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Sinomax (1418 HK) Summary

Core Content

Sinomax is a Hong Kong-listed company with a current share price of HK$0.76 and a target price (TP) of HK$0.92. The report highlights the company's expected performance and valuation, focusing on the challenges and potential turnaround in its business.

Main Points

• Earnings Outlook: Sinomax is expected to report an 8% YoY decline in FY15E recurring earnings due to a 5% YoY decline in export revenue, which is a key component of its total revenue and earnings.
• Market Share Loss: The decline in export revenue is attributed to the US customers' preference for "made in US" products, leading to a loss of market share.
• Retail Business Uncertainty: The retail business faces uncertainties due to weak consumer sentiment in Hong Kong and the current economic outlook in China, resulting in a -2% SSSG (Same Store Sales Growth) for FY15E.
• US Factory Expansion: The first phase of the US factory is expected to be operational in 2H16E, which could lead to a turnaround in the export business and subsequent revenue growth.
• Valuation: Despite near-term headwinds, the valuation is considered undemanding at 7x/6x FY15E/16E P/E. The target price has been lowered to HK$0.92, reflecting a more conservative 8x FY16E P/E compared to the previous 10x.
• Discount Justification: The discount to peers is justified by the company's smaller market cap and scale of operations.

Key Information

• Investment Required: The total investment for the US factory is expected to be HK$217 million.
• Capacity: The US factory will have an annual capacity of 33,000 tonnes, while Sinomax's current FY15E capacity is 107,737 tonnes.
• Funding: The funding for the US factory will be sourced from internal funds.
• Valuation Adjustments: The TP has been reduced by 16% for FY15E, 18% for FY16E, and 9% for FY17E due to lower revenue and GPM expectations.
• Market Sentiment: The report notes that the current bearish market sentiment may continue to pressure the share price until more clarity is provided on the 2H16E outlook.

What to Watch

Economic Data

• Germany: Industrial Orders MM on 2016/02/05, with a forecast of -0.30%.
• U.S.: Non-Farm Payrolls and Private Payrolls are expected to be lower than prior estimates, with an unemployment rate of 5% and average earnings growth of 0.30%.

Company Events

• Multiple Hong Kong-listed companies are scheduled to report results or dividends on 2016/02/05, including Sinomax, Sunwah Kingsway, Wing Lee Property, Sino Harbour Holdings, and others.

Research Coverage

• The report provides a detailed list of various sectors, including Auto & Auto Parts, Oil and Gas, Property, Technology, Media & Telecom, etc., with their respective ratings, share prices, target prices, market caps, and P/E ratios.

Analyst Note

• The report was published by Eugene MAK on 2016/02/04, and it reflects a comprehensive analysis of Sinomax's current and future performance, along with broader market context and valuation comparisons.