1H13 EPS increased 10.5% YoY to RMB0.1257, but dropped 38.0% HoH and was 31% below our forecast. Revenue disappointed by dropping 31.5% HoH. Gross margin improved slightly, up 0.9 ppt HoH to 32.9%.
1H13 revenue plunged 31.5% HoH to lowest level since 2H2010. Sales volumes plummeted for both non-wov ens and recycled chemical fibres, which together accounted for 96% of total revenue. 1H13 non-wovens sales volume fell to the lowest level since 2H10 while recycled chemical fibre sales volume plunged to the lowest level ever sold by the Company for available data starting from 1H10.
Revise down forecasted FY13-FY15 EPS by 11.6%, 16.3% and 17.7%, respectively. With the wild swings in the Company’s revenue each of the last three interim periods and the massive and surprising drop in 1H13 revenue, our updated lower revenue fore casts reflect a less optimistic outlook. We forecast FY13-FY15 EPS of RMB0.321, RMB0.357 and RMB0.398, respectively, reflecting growth of 1.5%, 11.0% and 11.6%.
Reduce target price to HKD3.60, based on 8.9x FY13 PER, downgrade rating to ‘Neutral’. Our target price is a 28.6% discount to our DCF derived NAV of HKD5.04.