20160708-光大证券-建滔积层板-01888.HK-Potential_Special_Dividend_14页_139kb

Kingboard Laminates (1888 HK) Summary

Core Content

Kingboard Laminates Hldg. (KBL) is a leading player in the global laminates market, having maintained its leadership for ten consecutive years. The company is primarily focused on the production of laminates, including glass epoxy, paper, and CEM laminates, which accounted for about 80% of its total revenue in 2015. KBL operates over 20 manufacturing plants in southern and eastern China and has a significant presence in the global market, with a 13.5% market share in 2014 according to Prismark Partners LLC.

Main Points

1. Business Overview

• KBL is a market leader in the global laminates market.
• The company has a diversified business model that includes both laminate manufacturing and property redevelopment.
• It has a strong presence in China, which is one of the main global production bases.

2. Property Redevelopment

• KBL has several property redevelopment projects in Kunshan and Jiangyin, Jiangsu province, which are expected to be completed consecutively from 2016 onwards.
• Presales for some of these projects have already begun, and earnings from these projects are anticipated to significantly boost the company's performance in the near future.

3. Potential Special Dividend

• KBL announced the disposal of an idle site in Shenzhen in May 2016, which is expected to generate a pre-tax gain of approximately Rmb1,978.96m.
• With no substantial capital expenditure plans, the company is likely to distribute part of the disposal gain as a special dividend.

4. Financial Performance

• In 2016, KBL is expected to report a net profit of HK$2,521m, a 99.2% increase from 2015.
• In 2017, net profit is projected to decline by 42.5% due to the absence of the special dividend and property earnings.
• The company's core earnings growth is expected to be in the low single-digit range (below 5%) excluding the exceptional gains.

5. Valuation and Recommendation

• As of 8 July 2016, KBL's share price was HK$4.59, valued at 5.5x 2016E PE and 9.5x 2017E PE, which are relatively low compared to its peers.
• Its P/BV ratio is also below the median and average of its peers.
• The target price is set at HK$5.45, representing a 20% discount to its 7-year average and offering over 15% upside potential.
• Based on the above, the recommendation is Buy.

Key Financials (2014–2018E)

Key Risks

• Slowing China property market: Could affect the profitability of KBL's property redevelopment projects.
• Slowing global economy: May lead to prolonged replacement cycles of consumer electronics, impacting demand for laminates.
• Keen competition: Intense competition may pressure profit margins.
• Fluctuation of raw material prices: Copper price fluctuations can significantly affect profitability.

Investment Summary

• Recommendation: Buy
• Target Price: HK$5.45
• Upside Potential: 18.7%
• Share Price (as of 8 July 2016): HK$4.59
• 52-Week Price Range: HK$2.70 – HK$4.97
• Yield: 3.9%
• Free Float: 25.1%
• Market Cap: HK$3,453m
• 12M Daily Turnover: HK$4.9m
• 12M Volatility: 36.1%
• PEG (FY15–17E): 1.5
• RoE (FY15): 8.9%
• Net Debt/Equity (FY15): 15%

Peer Comparison (as of 8 July 2016)

Conclusion

KBL is positioned as a strong player in the laminates industry with significant growth potential from its property redevelopment projects and potential special dividend. Despite the risks associated with the global economy and raw material price fluctuations, the company's current valuation appears attractive, and its upside potential is substantial. The Buy recommendation is based on its expected performance and undervaluation relative to peers.