We predict that Jinbang's profit growth in the 16-18 fiscal year will slow down, including: first, the newly joined competitors will intensify market competition; second, sales growth may be slowed down by the impact of mobile payment business; third, overseas business development will take time. We forecast that the compound annual growth rate of the company's recurrent net profit will slow from 36% in fiscal year 12-15 to 5% in fiscal year 15-18. The first rating is neutral, with a target price of HK $3.1.
The growth of card issuance is expected to slow down.
Although China's bank card penetration rate is still low, we believe that China is unlikely to catch up with developed countries in the long run. We believe that the penetration rate of bank cards in most first-and second-tier cities has reached saturation, and in third-tier or lower-tier areas, consumer payment will skip bank card payment and switch directly to mobile payment. Mobile payment will have an impact on bank cards. Together with the overall calculation of the card replacement cycle of existing card installations, we predict that the growth rate of China's new IC cards will decline from 34% in fiscal year 14 to 24% in fiscal year 14 to 15% in fiscal year 16 to 13% in fiscal year 16. In addition, we expect production of Golden Bonda IC cards to grow at a CAGR of 12% in FY15-18, down from 74% in FY12-15.
Competition intensifies
In the past few years, new competitors have been added to the bank card payment market. Although the bank's order flow is unstable, new competitors have diluted the market share of existing companies in the bank over the past few years. Specifically, as an industry leader, Jin Bangda's market share shrank from 21% in 2013 to 19% in 2014 and then to 15.5% in 2015. New competitors grab market share through lower average selling prices, so we expect competition in the industry to remain fierce in fiscal year 16-18. Jin Bangda's bargaining power with bank customers is limited, and we expect the company's average selling price for fiscal year 16-18 to continue to face downward pressure.
It takes time for overseas business to develop
Jin Bangda's business in the Philippines has been fully put into operation, contributing RMB 3 million to the profits of the associated company in fiscal year 15. With the support of UnionPay, Jin Bangda is now planning to expand its business to Southeast Asian countries, such as Thailand and Singapore. Although we believe that the overseas business will bring additional growth momentum to Jin Bangda in the long run, we expect the profit contribution of the overseas business to remain small in the next three years.
First neutral rating with a target price of HK $3.1
We forecast that Jin Bangda's recurrent net profit for the fiscal year 16-17-18 will grow by 7%, 4%, 4%, 4%, respectively. We believe that based on Jin Bangda's low return on equity and profit growth, coupled with the shorter listing period, the share price should be at a discount to its A-share peers. Our target price is HK $3.1, which is equivalent to 9 times forecast earnings for fiscal 16, which is one standard deviation below its average historical price-to-earnings ratio. The upside risks of our rating include higher-than-expected average selling prices; downside risks include lower-than-expected sales and price fluctuations in the cost of IC chips.
