20181122-中国银河国际证券-神州控股-00861.HK-Clarity_on_business_roadmap_will_rebuild_investor_confidence._Upgrade_to_BUY._4页_619kb

DC Holdings [0861.HK] Summary

Core Content

DC Holdings (DCH) has upgraded its investment recommendation from HOLD to BUY, with a target price increase from HK$4.55 to HK$4.74. This change is attributed to improved clarity in the business roadmap, which is expected to rebuild investor confidence and reduce market concerns. The company is transitioning into a data technology service provider, leveraging its data resources and capabilities to drive growth across multiple sectors.

Main Business Divisions

• IT Logistics (ITL):

  • A leading end-to-end warehousing solution provider in China, particularly in IT products, telecommunications, and fast-moving consumer goods.
  • Operates 231 warehouses across China, with key clients including Huawei, BYD, and Geely.
  • Collaborates with Cainiao Network.
  • Focuses on data-driven solutions, including automated warehouses and Big Data & AI-based services.
  • Demonstrated the "Human-Machine Interact" concept, which reduces upfront capital costs and offers flexibility.
  • The 3D automated warehouse design provides 2-3x more handling capacity than traditional designs.
  • Expected gross margin improvement in 2019 and 2020 following the investment phase.

• Sm@rt City Solutions:

  • DCH is a total solutions provider, not just a hardware provider or systems integrator.
  • Has completed over 100 Sm@rt City projects.
  • Applies the API Economy concept in building the infrastructure and platform layer.
  • Offers application scenarios for local governments to enhance user experience and efficiency.
  • Recognized by the Central Government as a technological breakthrough.

Key Financials (HKDm)

Investment Highlights

• Clarity on Business Model: DCH has presented a clear roadmap for its supply chain and Sm@rt City divisions, aiming to drive near-term growth.
• Wealth Management Issue: Resolved with a settlement arrangement involving HK$2.6bn in wealth management products, with HK$1.95bn of underlying assets sufficient to repay the debt.
• Growth Potential: The company sees opportunities in healthcare, agriculture, government, finance, and manufacturing.
• Capital Market Catalysts: Introduction of strategic investors for underlying assets is expected to boost the share price.

Share Price Performance

• Close (Nov 21, 2018): HK$3.87
• Target Price: HK$4.74 (22.6% increase)
• Market Cap: US$829m
• Shares Outstanding: 1,667m
• Auditor: Ernst & Young
• Free Float: 64.8%
• 52-Week Range: HK$3.64 - HK$5.31
• 3-Month Avg. Daily T/O: US$0.7m

Major Shareholding

• GZ Construction Group: 20.1%
• Mr. Guo Wei: 11.54%

Analysts

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

Key Assumptions for DCH

• Turnover (HKDm):
  • 2013: 37,656.8
  • 2014: 26,254.1
  • 2015: 0
  • 2016: n.a.
  • 2017: n.a.
  • 2018F: n.a.
  • 2019F: n.a.
• Supply Chain Turnover:
  • 2013: 1,211.0
  • 2014: 1,064.6
  • 2015: 3,959.5
  • 2016: 2,080.1
  • 2017: 2,251.9
  • 2018F: 2,884.8
  • 2019F: 3,425.5
• Smart City Operation Turnover:
  • 2013: 0
  • 2014: 0
  • 2015: 0
  • 2016: 66.0
  • 2017: 140.0
  • 2018F: 238.0
  • 2019F: 333.2

Earnings Projection

• Net Income:
  • FY2015*: 69
  • FY2016*: 389
  • FY2017*: (413)
  • FY2018F*: 332
  • FY2019F*: 434

Ratios

Equity Ratings Explanation

• BUY: Share price is expected to increase by >20% within 12 months.
• SELL: Share price is expected to decrease by >20% within 12 months.
• HOLD: No clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or downgrade to SELL.

Disclaimer

• This report is issued by Galaxy International Securities to institutional clients.
• No representation or warranty is made regarding the accuracy, correctness, or completeness of the information.
• The report does not constitute an offer, invitation, or solicitation to buy or sell any securities.
• Recipient must understand the investment objectives and related risks.

Disclosure of Interests

• China Galaxy Securities Co., Ltd. is the holding company of China Galaxy International.
• China Galaxy International may have financial interests in the subject company, potentially equal to or exceeding 1% of its market cap.
• Some directors, officers, and employees may have interests in the company mentioned.
• China Galaxy International may participate in financing transactions, provide investment services, or have positions or holdings in the securities.

Analyst Certification

• The analyst certifies that all views expressed accurately reflect their personal views.
• No compensation is directly or indirectly related to the specific views expressed in the report.
• The analyst and their associates have not traded in the securities covered in the report within 30 days prior to its issue, nor will they trade within three business days after the issue.

Copyright

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