yum cha 飲 茶sands china – losing vip market share sands china’s (1928 hk, hk$36.05) parent...
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Yum Cha 飲 茶 July 27, 2017
INDICES Closing DoD%
Hang Seng Index 26941.0 0.3
HSCEI 10831.5 0.5
Shanghai COMP 3247.7 0.1
Shenzhen COMP 1843.1 (0.3)
Gold 1260.2 0.8
BDIY 980.0 0.3
Crude Oil, WTI(US$/BBL) 48.7 (0.2)
Crude Oil, BRENT(US$/BBL) 51.0 1.5
HIBOR, 3-M 0.8 (0.0)
SHIBOR, 3-M 4.3 (0.1)
RMB/USD 6.8 0.0
DATA RELEASES DUE THIS WEEK
July 27 Industrial Profits YoY
July 31 Manufacturing PMI
July 31 Non-manufacturing PMI
Source: Bloomberg
RESEARCH NOTES
GUOTAI JUNAN INTERNATIONAL [1788.HK; HK$2.43; DOWNGRADE TO HOLD]
- After the lesson learned in 2016, with HK$106m (>10% of net profit) impairment in
its margin financing business, GTJAI spared itself from the small-cap crash in 1H17,
thanks to more stringent risk control in margin lending and a shift in its loan mix focus
to large caps. However, this also sacrificed its previous high interest rate, as well as
its rapid growth in margin balance and revenue in the near term. After raising its cor-
porate finance revenue by 9% because of its impressive debt and equity underwriting
performance this year, we still cut our 2017E/2018E EPS by 7%/14% and trim down
our Gordon Growth Model-based target price from HK$3.20 to HK$2.65 (2.05x 12-
month forward PBR) after revising our estimated mid-term ROE from 16% to 14%.
Downgrade from BUY to HOLD.
HAITONG INTERNATIONAL [0665.HK; HK$4.46; BUY] - We reviewed our financial
model for Haitong International (HTI) recently and adjusted some of its major busi-
ness projections, based on the latest market performance: 1) impressive YoY growth
in debt underwriting, but lackluster performance in equity underwriting; 2) a more con-
servative risk appetite and slower revenue growth in its margin financing business; 3)
equity investment return recovery, since the HSI is up 22% YTD. We still maintain our
market ADT assumption of HK$78bn (HK$75bn YTD) and expect to see decent YoY
growth in revenue and net profit for the Company, given a low base in 2016. Overall,
we cut our 2017E/2018E EPS by 14%/8% and trim our target price from HK$5.56 to
HK$5.41, based on 1.15x 12-month forward PBR (adjusting the mid-term ROE from
11.5% to 11%, moving the base year to mid-2018, leaving other assumptions of the
Gordon Growth Model unchanged). Trading at 1.0x 2017E PBR, the valuation still
looks undemanding. Maintain BUY. For 1H17 results, we expect net profit of
~HK$1bn, representing 23% YoY growth, thanks to a higher ADT for the Hong Kong
market and recovery in trading income from a low base in 1H16.
SNIPPETS
COSCO SHIPPING INTERNATIONAL [0517.HK; HK$3.27; NOT RATED] - COSCO
Shipping Int’l just issued a positive profit alert after market close yesterday, saying
that 1H2017 net profit will increase over 40% YoY. According to the announcement,
such expected increase was mainly due to the increases in net exchange gains and
net finance income. We share the view that COSCO Shipping Int’l’s YoY increase in
net profit is not related to core operation but at least we see the Company reports
YoY growth in net profit for the first time since 2H2015 and the Company is still trad-
ing at 0.65x 2016 PBR and also below cash level. Given the improvement in operat-
ing performance of the shipping lines, COSCO Shipping Int’l will also see pick up in
operating performance going forward. We also re-iterated the view that the shipping
related sector will see earnings recovery.
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Sands China – Losing VIP market share Sands China’s (1928 HK, HK$36.05) parent Las Vegas Sands Corp (LVS US) has released its 2017 Q2 operating num-bers, which show that, while Sand China’s mass-related revenues has been resilient, its VIP business has lost market share recently. According to Macau government’s numbers, VIPGGR grew 1% QoQ while mass market-related GGR revenues slipped 3% in 2017Q2. Figure 1: Average Daily Table Wins at Sands China
Sources: Bloomberg, CGIS,
Average Daily Venetian Cotai Central Four Seasons Sands Macao Parisian3Q Table wins (HKDm) TotalJuly - Sept 2016 July - Sept July - Sept July - Sept Sept 13 - 30VIP 50.2 21.8 9.9 6.2 2.4 9.8 Mass 88.4 29.4 26.3 5.4 11.0 16.4 Slot 14.6 3.8 4.5 0.5 1.9 3.9
Average Daily Venetian Cotai Central Four Seasons Sands Macao Parisian4Q Table wins (HKDm) Total Oct-Dec 2016 Oct-Dec Oct-Dec Oct-Dec Oct-DecVIP 47.8 18.9 7.3 6.8 2.2 12.7 Mass 88.6 36.5 23.0 4.9 10.3 13.9 Slot 11.9 2.9 3.7 0.7 1.7 3.0
Average Daily Venetian Cotai Central Four Seasons Sands Macao Parisian1Q Table wins (HKDm) Total Jan-Mar Jan-Mar Jan-Mar Jan-Mar Jan-MarVIP 47.7 21.2 7.5 5.7 4.3 9.1 Mass 95.5 38.2 25.5 5.7 10.6 15.5 Slot 12.5 3.1 4.1 0.6 1.8 3.0
Average Daily Venetian Cotai Central Four Seasons Sands Macao Parisian2Q Table wins (HKDm) Total Apr-June Apr-June Apr-June Apr-June Apr-JuneVIP 42.6 16.0 6.8 4.1 3.2 12.5 Mass 94.8 37.4 24.7 6.1 10.1 16.4 Slot 12.0 3.1 3.9 0.6 1.7 2.6
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Guotai Junan International Holdings Ltd [1788.HK]
After the lesson learned in 2016, with HK$106m (>10% of net profit) impairment in its margin
financing business, GTJAI spared itself from the small-cap crash in 1H17, thanks to more
stringent risk control in margin lending and a shift in its loan mix focus to large caps. Howev-
er, this also sacrificed its previous high interest rate, as well as its rapid growth in margin
balance and revenue in the near term. After raising its corporate finance revenue by 9%
because of its impressive debt and equity underwriting performance this year, we still cut our
2017E/2018E EPS by 7%/14% and trim down our Gordon Growth Model-based target price
from HK$3.20 to HK$2.65 (2.05x 12-month forward PBR) after revising our estimated mid-
term ROE from 16% to 14%. Downgrade from BUY to HOLD.
Investment Highlights
Impairment related to margin loans no longer a concern but slower growth mo-
mentum instead. The Company’s loan and financing business saw a 45% and 49%
five-year CAGR in income and financing balance from 2011 to 2016, respectively. Mar-
gin loans and other loans were basically the pillar of its high growth in the past, with
lending interest making up 51% of total revenue in 2016. We believe a longer period is
needed to change its margin financing strategy, focusing more on large caps to better
control the overall risk. We lower our interest rate and margin balance assumptions and
hence reduce our loan and financing income by 3%/16% for 2017E/2018E.
Growth in corporate finance income well-expected. The market should have well-
expected its equity underwriting income growth from its parent company’s IPO in May.
As for debt underwriting, the Company also performed well in 1H17, based on the latest
data. According to Bloomberg, GTJAI’s credited amount of debt underwriting reached
US$8.7bn in 1H17, accounting for >70% of last year’s total amount. We raise our fore-
cast for the investment banking business by 9%/8% in 2017E/2018E, respectively, to
reflect a more optimistic outlook for the Company’s debt capital market business in the
medium term.
Market trading volume recovering from a low base. The average daily turnover
(ADT) of Hong Kong market recovered from HK$67bn in 1H16 to HK$75bn in 1H17,
gradually rising to YTD ADT of HK$76bn. We believe the overall market momentum will
continue in the second half thanks to: 1) the stabilizing USD appreciation process; 2) a
continually narrowing valuation gap between listed companies in the Mainland and
Hong Kong; and 3) further growth potential from southbound flows. We keep our full
year ADT assumptions of HK$78bn in 2017 and HK$83bn in 2018, and expect broker-
age income to increase correspondingly 12%/7% in 2017E/2018E, respectively, on a
year-on-year basis.
Earnings Adjustment Based on More Conservative Margin Financing Expecta-
tions; Downgrade to HOLD
July 27, 2017
HOLD (Downgrade from BUY)
Close: HK$2.43 (July 26, 2017)
Target Price: HK$2.66 (+9%)
Price Performance
Market Cap US$2,176m
Shares Outstanding 6,968m
Auditor Ernst& Young
Free Float 33.88%
52W range HK$2.28-3.31
3M average daily T/O US$18.414m
Major Shareholder Guotai Junan Holdings
(65.1%)
Sources: Company, Bloomberg
Livy Lyu—Research Analyst
(852) 3698 6393
Wong Chi-man—Head of Research
(852) 3698 6317
China Securities Sector
Source: Bloomberg
Year ended 31 December 2014 2015 2016 2017E 2018E
Revenue(HK$ m) 1,657 2,277 2,519 2,913 3,150
Net income(HK$ m) 800 1,014 969 1,229 1,283
Adjusted Net Margin 54% 53% 47% 53% 52%
Adjusted EPS (HK cents per share): 13.9 14.9 14.1 17.6 18.2
YOY Change 33% 7% -5% 25% 3%
PER(x) 17.53 16.41 17.32 13.84 13.38
PBR(x) 2.33 2.19 2.08 1.95 1.83
ROAE 14.5% 13.8% 12.3% 14.5% 14.0%
ROAA 4.1% 3.4% 2.4% 2.5% 2.3%
Source: Company Data, CGIS Research estimates
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2.5
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3.5
(HK$ million)(HK$)
Turnover (RHS) Price (LHS)
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Key financials Income Statement
(HKD'000, except for per share amount)
Year ended 31 December 2014 2015 2016 2017E 2018E
Brokerage 501,646 719,945 393,000 439,585 471,143
Loans and Financing 722,470 1,076,018 1,297,278 1,339,843 1,383,810
Corporate Finance 287,825 281,447 456,649 604,203 645,283
Asset Management 46,387 53,092 28,487 45,000 54,000
Investment Holding & Market Making 98,254 146,106 343,773 484,203 596,050
Revenue 1,656,582 2,276,608 2,519,187 2,912,833 3,150,287
Other income 4,459 1,899 2,608 2,500 2,500
Operating Expenses
Staff costs 368,622 505,649 526,657 592,000 663,000
Commission to accounts executives 68,477 118,530 55,117 65,938 70,672
Depreciation 23,643 28,664 34,695 35,000 35,000
Other operating expenses 170,421 207,980 379,923 273,462 296,772
Finance costs 95,162 249,562 393,536 518,849 595,113
Operating Profit 929,216 1,168,122 1,131,867 1,430,084 1,492,231
Income tax expense 127,301 152,689 162,520 200,212 208,912
Non-controlling interests 2,124 1,892 208 800 800
Net income 799,791 1,013,541 969,139 1,229,072 1,282,519
EPS (HK cents):
Basic 13.9 14.9 14.1 17.6 18.2
Diluted 13.7 14.6 13.9 17.4 18.0
DPS (HK cents): 7.0 7.5 7.5 9.2 9.5
Dividend payout ratio 50% 50% 53% 52% 52%
Dividend Yield 2.7% 3.1% 3.1% 3.8% 3.9%
Revenue Breakdown(%)
Brokerage 30% 32% 16% 15% 15%
Loans and Financing 44% 47% 51% 46% 44%
Corporate Finance 17% 12% 18% 21% 20%
Asset Management 3% 2% 1% 2% 2%
Investment Holding & Market Making 6% 6% 14% 17% 19%
Growth Ratio YOY:
Total Revenue 46% 37% 11% 16% 8%
Brokerage 33% 44% -45% 12% 7%
Loans and Financing 82% 49% 21% 3% 3%
Corporate Finance 92% -2% 62% 32% 7%
Asset Management 47% 14% -46% 58% 20%
Investment Holding & Market Making -45% 49% 135% 41% 23%
Operating profit 59% 38% 8% 28% 7%
Net profit 49% 27% -4% 27% 4%
EPS growth 33% 7% -5% 25% 3%
Margins and Ratios:
Adjusted Operating Margin* 62% 61% 55% 61% 60%
Adjusted Net Margin** 54% 53% 47% 53% 52%
Effective tax rate 14% 13% 14% 14% 14%
Cost-to-income ratio 43% 47% 50% 50% 52%
Staff cost-to-income ratio 22% 22% 21% 20% 21%
Average daily turnover of HKEx (HK$ m) 69,456 105,630 66,280 78,000 83,000
Margin financing balance(HK$ m) 8,407 11,963 13,385 13,970 14,406
*Adjusted Operating Margin=Operating profit/(Revenue-commission and interest expenses)
**Adjusted Net Margin=Net profit/(Revenue-commission and interest expenses)Source: Company Data, CGIS Research estimates
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Key financials Balance Sheet
(HKD'000, except for per share amount)
Year ended 31 December 2014 2015 2016 2017E 2018E
Non-current assets 521,501 640,749 812,891 908,323 1,058,323
Property, plant and equipment 513,503 512,166 493,559 500,000 500,000
Others 7,998 128,583 319,332 408,323 558,323
Current assets 21,483,380 36,688,686 44,187,854 52,013,121 56,255,254
Loans and advances to customers 9,099,164 12,375,857 14,286,666 15,269,432 15,905,464
Accounts receivable 1,001,103 1,932,119 1,495,924 2,038,983 2,205,201
Financial assets at fair value through profit or loss 1,353,089 4,506,947 13,261,624 17,900,000 21,080,000
Cash held on behalf of customers 9,009,909 14,662,991 12,400,917 14,066,706 15,076,589
Cash and cash equivalents 889,286 2,408,666 1,964,398 2,000,000 1,200,000
Others 130,829 802,106 778,325 738,000 788,000
Total assets 22,004,881 37,329,435 45,000,745 52,921,444 57,313,577
Non-current liabilities 1,023,208 3,112,269 2,133,262 2,608,446 2,970,974
Bank borrowings 990,000 3,090,000 2,100,000 2,568,404 2,929,192
Others 33,208 22,269 33,262 40,042 41,782
Current liabilities 13,916,459 26,581,909 32,333,649 39,141,843 42,521,977
Accounts payable 10,004,468 18,218,312 14,871,038 16,401,779 17,579,303
Bank borrowings 3,472,719 4,765,662 6,811,433 9,500,000 10,000,000
Debt securities in issue - 505,340 3,485,520 4,500,000 5,000,000
Others 439,272 3,092,595 7,165,658 8,740,064 9,942,674
Total liabilities 14,939,667 29,694,178 34,466,911 41,750,289 45,492,951
Capital and reserves
Share capital and share premium 5,852,194 6,004,362 6,054,025 6,104,025 6,154,025
Retained profits 2,172,562 2,685,718 3,171,842 3,753,590 4,363,061
Proposed final dividend 292,434 274,295 310,613 320,000 320,000
Other reserves (1,261,777) (1,340,811) (1,361,282) (1,341,460) (1,351,460)
Total equity 7,055,413 7,623,564 8,175,198 8,836,155 9,485,626
Perperutal debt - - 2,346,685 2,325,000 2,325,000
Minority 9,801 11,693 11,951 10,000 10,000
Finance Ratios:
PER(x) 17.53 16.41 17.32 13.84 13.38
PBR(x) 2.33 2.19 2.08 1.95 1.83
Book value per share(HKD) 1.0 1.1 1.2 1.3 1.3
ROAE 14.5% 13.8% 12.3% 14.5% 14.0%
ROAA 4.1% 3.4% 2.4% 2.5% 2.3%
Dupont Analysis:
Brokerage 2.6% 2.4% 1.0% 0.9% 0.9%
Loans and Financing 3.7% 3.6% 3.2% 2.7% 2.5%
Corporate Finance 1.5% 0.9% 1.1% 1.2% 1.2%
Asset Management 0.2% 0.2% 0.1% 0.1% 0.1%
Investment Holding & Market Making 0.5% 0.5% 0.8% 1.0% 1.1%
Revenue 8.5% 7.7% 6.1% 5.9% 5.7%
Operating Expenses 3.7% 3.7% 3.4% 3.0% 3.0%
Operating Profit 4.8% 3.9% 2.7% 2.9% 2.7%
Income tax expense 0.7% 0.5% 0.4% 0.4% 0.4%
Net income 4.1% 3.4% 2.4% 2.5% 2.3%
Leverage [Total assets/equity] 3.12 4.90 5.50 5.99 6.04
Net leverage [(Total assets-Accounts payable to clients)/Total equity] 1.83 2.90 3.96 4.30 4.36
ROAE 14.5% 13.8% 12.3% 14.5% 14.0%
Source: Company Data, CGIS Research estimates
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Figure 3: Six-year PER Band
Figure 4: Six-year PBR Band
Sources: CGIS Research estimates
Sources: CGIS Research estimates
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25
30
35
40
45
3/1/2011 3/1/2012 3/1/2013 3/1/2014 3/1/2015 3/1/2016 3/1/2017
Rolling forward PER Rolling forward average PER
Average PER+1 standard deviation Average PER-1 standard deviation
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Rolling forward PBR Rolling forward average PBR
Average PBR+1 standard deviation Average PBR-1 standard deviation
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We reviewed our financial model for Haitong International (HTI) recently and adjusted some
of its major business projections, based on the latest market performance: 1) impressive
YoY growth in debt underwriting, but lackluster performance in equity underwriting; 2) a
more conservative risk appetite and slower revenue growth in its margin financing business;
3) equity investment return recovery, since the HSI is up 22% YTD. We still maintain our
market ADT assumption of HK$78bn (HK$75bn YTD) and expect to see decent YoY growth
in revenue and net profit for the Company, given a low base in 2016. Overall, we cut our
2017E/2018E EPS by 14%/8% and trim our target price from HK$5.56 to HK$5.41, based on
1.15x 12-month forward PBR (adjusting the mid-term ROE from 11.5% to 11%, moving the
base year to mid-2018, leaving other assumptions of the Gordon Growth Model unchanged).
Trading at 1.0x 2017E PBR, the valuation still looks undemanding. Maintain BUY. For 1H17
results, we expect net profit of ~HK$1bn, representing 23% YoY growth, thanks to a higher
ADT for the Hong Kong market and recovery in trading income from a low base in 1H16.
Investment Highlights
More active risk control in its margin financing business after gaining sizable
market share. The Company has achieved a 47% CAGR in its margin financing bal-ance during the past five years, resulting in steady growth momentum in revenue. Ac-cording to the latest market data in the IPO prospectus of BOCOMI, a mid-sized Chi-nese-background investment bank in Hong Kong, total margin financing balance of Hong Kong market was around HK$171bn as of end-2016. This means HTI had ~12% market share of the margin financing business. Its share of the stock trading market was still below 2%, according to our rough estimation. We cut our forecast for margin financing revenue by 7% and 10% in 2017E and 2018E, respectively, based on expec-tations of more stringent risk management in its margin lending business, as well as slower growth in its total margin balance to avoid excessive risk exposure caused by a large market share.
Growth in debt underwriting should offset the decline in equity underwriting.
Based on Bloomberg League Table statistics, HTI’s credited amount in equity under-writing, placing and sub-underwriting dropped more than 30% YoY in 1H2017, as there were not as many Chinese bank IPOs as last year. However, we believe this could be offset by the substantial growth in debt financing this year, benefiting from more strin-gent financial leverage control in mainland China, as well as the market expectations of RMB depreciation. HTI’s credited debt underwriting amount was five times that of 1H2016, according to the adjusted debt league table, which was even better than our previous forecast. We hence raise HTI’s corporate finance revenue by 6% and 10% in 2017E and 2018E, respectively.
Investment returns may be relatively moderate due to HTI’s business structure.
Although the Hang Seng Index was up 17% in 1H2017, this does not imply that the return rate of its total trading assets was also that high because of the diversified expo-sure of its trading business, constituting back-to-back investment tunnel services, FICC market making, and its investment holdings. We hold a more conservative view of its trading income and lower our forecast by 9% in 2017E.
1H17 Results Preview: Expects to Recover from a Low Base in 1H16
July 27, 2017
BUY
Close: HK$4.46 (July 26, 2017)
Target Price: HK$5.41 (+21%)
Sources: Company, Bloomberg
Livy Lyu—Research Analyst
(852) 3698 6393
Wong Chi-man—Head of Research
(852) 3698 6317
China Securities Sector
Source: Bloomberg
Haitong International [0665.HK]
Share Price Performance
Market Cap US$3,049m
Shares Outstanding 5,336m
Auditor Deloitte
Free Float 38.1%
52W range HK$4.11-5.75
3M average daily T/O US$13.784m
Major Shareholding Haitong Securities
(60.9%)
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(HK$ million)(HK$)
Turnover (RHS) Price (LHS)
Year ended 31 December 2014 2015 2016 2017E 2018E
Revenue(HK$ m) 2,713 5,806 5,351 6,168 6,914
Net income(HK$ m) 1,018 2,510 1,680 2,107 2,615
Adjusted Net Margin 49% 58% 45% 50% 53%
Adjusted EPS (HK cents per share): 32.3 60.7 31.2 38.8 49.0
YOY Change 27% 88% -49% 24% 26%
PER(x) 12.07 7.27 14.23 11.45 9.22
PBR(x) 1.72 1.15 1.07 1.00 0.92
ROAE 15.1% 17.1% 7.8% 9.0% 10.4%
ROAA 2.6% 3.6% 1.5% 1.6% 1.8%
Source: Company Data, CGIS Research estimates
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Key financials Income Statement
(HKD'000, except for per share amount)
Year ended 31 December 2014 2015 2016 2017E 2018E
Brokerage 556,518 1,031,158 644,804 758,247 808,471
Margin financing 624,776 1,272,095 1,567,890 1,582,642 1,618,342
Corporate finance 396,294 841,652 903,409 1,126,309 1,283,287
Asset management 123,457 148,463 175,949 239,814 301,524
Leveraged and acquisition finance 421,206 520,305 450,373 555,103 636,400
FICC, trading and market making 591,040 1,991,841 1,608,392 1,905,470 2,266,200
Revenue 2,713,291 5,805,514 5,350,817 6,167,586 6,914,225
Other income 20,512 9,791 6,899 6,000 6,000
Operating Expenses
Staff costs 545,281 913,361 814,234 976,041 1,075,000
Commission to accounts executives 240,031 408,285 245,564 318,464 339,558
Depreciation 33,494 32,250 39,980 35,786 38,139
Other operating expenses 356,986 384,930 841,991 750,000 750,000
Finance costs 375,475 1,036,569 1,395,816 1,604,818 1,624,050
Investments gains accounted for using the equity method 33,212 (53,522) (27,658) 20,000 20,000
Operating Profit 1,215,748 2,986,388 1,992,473 2,508,478 3,113,479
Income tax expense 197,479 476,336 312,248 401,356 498,157
Non-controlling interests - - - - -
Net income 1,018,269 2,510,052 1,680,225 2,107,121 2,615,322
EPS (HK cents per share):
Basic 37.4 62.2 31.8 39.5 49.0
Diluted 32.3 60.7 31.2 38.8 49.0
DPS (HKD) 0.16 0.23 0.16 0.18 0.21
Dividend payout ratio 42% 37% 49% 45% 42%
Dividend Yield 3.5% 5.1% 3.4% 3.9% 4.6%
Revenue Breakdown(%)
Brokerage 21% 18% 12% 12% 12%
Margin financing 23% 22% 29% 26% 23%
Corporate finance 15% 14% 17% 18% 19%
Asset management 5% 3% 3% 4% 4%
Leveraged and acquisition finance 16% 9% 8% 9% 9%
FICC, Trading and market making 22% 34% 30% 31% 33%
Growth Ratio YOY:
Brokerage 21% 85% -37% 18% 7%
Margin financing 83% 104% 23% 1% 2%
Corporate finance 136% 112% 7% 25% 14%
Asset management 34% 20% 19% 36% 26%
Leveraged and acquisition finance 5% 24% -13% 23% 15%
FICC, Trading and market making 222% 237% -19% 18% 19%
Total Revenue 65% 114% -8% 15% 12%
Operating profit 103% 146% -33% 26% 24%
Net profit 92% 147% -33% 25% 24%
EPS growth 27% 88% -49% 24% 26%
Margins and Ratios:
Adjusted Operating Margin* 58% 68% 54% 59% 63%
Adjusted Net Margin** 49% 58% 45% 50% 53%
Effective tax rate 16% 16% 16% 16% 16%
Cost-to-income ratio 56% 47% 62% 59% 55%
Staff cost-to-income ratio 20% 16% 15% 16% 16%
Average daily turnover of HKEx (HK$ m) 69,456 105,630 66,280 78,000 83,000
Margin financing balance(HK$ m) 9,627 18,886 20,817 19,763 21,733
*Adjusted Operating Margin=Operating profit/(Revenue-commission and interest expenses)
**Adjusted Net Margin=Net profit/(Revenue-commission and interest expenses)Source: Company Data, CGIS Research estimates
3
Key financials
Balance Sheet
(HKD'000, except for per share amount)
Year ended 31 December 2014 2015 2016 2017E 2018E
Non-current assets 4,230,761 14,348,605 22,972,273 25,466,210 27,862,572
Financial assets designated at fair value through profit or loss - 5,705,699 - - -
Available-for-sale investments 471,083 6,253,682 17,846,297 20,000,000 21,700,000
Others 3,759,678 2,389,224 5,125,976 5,466,210 6,162,572
Current assets 43,929,212 77,570,395 108,532,975 114,522,384 124,715,793
Advances to customers in margin financing 9,619,965 18,879,155 20,817,335 19,686,237 21,654,721
Other loans and advances 1,819,200 3,550,880 8,083,096 8,150,000 8,950,000
Accounts receivable 4,495,624 3,820,611 5,113,753 6,784,345 7,605,648
Financial assets at fair value through profit or loss 9,962,803 18,257,597 25,252,697 26,600,000 30,100,000
Financial assets designated at fair value through profit or loss 2,485,154 6,154,656 16,742,585 18,930,000 22,930,000
Cash held on behalf of customers 11,668,936 18,265,360 20,186,813 21,441,420 23,039,555
Cash and cash equivalents 3,236,317 6,405,963 7,171,169 6,108,217 3,000,000
Others 641,213 2,236,173 5,165,527 6,822,166 7,435,869
Total assets 48,159,973 91,919,000 131,505,248 139,988,594 152,578,365
Non-current liabilities 6,994,275 14,939,548 14,790,690 13,774,531 13,804,531
Non-convertible bonds 4,580,804 9,937,201 9,973,074 9,960,000 9,990,000
Financial liabilities designated at fair value through profit or loss 620,000 4,225,698 18,443 - -
Others 1,793,471 776,649 4,799,173 3,814,531 3,814,531
Current liabilities 32,569,196 56,150,666 94,265,534 102,084,841 112,503,392
Accounts payable 15,630,644 20,945,837 28,240,926 30,017,988 29,951,422
Financial liabilities at fair value through profit or loss 326,072 957,979 3,143,726 3,551,841 3,895,591
Financial liabilities designated at fair value through profit or loss 1,645,886 3,263,051 14,216,393 17,000,000 21,000,000
Loans and other borrowings 12,741,730 20,124,598 33,626,574 35,500,000 37,286,167
Repo 1,189,696 7,028,919 9,586,163 9,100,000 9,800,000
Others 1,035,168 3,830,282 5,451,752 6,915,012 10,570,212
Total liabilities 39,563,471 71,090,214 109,056,224 115,859,372 126,307,923
Capital and reserves 8,596,502 20,828,786 22,449,024 24,129,222 26,270,442
Share capital 218,440 528,992 533,653 533,653 533,653
Reserves 8,039,480 20,088,197 21,488,448 23,121,467 25,187,572
Proposed final dividend 338,582 211,597 426,923 474,102 549,218
Total equity 8,596,502 20,828,786 22,449,024 24,129,222 26,270,442
Finance Ratios:
PER(x) 12.07 7.27 14.23 11.45 9.22
PBR(x) 1.72 1.15 1.07 1.00 0.92
Book value per share(HKD) 2.6 3.9 4.2 4.5 4.9
ROAE 15.1% 17.1% 7.8% 9.0% 10.4%
ROAA 2.6% 3.6% 1.5% 1.6% 1.8%
Dupont Analysis:
Brokerage 1.4% 1.5% 0.6% 0.6% 0.6%
Margin financing 1.6% 1.8% 1.4% 1.2% 1.1%
Corporate finance 1.0% 1.2% 0.8% 0.8% 0.9%
Asset management 0.3% 0.2% 0.2% 0.2% 0.2%
Leveraged and acquisition finance 1.1% 0.7% 0.4% 0.4% 0.4%
FICC, trading and market making 1.5% 2.8% 1.4% 1.4% 1.5%
Revenue 7.0% 8.3% 4.8% 4.5% 4.7%
Operating Expenses -4.0% -4.0% -3.0% -2.7% -2.6%
Operating Profit 3.1% 4.3% 1.8% 1.8% 2.1%
Income tax expense -0.5% -0.7% -0.3% -0.3% -0.3%
Net income 2.6% 3.6% 1.5% 1.6% 1.8%
Leverage [Total assets/equity] 5.74 4.76 5.16 5.83 5.80
Net leverage [(Total assets-Accounts payable to clients)/Total equity] 3.96 3.47 4.75 4.74 4.76
ROAE 15.1% 17.1% 7.8% 9.0% 10.4%
Source: Company Data, CGIS Research estimates
4
Figure 1: Six-year PER Band
Figure 2: Six-year PBR Band
Sources: Bloomberg, CGIS Research
Sources: Bloomberg, CGIS Research
Sources: Bloomberg, CGIS Research
Figure 3: Trading velocity of HK equity market
0
5
10
15
20
25
30
3/1/2011 3/1/2012 3/1/2013 3/1/2014 3/1/2015 3/1/2016 3/1/2017
Rolling forward PER Rolling forward average PER
Average PER+1 standard deviation Average PER-1 standard deviation
0
0.5
1
1.5
2
2.5
3/1/2011 3/1/2012 3/1/2013 3/1/2014 3/1/2015 3/1/2016 3/1/2017
Rolling forward PBR Rolling forward average PBRAverage PBR+1 standard deviation Average PBR-1 standard deviation
40%
60%
80%
100%
120%
140%
160%
180%
1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017
Trading velocity of HK market (annualized 20-day moving average traded value/total market cap)(RHS)
5
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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 :