20180711-中国银河国际证券-长飞光纤光缆-06869.HK-Outlook_remains_positive._Maintain_BUY._4页_697kb

YOFC [6869.HK] Summary

Core Content

YOFC (Yangtze Optical Fibre & Cable Joint Stock Limited Company) is a leading supplier of optical fibre preforms and cables in China, and is expected to benefit from the extension of anti-dumping duties on imported optical fibre preforms. The duties are set to remain in place for another five years, which is expected to enhance the competitive position of domestic suppliers like YOFC.

Main Points

• Anti-dumping Duty Extension: MOFCOM has extended anti-dumping duties on optical fibre preforms for another five years due to concerns over foreign dumping, particularly from the US and Japan. This is expected to boost YOFC's market share and profitability.
• Positive Outlook: Despite the trade war concerns, the investment environment in the telecommunications sector remains favorable, supporting YOFC's growth. The company is expected to report strong revenue and net profit growth in 2018 and 2019.
• A-share IPO: YOFC is set to complete its A-share IPO soon, issuing 75.8 million shares at RMB26.7 per share. The IPO is expected to help close the valuation gap with its A-share-listed peers.
• Market Position: YOFC is positioned as a global leader in optical fibre products and is one of the few companies capable of producing products for the 400G transmission network. The company is also expected to benefit from the upgrade of Chinese telecom operators from 100G to 400G.
• Valuation and Target Price: The current share price is HK$30.4, with a target price of HK$42.43, reflecting a 39.6% increase. This is based on a 17x 2018E PER, indicating a positive outlook on future earnings.

Key Financial Information

Revenue and Profit Growth

• Revenue: Expected to grow from RMB6,731.1m in 2015 to RMB13,645.7m in 2019.
• Net Profit: Projected to increase from RMB570.7m in 2015 to RMB1,869.0m in 2019.
• EPS (Basic): From RMB1.19 in 2015 to RMB2.47 in 2019.
• Net Margin: Expected to rise from 8.5% in 2015 to 13.7% in 2019.

Valuation Metrics

• PER (2018E): 11.0x
• PBR: 2.1x
• Dividend Yield (2018E): 1.64%
• Payout Ratio (2018E): 18.0%

Free Cash Flow

• Free Cash Flow per Share: Expected to increase from RMB1.0 in 2015 to RMB1.3 in 2019.
• FCF Yield (2018E): 4.02%

Capital Expenditure

• CAPEX (2018E): RMB920.0m
• Net Gearing (2018E): 24.3%

Liquidity Ratios

• Current Ratio (2018E): 2.5x
• Quick Ratio (2018E): 1.9x
• Avg. Days Sales Out (2018E): 88.8
• Avg. Days Inventory Out (2018E): 28.4
• Avg. Days Payable Out (2018E): 85.6
• Avg. Cash Conversion Cycle (2018E): 58.9

Investment Highlights

• Anti-dumping Duties: Extended for five years, with higher rates for US suppliers (17%–42%) compared to Japanese (8%–9%).
• Downstream Demand: Expected to remain strong, with YOFC forecasting a 15–27% revenue increase and 31–45% net profit increase for 1H 2018.
• IPO Progress: A-share IPO is on track, which is expected to reduce the valuation gap with A-share peers.
• Market Trends: Continued investment in telecommunications infrastructure and the upcoming 5G rollout are positive for YOFC's business.
• Growth Drivers: Network upgrades from 100G to 400G and the company's ability to produce 400G transmission products.

Analysts and Contact Information

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

Disclaimer and Risk Information

• This report is not for distribution in certain jurisdictions.
• Information is based on sources believed to be reliable but not guaranteed.
• No representation or warranty is made regarding accuracy or completeness.
• The report does not constitute an offer to buy or sell any securities.
• Past performance is not indicative of future results.

Disclosure of Interests

• China Galaxy International may have financial interests in YOFC, potentially equal to or exceeding 1% of its market cap.
• The company may be involved in financing transactions, advisory services, or other investments related to YOFC.
• Analysts may have personal or professional ties to the company.

Analyst Certification

• The analyst certifies that the views expressed in the report reflect their personal opinions.
• The analyst and their associates have not traded in YOFC shares in the 30 days prior to the report's release.
• They will not trade in the next three business days.
• They are not officers of any covered company and do not have financial interests in them.

Equity Rating Explanation

• BUY: Indicates the share price is expected to increase by more than 20% within 12 months.
• SELL: Indicates a decline of more than 20% in 12 months.
• HOLD: Indicates no clear catalyst for change, with the possibility of downgrading to SELL or upgrading to BUY.