Targ et price revised to HK$2.38 (from HK$2.74)
1H13 sales and NP were in line with expectations, but due to weak visibility for the high-end segment, we have adjuste d our EPS forecasts for FY13-15E by -8% to -18%. We maintain Buy, as we believe the share price already reflects the cloudy outlook and, should the market recover, the group will benefit as a dominant player in the watch segment.
1H13 core NP and sales in line
1H13 core net profit (excluding the one-off cost of RMB50m mainly due to the impairment loss from the stake in Ming Fung (0860.HK, NR) and sales were in line with our estimates and market consensus. For 1H13, sales grew 9.5% yoy to RMB6.3bn. Net profit plunged by 51.6% yoy to RMB272.5m for 1H13. Excluding one-off items, core net profit declined by 27% yoy. The company declared a nil interim dividend (nil in 1H12). Net gearing increased to 33% from 22% at the end of 2012.
Visibility for high-end segment remains low, but this is reflected in the price
Management expects sales to increase by 10%-plus for 2013, including the acquisition of Harvest Max. Due to weak visibility in the market, it does not have a firm target for the store opening plan. We adjust our EPS forecasts for FY13-15E by between -8% and -17%. We maintain Buy, as we believe the share price already reflects the cloudy outlook and, should the market recover, the group will benefit as a dominant player in the watch segment.
Target price revised to HK$2.38, implying 15x/12x 2013/2014E PE
We have adjusted our EPS forecasts for FY13-15E by -8% to -18%. Our revised DCF target price is HK$2.38. This is based on Deutsche Bank’s new China COE of 8.7% and a higher beta of 1.3 to reflect the corporate governance risk. Downside risks: 1) macro slowdown; 2) working capital risk; 3) corporate governance; and 4) the impact of anti-corruption policy in China.