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Zhejiang Yankon Group:Gross margin improvement fuels net profit growth

发布时间:2016-08-22    研究机构:瑞银证券

Earnings continued rapid growth, basically in line with our estimate

Yankon's H116revenue was Rmb2.13bn (+12% YoY), net profit (NP) attributable toshareholders was Rmb220m (+22% YoY) and EPS were Rmb0.15, the latter basically inline with our estimate but overshooting consensus. Because the company made asubstantial provision for impairment losses in H215and most of the impairment wasprovided for, we expect NP growth to pick up in H216. Therefore, NP is still likely tomeet our full-year forecast of Rmb490m in 2016. H116net operating cash flow surged121% YoY to Rmb520m, as the company kept a tighter rein on accounts receivableand inventory.

LED ASP in line with estimate; energy-efficient lamp revenue had big decline

Yankon's H116LED lighting revenue was Rmb1.74bn (up 40% YoY) and energyefficientlamp revenue was Rmb360m (down 43% YoY). The slower LED revenuegrowth and larger decline in energy-efficient lamp revenue caused the company'srevenue growth to undershoot our forecast. In H116, LED lighting average selling price(ASP) dropped c15%, consistent with our expectation of a smaller ASP drop this yearthan in 2015(30%). LED sales volume jumped c60% YoY, slightly below our forecast,mainly due to slower growth in the existing customer base resulting from a largercomparison base. Despite a larger revenue decline, we expect energy-efficient lamps tohave a lesser impact on the company, as their share of total revenue decreased to 17%.

Gross margin up 2.4ppts YoY to overshoot expectations

Yankon's H116gross margin (GM) rose 2.4ppts YoY to 26.3%, overshooting our andconsensus estimates. We believe it was mainly driven by: 1) LED lighting's increase inthe share of total revenue due to new LED product launches; and 2) energy-efficientlamps' GM improvement due to the company being selective when accepting ordersand from rivals exiting the market. As the company grows in scale, we expect its GM tocontinue improving. Its H116selling and administrative expense ratios were mostlystable, while net margin rose 1ppt to 10.6%. Helped by RMB depreciation, thecompany posted an FX gain of Rmb27.54m. Because exports contribute a big share(83% in H116) of its total revenue, the company's FX gain could increase if the RMBcontinues to depreciate in H216.

Valuation: Maintain EPS estimates, PT and Buy rating

Our 2016-18E EPS remain Rmb0.34/0.44/0.52. We maintain our DCF-based price targetof Rmb10.00(7.0% WACC) and Buy rating.

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