CECEP COSTIN New Materials (‘CC’ or the ‘Company’)’s 1H15 EPSincreased 23.8% yoy and was 3.7% above our forecast on strongrevenue growth. Revenue increased 27.4% yoy thanks to strong demandfor CC's non-woven materials. Gross profit increased 24.8% yoy, less thanthe growth in revenue as gross profit margin dropped slightly (0.6 ppt) yoy to30.2%.
We revise down 2015-2017 net profit forecasts by 5.0%, 1.3% and 4.8%,respectively, on lower gross margin partially offset by higher revenueforecasts. CC's 1H15 revenue was higher than we had expected. However,we temper our expectations for 2H15 since there are more indicatorsemerging that the Chinese economy is slowing further. We forecast 2015 to2017 revenue growth of 25.1%, 14.4% and 6.0%, respectively, and net profitgrowth of 2.1%, 21.5% and 7.8%, respectively.
We reduce CC's target price from HKD1.63 to HKD1.55, equivalent to8.7x 2016 PER and 1.1x PEG, but upgrade to ‘Buy’. We think the currentlow valuation relative to peers is a good buying opportunity, especially in lightof CC's new business developments. We expect the new tapioca import andsales business will bring limited contribution to the Company in 2015, but itcould be a stepping stone into other biomass business opportunities, and thenew supply agreement with German customer will bring incremental growth.