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里昂证券：中国证券市场5只小盘股.pdf
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Top 5 smallcaps at China Forum
We detail our top 5 top small cap ideas from our recent China Forum. Top
Buy remain Tiangong at 7x PE. We also upgrade TP for two: Xinyi Glass
on the back of further margin expansion in float glass, and Prince Frog on
growth momentum in a milestone year as they launch their major TV
show. In the non-covered universe, we also flag Ka Shui as an underresearched
but fast growing industrial pick. Niche HK property company
Soundwill„s discount to NAV is also of interest.
Top pick: Tiangong – exports outperforming, at 7x PE
Our top small cap pick in the sector, Tiangong’s revenues from export markets
positively surprised and should offset the continued flatness in domestic revenue.
Growth in their export market has continued to accelerate: in January it was up
23% YoY; February +50% and March +48%.
Stock still is only trading on 7x fwd PE. We continue to reiterate Buy here with a
target price of HK$3.20 or 35% upside.
Upgrade: Xinyi Glass – favourable margin growth
After a recent company visit we are feeling more bullish on the stock despite the
recent rally. We maintain BUY and upgrade our target price based on a consistent
12x 14CL PE. Three drivers which are likely to push the share price even higher:
o Lower raw material prices lifting margins (we upgrade NP by 9% in FY14).
o Electronic glass line with >50% gross margins to start contributing next year.
o Continued share buybacks by management improving sentiment.
Upgrade: Prince Frog – halfway through a milestone year
2013 is a milestone year for PF as they launch season 3 of their TV show.
We have upgraded our net profit forecast by around 4% in each of our forecast
years to FY15.
The stock is not expensive relative to consumer peers in China and globally, with
the fwd PE at 13.3x. ROE is at 23% and rising, with the company’s balance sheet
remaining net cash rich.
We have also lifted our target PE on the stock to 12x FY14, up from 11x previously
on higher confidence of execution. Our new TP is HK$6.50, up from HK$5.50, which
implies 23% upside.
New non-rated idea: Ka Shui – quality provider to industry giants
This under-researched >30 year old HK managed company has delivered 31%
revenue and 50% net profit cagr last 3 years.
Growth is driven by increasing demand in its magnesium alloy die-casting business
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