丘钛科技(01478.HK):Low earnings’ visibility still keep investors aside

1H18 loss in-line partly compensated by other gains; GM far short ofconsensus, FP posted a –ve GM

机构:信达证券

1H18 loss in-line partly compensated by other gains; GM far short ofconsensus, FP posted a –ve GM 

With similar reasons mentioned in the last profit warning alert, Q Tech’s 1H18result (net loss of ~RMB 50mn) was in-line with the announcement in July.However, Q Tech’s GM was only at 1.2% (drop 10.9ppts Yoy) which wasmaterially fell short of 1H18E and FY18E market estimates (1H18E:7.6%;FY18E:7.8%). Management further explained in the analyst meeting that FPposted a -7.9% GM, while CCM GM was only at 3% in 1H18. 

This further confirms our previous view that the net loss was also contributedby i) adoption of more aggressive pricing strategy; ii) lower thanexpected CCM product yield dragged by wider adoption of integratedlens set (MOC) which Q Tech is still on the learning curve; iii) lower thanexpected utilization rate due to weakened market demand alsocontributed to the net loss and iv) RMB24.8mn share of loss of anassociate (Newmax). In addition, we also noticed that the net operatingloss of RMB14.4mn was partly compensated by i) RMB 96.6mn otherincome (incl. RMB82mn government grants and RMB13.9mn unrealizedgain on other financial assets) and ii) ~RMB0.97mn net gain on FXoption contracts, otherwise we believe the net operating loss wouldcome in at ~RMB112mn and as a result a larger than expected net loss. 

Unattractive valuation on low earnings visibility and productroadmap; Reiterate Sell

We revised Q-tech’s FY18E/FY19E/20E diluted EPS by6.2%/4.6%/-7.8% earnings, by factoring in one off gains in FY18E,gradual improvement in product mix and ASP, while we further reviseddown GM assumption to factor in weaker than expected 1H18 GM. OurFY19E/20E net profit forecasts are 17.1%/28.3% lower than Bloombergconsensus to reflect our conservative view towards Q Tech’s earningsrecovery and management’s execution on medium term productroadmap. We lower Q Tech’s TP from HK$3.03 to HK$2.87 (whichimplies FY19E 10.4x PE and similar to our last update), while their 45%discount unchanged to leading players including Sunny Optical(2382.HK), O-Film (002456 CH) and LG Innotek (011070 KS) to leadingplayers’ average PE at 18.7x., we reiterate Q-tech’s Sell rating andadvise investors to take profit/ reduce their position during recentrebound. image.png

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