Background: Hu An Cable is an integrated manufacturer of wire and cable products in China. Its production facilities are located in Yixing City, Jiangsu Province, in the country’s wire and cable hub. Current annual production capacity is about 130,667km of cable products.
Recent development: Hu An posted 1H11 net profit growth of 11.6% YoY to RMB62.2m on the back of a 35% increase in revenue to RMB1,434.6m. However, overall gross margin declined from 13.7% to 11.5% due to a change in sales mix with higher contributions from copper and aluminium rods. Margins for its core product segment, ie, cable and wire, remained relatively stable at 18.0%.
Our view More order flows anticipated. Hu An has set up nine new sales offices in energy-rich provinces across the country to capture the strong demand expected from the power infrastructure projects. This largely explained the sharp 57.5% YoY increase in selling and distribution expenses during the period. With 23 sales offices covering almost the entire market in China, management is confident of securing additional orders for the second half of the year.
Expanding capacity to ride industry growth. Hu An is planning to launch five new production lines, which are expected to be ready in 3Q11. Upon completion, this would double the production capacity in the mid-to-high-end power cable segment. The group is also in the
process of installing two ultra-high voltage power cable production lines due in 1Q12.
Second TDR programme. Hu An recently received the final approval for its proposed second Taiwan Depository Receipt (TDR) programme from the Taiwan Stock Exchange as well as other regulatory bodies. Depending on market conditions, the issuance is likely to comprise 140m new and vendor shares. We understand that the proceeds will be mainly used to repay part of its outstanding bank loans.
Undemanding valuation. Based on Bloomberg consensus estimates, the stock currently trades at 6.5x FY11 PER, still at a steep discount to its peers listed in China and Taiwan.
Key ratios…
Price-to-earnings: 6.5x
Price-to-NTA: 1.0x
Dividend per share / yield: $0.01 / 3.5%
Net cash/(debt) per share: (RMB0.11)/(S$0.02)
Net gearing: 9.8%
Share price S$0.285
Issued shares (m) 861.57
Market cap (S$m) 245.55
Free float (%) 43.4%
Recent fundraising activities Oct 2010: TDR - 75m new shares @ NT$13.60 (about S$0.57)
Financial YE 31 December
Major shareholders Dai Zhi Xiang (23.8%); Pacific Alliance (10.8%)
YTD change -1.21%
52-wk price range S$0.230-0.335
No comments:
Post a Comment