After a disappointing 1H12, the Company outperformed in 2H12 withEPS of RMB0.18, up 19.2% YoY and also 19.2% above our forecast. TheCompany made a solid recovery in 2H12 as China’s economy rebounded. In2H12, revenue grew (YoY and HoH), gross margin increased (YoY andHoH), operating margin improved (YoY and HoH) and net profit increased.
By segment, 2H12: 1) Non-wovens materials revenue and gross marginincreased, although sales volume growth of 16% was well below industrygrowth of 23%; 2) Recycled chemical fibres revenue increased but grossmargin decreased as ASP continuing to fall, which was despite higher PETprices; 3) Thermal resistant filtration materials’ segment showed adramatic improvement in revenue and gross margin, although its grossprofit accounted for just 3.4% of total gross profit.
Revise up forecasted FY13 and FY14 EPS by 13.7% and 9.4%,respectively. We forecast FY13-FY15 EPS of RMB0.36, RMB0.43 andRMB0.48, representing 15.1% CAGR. Effective tax rate is expected toincrease by 10 ppt to about 31.1% in 2013.
Raise target price to HKD4.10, based on 8.9x FY13 PER, and upgraderating to ‘Buy’. Our target price is a 34.9% discount to our DCF derived NAVof HKD6.30 and represents 18.9% upside potential.