Key points of investment
Mid-term results were impressive, and gross margin increased significantly. Mid-term operating results in 2017: revenue increased 44.9% to $581 million; shareholders' net profit increased 87.5% to $103 million. The company's mid-term performance was impressive. Sales of power transmission and transformation products and industrial products increased dramatically. The gross margin of transmission and distribution products reached 56.3%, leading to a year-on-year increase in comprehensive gross margin of 8.7 percentage points to 43.1%.
Orders for UHVDC products continued, and flexible DC transmission products entered an explosion period in 2018.
In the first half of 2017, sales of products in the industrial sector increased 80%, exceeding previous expectations. The rail transit business has declined, but its share is already very small, and it is expected that there will be some recovery in the second half of the year.
R&D drives continuous growth and establishes internationally leading technology research and development capabilities. We believe that having continuous R&D capabilities and being able to continuously develop world-leading products is the core competitiveness of Sai Jing Power Electronics. The company has set up R&D centers in Switzerland, Wuhan and Beijing to develop at least the world's leading products. The company has expanded from simple 1-2 core products in the past to more high-end products, which has laid the foundation for the company's continued growth.
With the introduction of national industrial funds and shareholders of central enterprises, Sai Jing ushered in new development opportunities. By introducing national investment funds and central enterprises as shareholders, the company's state-owned background has been added, and it is expected that larger national projects will be obtained. This highlights the strategic position of the company's products, and Sai Jing ushered in new development opportunities.
Investment advice: Reiterate the “buy” investment rating, with the target price of HK$2.32 unchanged. According to the current order situation, Sai Jing's performance growth is certain. We keep Sai Jing's target price of HK$2.32 unchanged. The target price is about 11, 9, 6 times PE in 2017-2019. The target price has room for an increase of about 41.5% from the current price of HK$1.64, so it reaffirms its “buy” investment rating.
Risk warning: UHV and flexible transmission projects fell short of expectations, and promotion of new products fell short of expectations.
