1H performance in 2018 is in line with expectations
Jiantao laminate reported 2018 1H results: revenue rose 6 per cent year-on-year to HK $9.6 billion, while net profit fell 11 per cent year-on-year to HK $1.78 billion, corresponding to earnings per share of HK $57.7 cents. Based on the fact that the increase in the price of raw materials is likely to continue into 2H18, we downgrade the target price by 26% to HK $11.20 to maintain the recommended rating.
The company's 1H18 revenue is 6.03% lower than CICC's expectations, and its profit is only 3.81% lower than CICC's expectations, which is basically in line with expectations. The company declared an interim dividend of HK $0.175 per share, with a dividend yield of 30 per cent.
Trend of development
Raw material prices rise, copper clad laminate market price transmission capacity is insufficient: due to the tightening of domestic environmental supervision, small and medium-sized chemical enterprises are difficult to sustain, copper clad laminate and downstream PCB raw material production capacity is insufficient, prices rise. Market demand is stable, the price of products is not as fast as that of raw materials, and profits are under pressure.
The company controls the supply of raw materials in the upper reaches of the industrial chain, and distributes the downstream PCB industry, and its profitability is better than that of the same industry. The company's expanded production of glass fiber and glass cloth in 2017 can ensure that the company is self-sufficient in the case of shortage of supply in the raw material industry, and has a cost advantage compared with its peers. The company layout downstream PCB industry, vertical integration of the industrial chain, profit diversification.
The company focuses on copper clad laminate business and opens up a new application market for thin plate downstream with obvious increment. The company invested in the production capacity of copper clad laminates in Thailand and Jiangmen to balance the impact of Sino-US trade frictions, actively expanded sheet production capacity, cut into mobile phones, smart home appliances, automobiles and other applications, and expanded production smoothly.
Profit forecast
We lowered our 19-year profit forecast by 10% to HK $33.99 billion, which mainly reflects the increase in raw material prices of copper clad laminate in 2018, but the price increase of products is not as fast as that of raw materials. The company's second quarterly profit is basically in line with expectations, and it is expected that the rise in raw material costs will continue into the second half of the year, and the company will have more supply chain integration advantages and profitability than its competitors.
Valuation and suggestion
The company's current share price maintains the recommended rating at 18gamma, which is 6.9 times Pmax E, but downgrades its target price by 26% to HK $11.20, compared with 10.2 times Pmax E in 18pm, which is 44.9% higher than the current share price.
Risk.
The collective expansion of upstream raw materials leads to oversupply, and the short-term balance between supply and demand limits the company's ability to raise prices.