Investment positives
We initiate coverage with a BUY rating and a TP of HK$8.70, or1.50x 2017e P/B and HK$5.80 BPS.
Why a BUY rating?
Vertically-integrated laminate leader. KBL has been#1 in the global laminate market for eleven years, withmarket share of 14.0% in 2015. Based on laminateproduction, KBL managed to extend to upstream materialssuch as cooper foil, glass fabric and epoxy resin.
Price hike to bolster profitability and market share.The price of laminate has increased by 40~50% from thelowest point this year. With the raw material remaining inshort supply and laminate manufacturers’ cautious attitudetowards expansion, the upward price trend will continueinto 2017. With vertical integration, KBL enjoys costadvantages against competitors.
Properties to boost revenue and cash inflow in shortterm; more focus on laminate in long term.Residential properties in Kunshan and Jiaying will becompleted in 2016~18 with no further land bank plan.
How do we differ from the market? Our 2017 earningsestimate is above consensus as we are more positive aboutmargin improvement resulting from price hike.
Potential catalysts: Stronger laminate pricing continues;special dividend payout.
Financials and valuation
EPS is expected to be HK$1.28/1.16/1.03 over 2016~18, a CAGRof 35%. Recurring net profit to grow 82%/56%/-12% YoY over2016~18. Our TP is HK$8.70, equivalent to 1.50x 2017e P/BV,representing average in KBL’s historical upcycle from June 2009to June 2010.
Risks
Laminate price fall; raw material price fluctuation, especiallycopper foil; slowing China property market.