20180903-中国银河国际证券-神州控股-00861.HK-1H_2018_results_show_a_major_recovery_in_DCITS.An_event_driven_name_4页_1mb

DC Holdings [0861.HK] 1H 2018 Summary

Core Content

DC Holdings (DCH) reported its 1H 2018 results, showing a significant recovery in its IT services segment, DCITS. The company's financial performance was influenced by non-cash items, particularly a gain on the disposal of equity interests in subsidiaries and subsidies. The management highlighted a strategic shift towards becoming a data technology service provider, leveraging data resources and capabilities. This transformation is expected to drive growth in sectors such as healthcare, agriculture, government, finance, and manufacturing, with a specific focus on fintech due to the company's leading position in the banking segment.

Key Financial Highlights

• Revenue: HK$6,986m, up 21.86% YoY
• Gross Profit: HK$1,283.1m, up 11.3% YoY
• Gross Margin: 18.37% (down from 20.1% in 1H 2017)
• Net Profit: HK$137m, a turnaround from a net loss of HK$452m in 1H 2018
• Net Margin: 2.0% (down from 3.1% in 1H 2017)
• EPS (Basic): HK$0.20
• Target Price: HK$4.55 (based on a 25x 2018E PER)
• Market Cap: US$876m
• Shares Outstanding: 1,667m
• Free Float: 64.8%
• 52-Week Range: HK$3.64 - HK$5.31
• 3-Month Average Daily Turnover: US$0.8m

Key Drivers of Growth

• IT Services (DCITS): Continued growth, with turnover increasing by 20.1% YoY and net profit rising by 137.3% YoY.
• Smart Logistics: Turnover grew by 48.48% YoY, contributing to the decline in gross margin.
• Cooperation with JD: Expected to create growth opportunities in the fintech segment.

Wealth Management Products Update

• DCH reached settlement arrangements with the issuer for certain wealth management plans with an aggregate principal amount of HK$2.6bn.
• Received HK$0.65bn from the issuer, with the remaining HK$1.95bn invested in asset management plans and financial instruments.
• The underlying assets are secured by real estate properties of a project company.

Potential Share Price Catalysts

• Fundamental Improvements: Continued growth in IT services and smart logistics.
• Strategic Investors: Introduction of strategic investors for DCH's underlying assets.
• Resolution of Wealth Management Issue: A clear resolution is expected to boost investor confidence and potentially drive the share price higher.

Financial Forecasts

Investment Recommendation

• Rating: HOLD
• Reasoning: While there are positive developments and potential growth drivers, the market may take time to rebuild confidence. The company is not currently seen as having a clear catalyst for a price increase.

Analyst Information

• Analyst: Mark Po, CFA - Senior Analyst
• Contact: (852) 3698-6318, markpo@chinastock.com.hk
• Head of Research: Wong Chi Man, CFA
• Contact: (852) 3698-6317, cmwong@chinastock.com.hk

Disclaimer

This report is not intended for distribution in jurisdictions where it would be illegal. The information is based on reliable sources but is not guaranteed. No representation or warranty is made regarding accuracy or completeness. This report is not an offer to buy or sell securities.

Disclosure of Interests

China Galaxy International may have financial interests in the subject companies. Some of its personnel may be directors or officers of the companies mentioned. The company may also be involved in financing transactions, providing services, or holding investments related to the subject companies.

Analyst Certification

The analyst certifies that the views expressed reflect their personal opinion and that their compensation is not related to the specific views in this report.

Equity Rating Explanation

• BUY: Share price is expected to increase by more than 20% in 12 months.
• SELL: Share price is expected to decrease by more than 20% in 12 months.
• HOLD: No clear catalyst for a price change, and a downgrade from BUY is pending.

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