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China XD Alert:In-line FY16results,trimming FY17forecast;stock fully valued

发布时间:2017-04-10    研究机构:德意志银行

China XD’s FY16 results came in line, with NP +25% to Rmb1,128m, driven byUHV order delivery. This year, we expect GPM to be weighed down by lessfavorable product mix and raw material price hike, also a higher-than-expectedOpex led us to cut FY17 earnings forecasts by 6% and we now expect profitgrowth to slow down to 16%. Over the past one month, share priceoutperformed SHCOMP by 10%, riding export theme ahead of thegovernment-led One Belt, One Road Summit to be held in Beijing this May.However, we think the current multiple (26x 17E PE), more than a 30%premium over primary T&D equipment peers, has already priced in theexport/UHV driven growth outlook (14% profit CAGR in 2016-18E) as well asthe potential benefit from SOE reform. Maintaining Hold.

FY16 NP +25% on higher UHV delivery; Opex disappoint

FY16 NP was up 25%, with sales rising 6% yoy and GPM expanded by 2.4ppt,on more high-margin UHV order delivery (>Rmb5bn vs. Rmb4.3bn). SG&A exp.control looks disappointing, remaining high at 20% of total revenue, vs. c.10%for peers. By segment, switchgears contributed the most profit accretion withPBT at Rmb810m, followed by power electronics (mainly UHVDC) whichgenerated Rmb180m PBT; transformers turned profitable at Rmb86m. Exportsdropped 4% to Rmb1,377m, as Sudan project, which was suspended in 2011and resumed in 2015, is now being delayed again due to local political turmoil.

Order backlog (adj.) +7% yoy, driven by export

China XD’s order backlog rose 7% yoy to Rmb21.8bn (after adj. for theRmb3.5bn UHV orders announced in Dec-15 but not recorded in FY15 orderbacklog). This has been primarily driven by a 28% growth in export orders(Rmb2.2bn), as its Egyptian and Indonesian plants are starting to ramp upsales. While overseas markets present good potential for T&D exports, thisshould be gradually reflected in the company’s revenue/profit on 1) longerdelivery cycle and 2) higher financial/political risks entailed in overseas markets.

Trimming FY17 earnings forecast by 6% on GPM concern and higher Opex

For FY17, the company guided revenue to grow 5% to Rmb14,870m, with flatlevel UHV revenue (c.Rmb5bn) to be booked. However, revenue mix is likely toskew to low-margin transformers from high-margin UHVDC products, as permgmt. We believe a less favorable product mix, coupled with raw materialprice hike (e.g. copper, steel) should weigh on GPM (DBe: -1.5ppt). Also onworse-than-expected Opex control, we cut FY17 net profit by 6%. For FY18and beyond, we largely keep the forecasts unchanged with an implied 14% netprofit CAGR in 2016-18E, factoring 1) rising export sales to partially mitigatedomestic high voltage investment down-cycle, and 2) potential Opex control.

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