Jinbangda Baojia announced that from January to April in 16 years, payment card shipments dropped 26% year-on-year, including IC card shipments down 23% year-on-year. The decline in shipments is mainly due to stricter government regulation of Internet finance and third-party payment services. In the medium term, we expect the company's payment card shipments to remain weak.
Downgraded to hold.
Support the main points of rating
Shipments of IC cards fell 23% year-on-year. The company reported that shipments of payment cards in January-April 16 fell 26% year-on-year to 69 million, compared with 93 million in January-April 15. Shipments of IC cards, which are the company's main source of profit, fell 23 per cent year-on-year to 54 million, well below management's previous forecast of 10-20 per cent growth in IC card shipments in 2016.
Tighter financial regulation has led to a slowdown in payment card issuance. The company said the slowdown in shipments was mainly due to the government's regulatory measures on Internet finance and third-party payment services represented by P2P to ensure the security of the payment system. As a result, domestic banks have strengthened compliance management and reduced resource investment in the promotion of financial payment cards.
Mid-term payment card shipments are weak. We expect shipments of IC cards to remain weak against the backdrop of weak macro-economy and strengthened financial regulation. The company has achieved rapid growth in overseas markets such as the Philippines, but its contribution is still negligible compared with shipments in the domestic market.
Main risks faced by rating
The average price of IC cards fell sharply; profit margins were lower than expected.
Valuation
The rating was downgraded to hold and the target price was lowered to HK $2.65. We significantly reduced the company's 2016 IC card shipment growth forecast from 18% to-20% of the company's 2016 profit forecast by 14%. Our reduced target price of HK $2.65 is based on an 8 times 2016 forward price-to-earnings ratio (previously 10 times).
