This note serves as a highlight to our recent change in FY12-FY14E NP forecast and recommendation for Hengdeli in our sector report “Prefer discretionaries over staples into the Year of Snake” dated 31 Jan 2013.
Issuance of Senior Notes for redemption of 2015 CB
The company issued a US$350m 6.25% Senior Notes for redemption of its 2015 RMB2.5bn Convertible Bonds, as announced on 22 Jan 2013. We view the debt issue as a positive movement, as it lifted the short-term overhang related to the 2015 CB and can provide long term funding for expansion. Although the senior notes will cost additional interests, we believe the impact should be limited.
Our TP lifted to HK$3.24 from HK$2.8
We adjusted our EPS forecast for FY12-14E by -0.8% to 4.1% to reflect the issuance of senior notes for redemption of CB. Our revised DCF TP is HK$3.24 (from HK$2.8), mainly based on 1) Deutsche Bank’s new China COE of 8.5%, 2) a higher beta of 1.3 reflecting the corporate governance risk (instead of taking 20% discount to DCF valuation), 3) a lower target valuation on minority interest and 4) DCF valuation rollover. Our new TP implies 14.9x 2013E PE. Downside risks: 1) macro slowdown and negative wealth effects; 2) heavy working capital and inventory risk; 3) corporate governance concerns; 4) impact from the stringent anti-corruption policy in China
This note serves as a highlight to our recent change in FY12-FY14E NP forecast and recommendation for Hengdeli in our sector report “Prefer discretionaries over staples into the Year of Snake” dated 31 Jan 2013.
Issuance of Senior Notes for redemption of 2015 CB
The company issued a US$350m 6.25% Senior Notes for redemption of its 2015 RMB2.5bn Convertible Bonds, as announced on 22 Jan 2013. We view the debt issue as a positive movement, as it lifted the short-term overhang related to the 2015 CB and can provide long term funding for expansion. Although the senior notes will cost additional interests, we believe the impact should be limited.
Our TP lifted to HK$3.24 from HK$2.8
We adjusted our EPS forecast for FY12-14E by -0.8% to 4.1% to reflect the issuance of senior notes for redemption of CB. Our revised DCF TP is HK$3.24 (from HK$2.8), mainly based on 1) Deutsche Bank’s new China COE of 8.5%, 2) a higher beta of 1.3 reflecting the corporate governance risk (instead of taking 20% discount to DCF valuation), 3) a lower target valuation on minority interest and 4) DCF valuation rollover. Our new TP implies 14.9x 2013E PE. Downside risks: 1) macro slowdown and negative wealth effects; 2) heavy working capital and inventory risk; 3) corporate governance concerns; 4) impact from the stringent anti-corruption policy in China
