FY12 earnings 20% above our estimates
FY13 to be driven by higher coating contribution andsustainable ASP uptrend for solvents
Reasonable valuation with re-rating potential
Maintain BUY with TP unchanged at HK$10.5
FY12 results 20% above estimates. Results are above ourestimates due mostly to higher than expected other income andbetter than expected gross margins. The 37% y-o-y increase inFY12 net profit was mainly driven by a 3ppt improvement in grossmargins. On the solvent side, the main driver was animprovement in the production process, lower material andenergy costs. On the coatings side, the main driver was acentralization of raw materials procurement. Operating cashflowturned positive to HK$119m thanks to tighter working capitalcontrols. We note that due to increased capex, net debt to equityrose to 52% from 40% during FY12. A final DPS of HK$0.15psmeans full year payout remains at over 50%.
Positive FY13 outlook. We expect the coating business to bethe main driver for Yip’s growth in FY13 and expect earningscontribution from this division to increase by 10 ppt to c.40% oftotal profits. This will be driven by a 34% increase in coatingcapacity as well as costs optimization via the closure of smallerand less efficient plants. For major solvent products, we haveobserved a 4-6% YTD increase in ASPs. Current price levels forthese products are still below or at their average levels since2006. Amidst China’s urbanization as well as a recoveringeconomy, we continue to be comfortable with our forecast of asmall improvement in solvent gross margins in FY13.
Reasonable valuation with re-rating potential. Yip’s iscurrently trading at 11x FY13F P/E, 0.6 SD lower than its historical1-yr forward average P/E of 15x since the financial crisis. In viewof the strong earnings recovery and increasing brand recognitionof its branded coating business, we think there is a case forfurther re-rating. Maintain BUY.
FY12 earnings 20% above our estimates
FY13 to be driven by higher coating contribution andsustainable ASP uptrend for solvents
Reasonable valuation with re-rating potential
Maintain BUY with TP unchanged at HK$10.5
FY12 results 20% above estimates. Results are above ourestimates due mostly to higher than expected other income andbetter than expected gross margins. The 37% y-o-y increase inFY12 net profit was mainly driven by a 3ppt improvement in grossmargins. On the solvent side, the main driver was animprovement in the production process, lower material andenergy costs. On the coatings side, the main driver was acentralization of raw materials procurement. Operating cashflowturned positive to HK$119m thanks to tighter working capitalcontrols. We note that due to increased capex, net debt to equityrose to 52% from 40% during FY12. A final DPS of HK$0.15psmeans full year payout remains at over 50%.
Positive FY13 outlook. We expect the coating business to bethe main driver for Yip’s growth in FY13 and expect earningscontribution from this division to increase by 10 ppt to c.40% oftotal profits. This will be driven by a 34% increase in coatingcapacity as well as costs optimization via the closure of smallerand less efficient plants. For major solvent products, we haveobserved a 4-6% YTD increase in ASPs. Current price levels forthese products are still below or at their average levels since2006. Amidst China’s urbanization as well as a recoveringeconomy, we continue to be comfortable with our forecast of asmall improvement in solvent gross margins in FY13.
Reasonable valuation with re-rating potential. Yip’s iscurrently trading at 11x FY13F P/E, 0.6 SD lower than its historical1-yr forward average P/E of 15x since the financial crisis. In viewof the strong earnings recovery and increasing brand recognitionof its branded coating business, we think there is a case forfurther re-rating. Maintain BUY.
