20180820-信达国际控股-荣威国际-03358.HK-Strong_sales_momentum_with_rebound_in_GPM_4页_357kb

Bestway Summary

Core Content

Bestway, a Hong Kong-listed company, is a leading manufacturer and seller of inflatable outdoor leisure products, including above-ground pools, spas, recreation products, sports goods, and camping equipment. The company has a strong sales momentum, with a rebound in gross profit margin (GPM) and positive growth in key markets.

Sales Growth Overview

• 1H18 Sales: Bestway's sales increased by 25% yoy to USD525 million.
• Core Markets:
  • Europe: Sales grew by 29% yoy to USD281 million.
  • North America: Sales rose by 29% yoy to USD182 million.
  • China: Sales surged by 66% yoy, contributing 3.3% of total revenue in 1H18.
• Other Markets: Sales declined by 13% yoy due to the seasonal nature of sales in the southern hemisphere.

GPM Performance

• 1H18 GPM: 23.8%, down 4.1ppt yoy, but up 2.1ppt hoh.
• Reason for Decline: RMB appreciation and price hikes in raw materials (steel and packaging).
• Pricing Strategy: Bestway adjusts prices once a year, in June and December for northern and southern hemisphere clients.
• Future Outlook: Management expects GPM to return to 25.3% in FY18E, with a 27-28% GPM anticipated in 2H18E.

Impact of US-China Trade Conflict

• The trade conflict has had limited impact so far, with affected products accounting for <2% of Bestway's North American sales.
• Management believes the two largest Chinese importers in North America (accounting for ~70% of the market) will not be significantly impacted in the short term.
• Bestway is planning to establish a new factory in Southeast Asia to mitigate trade policy risks and benefit from lower labor costs.

Valuation and Dividend Outlook

• Valuation: Trading at 9.9X FY18E PER, which is considered undervalued given its growth potential and R&D capabilities.
• Dividend Yield: Increased from 3.3% in FY18E to 4.0% in FY19E.
• Payout Ratio: Management may consider raising the payout ratio in FY19E from 30% in FY18E, as CAPEX is expected to decrease.

Financial Highlights

Peer Comparison (Bloomberg)

Key Points

• Bestway has shown strong sales growth in Europe, North America, and China, with China's growth being particularly robust.
• GPM has rebounded in the second half of the year and is expected to improve further.
• The US-China trade conflict has not had a significant impact on Bestway's operations.
• The company is undervalued based on current valuation metrics and growth prospects.
• Dividend yield is expected to increase in FY19E, and the payout ratio may be raised due to reduced capital expenditures.

Analyst Information

• Analysts: Hayman Chiu, Lewis Pang, Kenneth Li, Chloe Chan, Edith Li
• Contact: Lewis Pang, lewis.pang@cinda.com.hk, (852) 2235 7847

Rating Policy

Trading Data

• 52-Week Range (HK$): 2.88/4.85
• 3-Month Avg Daily Vol (m): 1.0
• No of Shares (m): 1,058
• Market Cap (HK$ million): 4,583
• Major Shareholder: Mr. Zhu Family (54.4%), Mr. Bogdan Nowak (13.5%)
• Auditors: PwC
• Result Due FY18: March

Disclaimer

This report is prepared by Cinda International Research Limited. It is for informational purposes only and does not constitute an offer to buy or sell securities. The company cannot guarantee the accuracy or completeness of the information provided. Recipients are advised to consult their own financial advisers before making investment decisions.