20170403-招商证券_香港_-中国白银集团-00815.HK-Re-emerging_as_a_fully-integrated_silver_empire_20页_2mb_2mb

Summary of China Silver Group (815 HK) Report

Core Content

China Silver Group (CS) is a leading vertically-integrated silver enterprise in China, with a strong presence in both upstream manufacturing and downstream retail and trading sectors. The company has evolved from a silver producer to a diversified entity with a focus on expanding into retail and exchange platforms, aiming to reduce dependence on silver price volatility and enhance profitability through a broader range of offerings.

Main Points

• Company Overview:

  • Founded in 2002 and listed on the HKEx in 2012.
  • Operates in manufacturing, retail, and silver exchange sectors.
  • Acquired 100% of Shanghai Huatong in 2016, enhancing its downstream capabilities.

• FY16 Turnaround:

  • Revenue: Increased by 140% YoY to RMB4,088mn.
  • Recurring Net Profit: Surged by 978% YoY to RMB325mn.
  • Gross Profit Margin (GPM): Improved by 5.1ppts YoY to 15.3%.
  • Operating Profit: Rose by 794% YoY to RMB455mn.
  • DPS (Dividend per Share): HK$0.05, equivalent to a payout ratio of 22%.

• Business Segments:

  • Manufacturing Segment:
    • Revenue: RMB1,457mn (36% of total), up 67% YoY.
    • GPM: 23.2%, driven by silver price rebound and sales volume growth.
    • Reduced contribution due to higher raw material costs and environmental regulations.
  • New Jewellery Retail Segment:
    • Revenue: RMB2,465mn (60% of total), up 195% YoY.
    • GPM: 20% for silver products and low single-digit for gold products.
    • Gold products account for ~70% of profit despite lower GPM.
  • Silver Exchange Segment:
    • Revenue: RMB166mn (4% of total), contributing 17% to operating profit.
    • Trading volume grew by 20% monthly, with total turnover reaching RMB740mn.

• Strategic Expansion:

  • Launched CSmall online platform in 2014, featuring over 150 brands.
  • Expanded to offline retail with over 110 outlets across China.
  • Collaborated with TV shopping channels and third-party platforms like Tmall and JD.
  • Introduced CSmall Gift initiatives to boost cross-selling and brand awareness.
  • Partnered with Intime and Disney to expand product range and sales channels.

• Valuation:

  • P/E Ratio: 5.8x FY16, significantly lower than upstream peers (18x) and downstream peers (20x and 21x).
  • P/B Ratio: 1.2x FY16, also lower than downstream peers (1.2x and 2.5x).
  • Discount to Market: The company is undervalued relative to both downstream and upstream peers.

• Future Outlook:

  • Silver Exchange: Expected to double trading volume in FY17E.
  • Downstream Diversification: Likely to reduce sensitivity to silver price fluctuations.
  • Upstream Expansion: Acquired mining rights in Shaanxi Province to secure raw materials.
  • Gold Price Recovery: Expected to drive growth in both manufacturing and retail segments.

Key Financial Data

Shareholding Structure

Management Overview

• Chen Wantian: Co-founder, Chairman, and Executive Director, with over 10 years of experience in non-ferrous metals.
• Sung Kin Man: CEO and Executive Director, with over 20 years of financial industry experience.
• Song Guosheng: Vice President, responsible for production management.
• Chen Guoyu: Vice President, handles strategic and human resources planning.
• Moy Yee Wo: CFO and Company Secretary, with a strong background in finance and accounting.

Conclusion

China Silver Group has successfully turned around its operations in FY16, with a strong recovery in manufacturing and significant growth in its downstream retail and exchange segments. The company's strategic diversification, combined with its undervalued stock price and robust financial health, positions it well for future growth. The expansion into gold products and the development of an integrated silver ecosystem further enhance its long-term prospects.