China U-ton Holdings (08232 HK) announced 3Q results. During 1Q-3Q,revenue increased 39.6% YoY to RMB127.5 million, net profit increased28.1% YoY to RMB29.5 million, slightly below expectation, due to slowerthan expected progress of projects and higher than expected decline in grossmargin during 3Q. As at30thSeptember 2012, the Company had a net cash ofRMB100 million, financial position healthy.
Within deployment services segment, revenue from traditional methoddeclined 17.1% YoYto RMB26.9 million during 3Q while that frommicro-ducts and mini-cables (mcmd) method increased 97.4% YoY toRMB35.4 million; gross margin of the respective segments were 35.4%and 42.2%, down from 42.5% and 50.2% as for 3Q11.This was mainlyattributable to more subcontracting and more projects being recognized at nogross project until being examined and approved by the clients during4Q,which is common when revenue increased substantially.Moreover, the strongfinancial position provided the Company with enough flexibility to buy othersimilar companies toboost growthin revenue.
We revise downEPS estimates of FY12-14 by 8.3%, 3.6% and 8.7%respectively to RMB0.044, RMB0.054 and RMB0.063 with below expectation3Q results. However, being one of the few first advocators of the mdmcmethod, the Company could receive new contracts more easilythan therpeers. We apply 12.6x FY13 PER to value the Company at HKD0.85 pershare, which is 1.0x PEG. Maintain“Accumulate”