned by MGM Resorts, has posted its results for 2017Q1. Based on these numbers, MGM China generated a profit of HK$855m under IFRS. Total revenue was HK$3,899m, and the adjusted EBITDA was HK$1,224m, a 25% YoY gain. MGM China's mass segment business looks very resilient. Revenue from floor table games increased 17% YoY to HK$2.50bn in Q1, versus Macau's overall 8.5% YoY growth. This market share gain is quite an achievement since two additional hotels have opened in Cotai in the meantime. MGM’s VIP baccarat business is less strong. VIP revenue declined 5% YoY (-11.7% QoQ), compared to the Macau's overall growth of 17% YoY and 6.5% QoQ. Overall, MGM's adjusted EBITDA increased 25% YoY. These numbers, although they were skewed by luck, attest to MGM’s strong execution in the mass segment, and its relative weakness in VIP baccarat. It is just as well that MGM Cotai will be very retail-centric, as MGM has decided against opening new VIP tables at the new casino. Regarding the opening of the MGM Cotai, management indicated the launch date would be in late 2017. So far, the Company has spent US$2.2bn of the $3.3bn project. We remain con- cerned that MGM Cotai’s opening will lead to price competition with Wynn Palace. MGM is trading at 17.5x EV/EBITDA, which means it is relatively expensive if there are no addi- tional catalysts to boost its EBITDA. . RESEARCH NOTES CRRC [1766.HK; HK$7.52; SELL] - CRRC released its 1Q17 China-GAAP results and held a post-results analyst briefing after market close on 27 April 2017. Total revenue in 1Q17 fell 16.7% YoY, with core railway business revenue falling 39.6% YoY. Net profit slid 42.0% YoY, with deteriorating operating leverage and revenue mix. The weak results echoed our bearish view on CRRC’s poor earnings growth outlook in 2017. Even with quarterly earnings volatility, its net profit was equivalent to only 10% and 9% of our and consensus respective full-year earnings forecasts for the Company in 2017, hitting the low end of the historical range of its 1Q earnings contribution. We expect to see sequential improvement in its core railway business growth from 2Q onwards, led by large bulk delivery of its locomotive and freight wagon products. But we expect its MU business to remain a drag on its earnings growth recovery in 2017. We maintain our earnings forecast and Sell rating on CRRC. Our earnings forecast for CRRC in 2017 is 12.3% below consensus earnings estimates. We expect its share price to come under pressure, considering there should be downside risk to the consensus earnings estimates after this 1Q17 earnings decline. MGM 3Q Table wins (HKDm) Total July - Sept VIP 22.4 22.4 Mass 22.8 22.8 Slot 5.0 5.0 Average Daily MGM 4Q Table wins (HKDm) Total Oct-Dec VIP 25.5 25.5 Mass 20.5 20.5 Slot 3.6 3.6 Average Daily MGM 1Q Table wins (HKDm) Total Jan-Mar VIP 23.0 23.0 Mass 24.0 24.0 Slot 3.8 3.8 MGM’s Average Daily Table Wins Sources: Bloomberg, Company Accounts
11
Embed
Yum Cha - chinastock.com.hk€¦ · MGM’s VIP baccarat business is less strong. VIP revenue declined 5% YoY (-11.7% QoQ), ... CRRC [1766.HK; HK$7.52; SELL] - CRRC released its 1Q17
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
Yum Cha 飲 茶 April 28, 2017
INDICES Closing DoD%
Hang Seng Index 24698.5 0.5
HSCEI 10261.3 (0.5)
Shanghai COMP 3152.2 0.4
Shenzhen COMP 1900.0 0.5
Gold 1264.1 (0.4)
BDIY 1134.0 (1.1)
Crude Oil, WTI(US$/BBL) 49.2 0.4
Crude Oil, BRENT(US$/BBL) 51.4 (0.7)
HIBOR, 3-M 0.9 (0.3)
SHIBOR, 3-M 4.3 0.1
RMB/USD 6.9 0.1
DATA RELEASES DUE THIS WEEK
April 29 Manufacturing PMI
April 29 Non-manufacturing PMI
Source: Bloomberg
TALKING POINT - MGM CHINA Q1 RESULTS
MGM China (2282.HK, HK$16.98), 56%-owned by MGM Resorts, has posted its results for
2017Q1. Based on these numbers, MGM China generated a profit of HK$855m under IFRS.
Total revenue was HK$3,899m, and the adjusted EBITDA was HK$1,224m, a 25% YoY gain.
MGM China's mass segment business looks very resilient. Revenue from floor table games
increased 17% YoY to HK$2.50bn in Q1, versus Macau's overall 8.5% YoY growth. This market
share gain is quite an achievement since two additional hotels have opened in Cotai in the
meantime.
MGM’s VIP baccarat business is less strong. VIP revenue declined 5% YoY (-11.7% QoQ),
compared to the Macau's overall growth of 17% YoY and 6.5% QoQ. Overall, MGM's adjusted
EBITDA increased 25% YoY.
These numbers, although they were skewed by luck, attest to MGM’s strong execution in the
mass segment, and its relative weakness in VIP baccarat. It is just as well that MGM Cotai will
be very retail-centric, as MGM has decided against opening new VIP tables at the new casino.
Regarding the opening of the MGM Cotai, management indicated the launch date would be in
late 2017. So far, the Company has spent US$2.2bn of the $3.3bn project. We remain con-
cerned that MGM Cotai’s opening will lead to price competition with Wynn Palace.
MGM is trading at 17.5x EV/EBITDA, which means it is relatively expensive if there are no addi-
tional catalysts to boost its EBITDA. .
RESEARCH NOTES
CRRC [1766.HK; HK$7.52; SELL] - CRRC released its 1Q17 China-GAAP results and held a
post-results analyst briefing after market close on 27 April 2017. Total revenue in 1Q17 fell
16.7% YoY, with core railway business revenue falling 39.6% YoY. Net profit slid 42.0% YoY,
with deteriorating operating leverage and revenue mix. The weak results echoed our bearish
view on CRRC’s poor earnings growth outlook in 2017. Even with quarterly earnings volatility, its
net profit was equivalent to only 10% and 9% of our and consensus respective full-year earnings
forecasts for the Company in 2017, hitting the low end of the historical range of its 1Q earnings
contribution. We expect to see sequential improvement in its core railway business growth from
2Q onwards, led by large bulk delivery of its locomotive and freight wagon products. But we
expect its MU business to remain a drag on its earnings growth recovery in 2017. We maintain
our earnings forecast and Sell rating on CRRC. Our earnings forecast for CRRC in 2017 is
12.3% below consensus earnings estimates. We expect its share price to come under pressure,
considering there should be downside risk to the consensus earnings estimates after this 1Q17
earnings decline.
MGM3Q Table wins (HKDm) Total July - SeptVIP 22.4 22.4 Mass 22.8 22.8 Slot 5.0 5.0
Average Daily MGM4Q Table wins (HKDm) Total Oct-DecVIP 25.5 25.5 Mass 20.5 20.5 Slot 3.6 3.6
Average Daily MGM1Q Table wins (HKDm) Total Jan-MarVIP 23.0 23.0 Mass 24.0 24.0 Slot 3.8 3.8
MGM’s Average Daily Table Wins
Sources: Bloomberg, Company Accounts
2
RESEARCH NOTES
BBMG [2009.HK; HK$4.22; UPGRADE TO HOLD] – Since Q1 is a low season, BBMG’s recurring net profit of RMB281m is
not very meaningful for analyzing full-year results. However, as the Company’s blended gross profit per tonne for the ce-
ment business reached >RMB70 in March, we believe our previous full-year forecast of RMB61 may be too conservative.
Therefore, we raise our 2017E/2018E recurring EPS by 11%/9.3% after raising our 2017E/2018E gross profit per tonne to
RMB76/RMB76. As a result, we lift our sum-of-the-parts target price from HK$3.77 to HK$4.13 (14.1x 2017E PER and 0.84x
PBR). After a correction of 20% from the peak, we upgrade our rating from SELL to HOLD.
China Railway Sector CRRC released its 1Q17 China-GAAP results and held a post-results analyst briefing after market close on 27 April 2017. Total revenue in 1Q17 fell 16.7% YoY, with core railway busi-ness revenue falling 39.6% YoY. Net profit slid 42.0% YoY, with deteriorating operating lever-age and revenue mix. The weak results echoed our bearish view on CRRC’s poor earnings growth outlook in 2017. Even with quarterly earnings volatility, its net profit was equivalent to only 10% and 9% of our and consensus respective full-year earnings forecasts for the Compa-ny in 2017, hitting the low end of the historical range of its 1Q earnings contribution. We ex-pect to see sequential improvement in its core railway business growth from 2Q onwards, led by large bulk delivery of its locomotive and freight wagon products. But we expect its MU busi-ness to remain a drag on its earnings growth recovery in 2017. We maintain our earnings fore-cast and Sell rating on CRRC. Our earnings forecast for CRRC in 2017 is 12.3% below con-sensus earnings estimates. We expect its share price to come under pressure, considering there should be downside risk to the consensus earnings estimates after this 1Q17 earnings decline.
Investment Highlights
1Q17 core-railway business revenue decline was caused by its MU business. Its core-railway business revenue decline in 1Q17 was led by its MU and passenger carriage business. Its MU business sales volume fell 66.9% YoY in 1Q17, while its passenger carriage business sales volume dropped 89.1% YoY. Its locomotive and freight wagon business, on the other hand, saw sales volume rise 13.8% and 306.3% YoY in 1Q17, respectively. The MU business revenue decline was due to insufficient orders on hand, since China Railway Corporation (CRC) delayed its MU tendering in 2016. The locomo-tive and freight wagon business revenue growth was led by CRC’s order recovery in 1Q17.
Margin contraction due to deteriorating operating leverage and revenue mix. CRRC reported gross profit margin contraction from 22.5% in 1Q16 to 21.0% in 1Q17, led by deteriorating operating leverage and product mix. Its SG&A costs fell 9.5% YoY, while SG&A costs as a percentage of total sales increased by 1.3ppt YoY to 16.2% in 1Q17. The Company reported that net financing cost fell 21.2% YoY in 1Q17. But with a higher effective tax rate, the net profit margin contracted from 6.1% in 1Q16 to 4.5% in 1Q17.
Remain cautious on its poor earnings growth outlook in 2017. Given normalizing delivery recovery of its locomotive and freight wagon business from 2Q onwards, we ex-pect to see sequential improvement in its core railway business growth from 2Q onwards. But we expect its MU business to remain a drag on its earnings growth recovery in 2017. Currently, the Company has c300 MUs on hand for delivery in 2017, which suggests around a 20% YoY sales volume decline in 2017. We expect its urban transit and other new business growth to only partially offset its core railway business growth slow-down.
Maintain Sell on CRRC. We maintain our Sell rating on CRRC. Our target price of HK$6.70 is based on a target multiple of 15x 2017E PER. Historically, the stock has trad-ed at an average forward PER of 17.3x. We don’t think the current valuation of 16.8x 2017E PER is justified with its poor earnings growth outlook.
1Q17 earnings slid as core-railway business struggled with insufficient MU orders
April 28, 2017
0
200
400
600
800
1,000
1,200
6.00
7.00
8.00
9.00
10.00
Jan
-16
Feb-1
6
Mar-
16
Ap
r-16
May-
16
Jun
-16
Jul-1
6
Au
g-1
6
Se
p-1
6
Oct
-16
Nov-
16
Dec-
16
Jan
-17
Feb-1
7
Mar-
17
Ap
r-17
Turnover(HK$m, rhs) Price(HK$)
Y/E Dec 31 2014 2015 2016 2017E 2018E
Turnover (RMB m) 218,451 237,785 224,138 232,604 253,022
Recurring net profit (RMB m) 10,815 11,818 11,296 11,346 12,342
Net margin (%) 5.0% 5.0% 5.0% 4.9% 4.9%
Recurring EPS (RMB) 0.41 0.43 0.41 0.40 0.43
% change na 5.9% -4.4% -4.3% 8.6%
PER(x) 16.3 15.4 16.1 16.8 15.5
PBR(x) 1.0 1.9 1.7 1.6 1.5
EV/EBITDA(x) 4.2 7.4 7.4 7.0 6.4
4
Key financials
Source: Company data, CGIS Research estimates
Revenue breakdown (Rmb m) 2014 2015 2016 2017E 2018E
Since Q1 is a low season, BBMG’s recurring net profit of RMB281m is not very meaning-
ful for analyzing full-year results. However, as the Company’s blended gross profit per
tonne for the cement business reached >RMB70 in March, we believe our previous full-
year forecast of RMB61 may be too conservative. Therefore, we raise our 2017E/2018E
recurring EPS by 11%/9.3% after raising our 2017E/2018E gross profit per tonne to
RMB76/RMB76. As a result, we lift our sum-of-the-parts target price from HK$3.77 to
HK$4.13 (14.1x 2017E PER and 0.84x PBR). After a correction of 20% from the peak,
we upgrade our rating from SELL to HOLD.
Investment Highlights
Gross profit per tonne began to pick up in March. BBMG’s blended gross profit
per tonne (cement and clinker) was RMB57 in Q1 (Q1 2016: a loss of RMB5/tonne). According to management, the gross profit per tonne reached >RMB70m in March, which suggests a marked improvement after the Lunar New Year holidays as de-mand began to pick up. Blended ASP was RMB233/tonne in Q1 2017, up from RMB212/tonne in 2H16. The ASP continued to go up moderately in April, according to the Company. Therefore, we raise our 2017E blended gross profit per tonne from RMB61 to RMB76.
Sales volume guidance largely unchanged. In Q1, sales volume of cement and
clinker was 13.3m tonnes, up from 6.92m tonnes in the same quarter of last year. The large increase is a result of the inclusion of the Jidong Cement business starting from Q4 2016. On a full-year basis, the Company’s sales volume guidance is 115m tonnes.
Weaker property business gross margin because of sales mix. In Q1, property
development revenue was RMB4,058m (sales volume: 0.2m m2), up 41.8% YoY. However, the gross margin dropped by 3ppt YoY to 37.5% in Q1 because of more revenue booking from projects in Beijing during the quarter. In Q1, the Company reported contracted sales of RMB4,537m or 0.3m m2. Although the authorities have launched purchase restrictions and other control measures in various cities recently, the Company’s sales of existing projects have still been good in April.
Profit breakdown between old BBMG and Jidong. On a reported basis, the Com-
pany recorded a net profit of RMB441m in Q1. About RMB800m was from the origi-nal business of BBMG, while Jidong reported a loss during the quarter because of the low season, with limited sales volume of cement and clinker.
Other payables 3,154,941 3,696,216 3,626,299 7,179,818 7,200,000 7,300,000 Increase / Decrease in cash 2,689,412 2,384,661 7,389,709 9,640,330 (366,559) 498,836
Bank and other borrow ings 13,516,500 11,635,636 16,805,996 32,027,734 35,000,000 38,000,000 Net cash/(debt) (21,106,510) (23,104,876) (23,324,716) (46,384,605) (46,635,744) (48,136,908)
This research report is not directed at, or intended for distribution to or used by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject China Galaxy International Securities (Hong Kong) Co., Limited (“Galaxy International Securities”) and/or its group companies to any registration or licensing requirement within such jurisdiction.
This report (including any information attached) is issued by Galaxy International Securities, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to the institutional clients from the information sources believed to be reliable, but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness.
This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company(ies) referred to herein. Past perfor-mance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regard-ing future performance. The recipient of this report should understand and comprehend the investment objectives and its related risks, and where necessary consult their own independent financial advisers prior to any investment decision.
Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or investment decisions of China Galaxy International Financial Holdings Limited and any of its subsidiaries (“China Galaxy International”), directors, officers, agents and employees (“the Relevant Parties”).
All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. China Galaxy Interna-tional and/or the Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer.
Disclosure of Interests
China Galaxy Securities (6881.hk) is the direct and/or indirect holding company of the group of companies under China Galaxy International.
China Galaxy International may have financial interests in relation to the subjected company(ies) the securities in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies)’ market capitalization.
One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) men-tioned in this report.
China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transac-tions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto.
China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or invest-ment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report.
Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies).
Analyst Certification
The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report.
Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong-listed companies cov-ered in this report.
Explanation on Equity Ratings
Copyright Reserved
No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.
China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459
Room 3501-3507, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.
BUY share price will increase by >20% within 12 months in absolute terms :
SELL share price will decrease by >20% within 12 months in absolute terms :
HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :