What's new
Precision Tsugami China （PTC） has roared 19.7% in the recent week,sparked by the CEO and Executive Director Mr. Tang Donglei’s stockpurchase. On Aug 24th/27th, Mr. Tang purchased 10k /12k shares ofPTC stock for HK$6.07/6.25.
Comments
The stock purchase demonstrates the CEO’s confidence. We thinkthat Mr. Tang’s stock purchase, though not large, demonstratesmanagement’s confidence in PTC’s growth. By doing so, we think thatthe management has also demonstrated their confidence ininvestors.
Pay attention to the Board members’ change. On Aug 20th, PTC haselected the new Board, with Mr. Li Zequn taking the place of Mr.
Yoshimas Hashimoto as PTC’s Executive Director. We think that withChinese management in place, the firm will focus more on PTC’slocalization and future growth.
1QFY19 result was a surprise. On July 30th, Tsugami （Japan）， thecontrolling shareholder of PTC announced its 1QFY19 results. Itimplied that the Tsugami （Japan）’s China revenue grew 42% YoY toJPY13.9bn, and its China segment income grew 82% YoY to JPY2.5bn,laying a solid base for PTC’s full year growth.
PTC earnings may beat in FY19e. Considering the strong performanceof Tsugami （Japan）’s China segment in 1QFY19, and that PTC’s neworder has delivered decent growth YoY in May–July, we believe PTC’searnings might beat market expectations in FY19e.
Valuation and recommendation
Considering the better-than-expected earnings performance in1QFY19Tsugami （Japan）’s China segment, we revise up PTC’s FY19/20eEPS by 6.6% and 12.2% to Rmb0.72/0.94. Currently, the company istrading at 8.2x/6.3x FY19/20e P/E, relatively cheap. The company’sdividend yield reached 3.7% in FY19e. We maintain BUY and targetprice at HK$13.17, implying 15x/11x FY19/20e P/E, and 82% upside.
Risks
Downstream demand lower than expected.