CECEP COSTIN (“CC” or “the Company”)’s 2H13 EPS decreased 7.8% YoY. Gross profit margin was relatively stable at 32.3% during 2H13, compared with 32.9% in 1H13. EPS missed our forecast by 4.5%, even though revenue was 9.7% higher than we were expecting and gross profit was 10.0% higher than our forecast, mainly due to RMB10.146 million increase in R&D expense and a RMB14.144 million allowance for trade receivables in the Company’s thermal resistant filtration materials segment.
Revise up forecasted FY14-FY15 EPS by 1.5% and 2.0%, respectively. We forecast FY14-FY16 EPS of RMB0.362, RMB0.406 and RMB0.454, respectively, equivalent to 13.3% CAGR. We forecast 2014 EPS growth of 15.8%, which will benefit from lower interest expense as the Company has paid off its convertible bond in 2013.
Raise target price from HKD3.60 to HKD4.20, based on 9.0x 2014 PER and upgrade to ‘Accumulate’. Our target price is based on 9.0x 2014 PER, which is less than CC’s historical average forward PER of 9.4 and also less than peers’ current 10.3x 2014 PER. Our target price represents 9.3% upside potential.