20180716-招银国际-津上机床中国-01651.HK-Key_takeaways_from_investor_meetings_5页_705kb

Summary of Precision Tsugami (China) (1651 HK)

Core Content

Precision Tsugami (China) (1651 HK) is a subsidiary of Tsugami Corporation, focusing on the high-end market segment in the China capital goods sector. The company has shown strong growth potential and received a BUY rating from CMB International Securities Limited (CMBIS), with a target price of HK$13.30, representing a +56% upside from the current price of HK$8.52.

Key Takeaways from Investor Meetings

• Revenue Growth: Management targets 20% YoY revenue growth in FY19E, higher than the 16% previously estimated.
• Gross Margin: Management is confident of maintaining a stable gross margin in FY19E, driven by enhanced production efficiency.
• Market Share Expansion: The company plans to expand its sales network and implement a clear pricing strategy, positioning itself to gain market share by offering competitive pricing compared to Korean and Taiwanese players while maintaining superior quality.
• Industry Position: Tsugami China is not directly competing with domestic players, which are affected by overcapacity, but rather with international competitors from Japan and Korea.
• CNC Ratio: The CNC ratio in China is below 30%, significantly lower than 70% in Japan and Germany, highlighting a substantial growth opportunity.

Financial Highlights

Earnings Summary

Revenue Breakdown by Products

Key Ratios

Capital Expenditure and Cash Flow

• Capex Budget (Rmb mn): Rmb97mmn in FY19E, Rmb90mn in FY20E, and Rmb87mn in FY21E.
• Operating Cash Flow (Rmb mn): Estimated at Rmb180-330mn annually, which is higher than the capex budget, indicating strong cash flow generation.
• Cash Flow from Operations: Rmb183mn in FY17, Rmb204mn in FY18, Rmb181mn in FY19E, Rmb331mn in FY20E, and Rmb249mn in FY21E.
• Cash Flow from Investing: Negative in most years, with a slight recovery in FY20E and FY21E.
• Cash Flow from Financing: Negative in FY17 and FY19E, with a positive contribution in FY18 due to equity financing.

Shareholding and Performance

• Shareholding Structure:

  • Tsugami Corporation: 70.8%
  • Free float: 29.2%

• Share Performance:

  • 1-month: -18.3%
  • 3-month: -18.7%
  • 6-month: -16.5%
  • 12-month: -12.1% (relative to the market)

• Market Capitalization (HK$mn): 3,249

• Average 3-month Turnover (HK$mn): 3.8

• 52-week High/Low (HK$): 14.36 / 6.3

Risks

• Unexpected decline in manufacturing capex
• Delay of production due to shortage of key components

Analyst Certification

The analyst certifies that:

• The views expressed accurately reflect their personal views.
• No part of their compensation is directly or indirectly related to the views expressed.
• They have not traded in the stock within 30 days prior to the report's issue.
• They will not trade in the stock within 3 business days after the report's issue.
• They do not serve as an officer of any covered Hong Kong listed company.
• They have no financial interests in the covered companies.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• NOT RATED: Not rated by CMBIS.

Important Disclosures

• This report is not investment advice and should be used with caution.
• Past performance does not guarantee future results.
• The value of investments is uncertain and may fluctuate.
• CMBIS does not assume liability for any losses incurred from relying on the information.
• The report is intended for specific recipients and may not be reproduced or distributed without consent.