Investment suggestion
The demand for new space products of Guangqi Science has the potential to expand, but it still takes time to build capacity.
Considering that Guangqi and its holding subsidiary MACL capacity construction was lower than expected, Guangqi Science 2016Universe 2017e EPS forecast was lowered by 41.0% to 31.2% to 0.03 yuan / 0.05.The company's target price was lowered by 33% to HK $3.00, corresponding to 49x 2017 target PSyne; the company's rating was downgraded to neutral.
Reason
Cloud number market expansion is good, but insufficient production capacity may restrict performance growth. Since 2015, the company has completed the delivery of Yunduan numbers in Dongguan, Haikou and Zunyi, and the business cooperation model of Guangqi Investment and Construction R & D production base and local government procurement of Yunduan has been successful, and the demonstration effect is significant. We expect that it is a high probability that Guangqi will get enough orders for cloud numbers in the first half of 2016. However, as the new production base is still under construction, it will take time for new capacity to hit the ground, and capacity may restrict performance growth in 2016. We expect the company to deliver five cloud pins in 2016 (four new ones + one delayed delivery in 2015).
Delivery of the flying bag will begin at 3Q16, but the problem of insufficient capacity also exists. According to the MACL company's website, the manned flight bag P17 and the unmanned flight bag P16 will be delivered from 3Q16, but due to the difficulties in meeting global orders at the Christchurch base in New Zealand and the start of construction of domestic production facilities in China in early 2017, we expect production in 2016 to be lower than previously expected. We expect the company to deliver 30 flight bags in 2016.
Profit forecast and valuation
There is potential for demand expansion of new space products, but insufficient production capacity may restrict performance growth.
Downgrade the Guangqi Science 2016e/2017e EPS forecast of 41.0% to 31.2% to 0.03 yuan / 0.05 yuan. The company's current stock price corresponds to the 2016e/2017e Pamp E 78.1x hammer 48.2x; the company's target price is lowered by 33% to HK $3.00, corresponding to the 49x 2017 target Pamp E; the company's rating is downgraded to neutral.
Risk.
The uncertainty of R & D and delivery.