20170410-招商证券_香港_-皓天财经集团-01260.HK-Wonderful_PR_firm_as_a_leader_and_innovator_24页_2mb_2mb

Summary of Wonderful Sky (1260 HK) Report

Core Content

Wonderful Sky (1260 HK) is a leading financial PR firm in Hong Kong, with a 21-year track record. It is the only publicly listed PR firm in the region and has dominated the HK IPO market with an 88% market share in 2016, covering all top-10 IPO deals. The company provides a comprehensive range of financial PR and IR services, including financial public relations, financial printing, international roadshow, corporate branding, and investor relations, through its "five-in-one" platform. It is also expanding its service offerings to an "eight-in-one" platform by adding ESG reporting, business consultant, and executive recruiters.

Main Points

• Market Leadership:

  • 88% market share in HK IPO market in 2016.
  • Provides full-range financial PR/IR services from pre-IPO to post-IPO.
  • Only PR firm offering A+H financial services for listed companies.

• Financial Performance:

  • Revenue is expected to grow at 1% in FY17E, 9% in FY18E, and 8% in FY19E.
  • Core net margin is projected to be 32% in FY17E, 33% in FY18E, and 34% in FY19E.
  • High gross margin of 52-54% and strong core net profit growth of 13% in FY18E.
  • Dividend yield is expected to reach 5.4% in FY18E, with a 60% payout ratio.

• Investment Thesis:

  • The company is initiated with a BUY rating and a target price of HK$2.51 (13x FY18E P/E).
  • Valuation is at a 31% discount to global peers, indicating potential for re-rating.
  • Key catalysts for re-rating include increased long-term clients, faster IPO process in China due to registration-based system, and the launch of "Wonderful Cloud" in late 2017.

• Growth Drivers:

  1. HK as the world's largest IPO market: HKEx has been the top IPO market for two consecutive years, with strong growth potential.
  2. Expanding client base: Long-term clients have grown by 40 per year in FY14-16 and are expected to grow faster.
  3. Ramp-up of IPO printing: The company has completed 2 projects in 2015, 4 in 2016, and has 15 projects in the pipeline.
  4. Geographical expansion: Entering the Chinese mainland and planning to expand to Singapore, New York, and London.
  5. Eight-in-One service platform: Adding ESG reporting, business consultant, and executive recruiters to its existing five-in-one services.

Key Information

• Valuation:

  • Trading at 11x FY18E P/E (Mar year-end).
  • 31% discount to global peers.
  • 5.4% dividend yield in FY18E.

• Client Growth:

  • Long-term clients increased by 67% in the past 3 financial years.
  • Management guided 50 new clients per year, with 90% conversion rate from IPO clients.
  • High client retention rate, with only single-digit clients leaving annually.

• IPO Printing Business:

  • High gross margin (up to 60%) for IPO printing projects.
  • Revenue from IPO printing projects could reach HK$1.3-6.0mn per project.
  • Company has 15 IPO printing projects in the pipeline.

• Wonderful Cloud:

  • Online financial service platform planned for late 2017.
  • Enhances client loyalty and brings synergies across services.
  • Features include online database, interactive communication, and big data analysis.

• Geographical Expansion:

  • Has offices in HK, Beijing, Shanghai, and Shenzhen.
  • Plans to open offices in Shenyang and Chengdu by 2017.
  • Signed agreements to acquire an office in Singapore.

• Global Expansion:

  • Plans to establish offices in New York and London in 2017.
  • Aims to provide local support for companies listing outside China.

Investment Highlights

• HK is the world's largest IPO market for two consecutive years (2015-2016), with HK$195bn in fund raising.
• China's IPO process is improving, with faster approvals and increased fund raising.
• The company is expanding its service scope to an eight-in-one platform.
• The launch of "Wonderful Cloud" is expected to increase recurring revenue and enhance client engagement.
• High profitability and strong cash flow position the company well for future growth.

Risks

• Substantial drop in IPO projects.
• Losing market share to competitors.
• Negative political changes affecting IPO process.

Financial Summary

Investment Rating

• Rating: BUY
• Target Price (TP): HK$2.51 (+20% upside)
• Catalysts:
  • Rapid growth in long-term clients.
  • Registration-based IPO system in China.
  • Launch of "Wonderful Cloud" in late 2017.
• Risks:
  • Substantial drop in IPO projects.
  • Losing market share to competitors.
  • Negative political changes.