20160708-光大证券-建滔积层板-01888.HK-Potential_Special_Dividend_15页_655kb

Kingboard Laminates (1888 HK) Summary

Core Content

Kingboard Laminates Hldg. (KBL) is a leading global laminates supplier with a market share of 13.5% in 2014, according to Prismark Partners LLC. The company has established its first laminate manufacturing plant in Shenzhen, China, in 1988 and began producing paper laminates in 1989. It operates over 20 manufacturing plants in southern and eastern China and has remained the market leader for ten consecutive years.

KBL's core business is the production of laminates, including glass epoxy, paper, and CEM laminates, which accounted for about 80% of its total revenue in 2015. Most of its revenue is derived from China, which is a key production base globally.

Main Points

• Market Leadership: KBL has maintained its position as a global market leader in laminates for ten years.
• Property Development: The company has several property redevelopment projects in Jiangsu province, including Kunshan and Jiangyin, which are expected to generate significant earnings from 2016 onwards.
• Potential Special Dividend: KBL announced the sale of an idle site in Shenzhen for approximately Rmb2,004.43m, with an estimated gain of Rmb1,978.96m. This is expected to result in a special dividend.
• Earnings Growth: KBL is projected to see a 99% YoY increase in net profit in 2016 due to property redevelopment earnings and the special dividend. However, net profit is expected to decline by over 40% in 2017 without these one-off gains.
• Valuation: As of 8 July 2016, KBL's share price was HK$4.59, valued at 5.5x 2016E PE and 9.5x 2017E PE, which is relatively low compared to its peers. The P/BV ratio is also below the median and average of its peers.
• Target Price: Based on its volatile earnings outlook, the target price is set at HK$5.45, representing 1.0x 2016E P/BV and a 20% discount to its 7-year average.
• Upside Potential: The upside potential from the current price to the target price is over 15%, leading to a Buy recommendation.

Key Information

• Share Price: HK$4.59
• Target Price: HK$5.45
• Upside Potential: 18.7%
• Earnings Outlook:
  • 2016: 99% YoY growth in net profit
  • 2017: Expected to decline by over 40% without the one-off gains
• Dividend Yield: 7.3% in 2016
• Key Risks:
  • Slowing global economy
  • Intense competition
  • Fluctuation in raw material prices
  • Slowing China property market

Financial Highlights

Peer Comparison

Investment Recommendation

• Recommendation: Buy
• Reasoning: KBL is undervalued compared to its peers, with a significant upside potential to the target price. The potential special dividend and property redevelopment earnings are expected to drive growth in the short term.

Analyst Certification

• The views expressed in this report accurately reflect the personal views of the research analyst(s).
• No part of the analyst's compensation is related to the recommendations or views in this report.
• The analyst is not directly supervised by or reports to investment banking functions.
• The analyst has not breached the quiet period restrictions.
• The analyst is not an officer or director of the company.

Disclosure

• China Everbright Securities International Limited, a substantial shareholder of China Everbright Research Limited, does not have financial interests equal to or more than 1% of the market capitalization of the company under review.
• No investment banking relationship with the company within the past 12 months.
• No market-making activities in the stock.

Disclaimer

• This report is prepared by China Everbright Research Limited and is for general reference only.
• No part of this report is an offer, invitation, advertisement, or inducement to buy or sell any securities.
• Opinions in this report may change without notice.
• China Everbright Research Limited does not accept any liability for the use or reliance on the contents of this report.