Net profit fell 24% in the first half of 16 compared with the same period last year.
Jin Bangda's performance in the first half of 16 is in line with market expectations. Revenue was 681 million yuan, down 22% from a year earlier, as the group announced earlier, due to a 24% reduction in IC card issuance. The average selling price of each IC card rose from 5.9 yuan in the second half of 15 to 6.3 yuan in the first half of 16. The increase in earnings pushed up the overall gross profit margin by 3 percentage points to 30%. Due to the rise in R & D costs, operating expenses as a percentage of sales soared by 6 percentage points, resulting in a 0.6 percentage point year-on-year decline in EBIT margin in the first half of the year to 15.6%. Net profit in the first half of 16 fell 24% year-on-year to 95 million yuan. Earnings per share fell 23 per cent year-on-year to HK11.5 cents. Jin Bangda declared a dividend of HK4 cents per share, with a dividend ratio of 30%.
The new business plan doesn't help much.
At Jin Bangda's non-trading roadshow, investors focused on the company's future card issuance growth and new business plans. As far as we know, although the decline in the number of cards issued by the company has narrowed since July, the tightening of government regulation on card issuance will continue to exert pressure on the number of cards issued by the company in the second half of the year. In terms of overseas markets, Jin Bangda is actively expanding and developing local EMV migration business in countries such as Singapore and the Philippines. In addition, the company also invested in wearable payment equipment products in the first half of the year. The company launched a smart payment module (Super COS) for wearable devices, which received positive feedback from the banking industry. However, we believe that the above new business plan is still in its infancy and fails to make a profit contribution, coupled with the fact that the short-term outlook for the bank card business remains bleak.
Remain neutral with a target price of HK $2.50
As Jin Bangda continues to invest in new products and its revenue contribution is likely to be small, we expect operating expenses as a percentage of sales to increase, so we lower our forecast for fiscal year 16-18 by 4-10%. Based on a price-to-earnings ratio of 8 times forecast earnings for FY17 (rolling forward from FY16), the target price has been lowered from HK $2.6 to HK $2.5. We believe that the future of Jin Bangda is not yet clear, including: first, the increase in the average selling price and gross profit margin in the first half of 16 is likely to be an one-off, which is due to the delivery of a batch of high-end products; second, failure to predict when and how the banking industry will re-place large orders; and third, smart phones interfere with bank card business, resulting in uncertainty about the long-term future of the industry. We expect Jinbang's earnings per share to fall 21% in FY16, a slight increase of 10% in FY18, and a slight increase of 10% in FY18. Upside risks include good progress in overseas business. Downside risks include a decline in card issuance and average selling prices.
