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1、1-week,(2.1),(1.7),(3.2),(1.2),(1.1),(3.4),(0.7),(4.9),(1.4),(1.4),0.5,Small cap/Regional31 August 2012,Asia small-cap weekly 2Q12 results indicate that the retailers are suffering Discovery idea:Digital China Pick of the week:Chaowei Powerbattery market for electric bikes inChina.Discovery ideas,Di
2、scoverygrowth in this market to outpace thatin the primary market over the longterm.,John Choi(852)2773 Regional Small-cap TeamWhats newThe 2Q12 results season has justfinished in Hong Kong and Daiwasanalysts have been busy analysingresults over the past few weeks.Overall,the results have been amixe
3、d bag,with certain industriesfacing more headwinds than others.For instance,the retail sector hasbeen having a hard time.Evergreen International(Notrated)reported a 20%YoY decline innet earnings,due to a decrease insales to distributors and an increasein selling and distribution expenses.Ports Desig
4、n(Not rated)recordeda 26%YoY decline in net profit for1H12 mainly due to a decrease in itsroyalty income(down 92.2%YoY),We attended Digital Chinas(DC)1Q FY13 results briefing this week.Inthis fiscal quarter,DC deliveredlacklustre revenue growth from theconsumer PC business.Managementsaid the upcomin
5、g launch of theMicrosoft Windows 8 OS hadpostponed the replacement cycle forconsumer PCs,to a certain extent,forthe past few quarters.In addition,HPs loss of market share has alsoimpacted DCs distribution businessadversely given that HP is one of themajor notebook vendors globally.On the other hand,
6、commercial PCdemand has been encouraging,driven by continuous IT spending onnew technologies,such as cloudcomputing and big data(data-miningtechnology).DC is well positioned tocatch a proportion of the increase indemand for these PCs on the back ofits enhanced co-operation with corevendors(ie,IBM).P
7、icks of the week,One of our concerns in Chaoweisresults was the sharp rise in the net-gearing ratio to 45%for 1H12,asshort-term debt rose to Rmb1.9bn.Although the company might havesufficient cash and banking facilitiesfor its capacity expansion over thenext 2-3 years,we cannot rule out thepossibili
8、ty of it seeking to raise fundsto refinance debt.Forthcoming company-visit scheduleName TickerChina Tianyi*756 HKFormosa Optics 5312 TTJP Nelson 8418 TTSource:Daiwa.Note:*denotes resultsRecent company visits(20 31 Aug)Name TickerDigital China*861 HKEvergreen Intl*238 HKInternational Taifeng 873 HKRE
9、XLot 555 HKShenzhou Intl*2313 HKVanceInfo*VIT USXingda*1899 HKYeong Guan Energy 1589 TTSource:Daiwa.Note:*denotes resultsMSCI small-cap index,and the absence of a one-offgovernment cash grant.However,leading China batteryplayer Chaowei Power surprisedthe market on the upside,withstrong sales and ear
10、nings for 1H12.The stock is one of our top picksamong the small caps.We believethe company will continue to seestrong sales growth momentum as itgains more share of the lead-acid,We expect Chaowei Power to raisecapacity further over the next fewyears to widen the lead it has oversmaller players.Mean
11、while,Chaoweihas been expanding its presence inthe secondary market,wheredistributors play a key role in productdistribution.We expect sales in the secondarymarket to grow at a much faster paceover the next few years,due to rising,MSCISmall CapAsiaAsia ex-JapanChinaHong KongTaiwanKoreaIndiaSingapore
12、IndonesiaMalaysiaPhilippinesSource:Bloomberg,Chg(%)30-Aug-121-month 3-month 6-month3.2 0.4(11.7)(0.7)0.7(9.1),1.6 3.1(8.5)2.7 2.9(10.9)2.0(6.1)(20.5)3.1 1.0(10.1)8.1 7.9(7.4)1.8 13.5 3.1(6.7)(7.2)(8.3)(0.3)6.6 1.6(2.7)3.3 9.9,replacement demand,and salesImportant disclosures,including any required r
13、esearch certifications,are provided on the last three pages of this report.,Discovery,31 August 2012,Table of contents,Discovery idea:Digital China(DC).4Pick of the week:Chaowei Power.5Anhui Expressway.6AviChina Industry&Technology.7Hiwin Technologies Corp.8Midland.9Radiant Opto-Electronics.10SITC I
14、nternational Holdings.11TravelSky Technology.12,-2-,Discovery31 August 2012Daiwa small-cap coverage,Share price30-Aug-12 Market cap,PER(x),PBR(x),EV/EBITDA(x),Div.yield(%),ROE(%),Company name,BBG code(local curr.),(US$m),Rating,FY12E,FY13E,FY12E,FY13E,FY12E,FY13E,FY12E,FY12E,ADVANTECH,2395 TT,103.00
15、,1,916 Outperform(2),15.0,14.0,3.5,3.1,11.0,10.0,4.8,23.9,AMVIGCHAOWEI POWERCHINA METAL INTLCHINA OUTFITTERSCHROMA ATEEVA PRECISIONGINKO,2300 HK951 HK319 HK1146 HK2360 TT838 HK8406 TT,2.504.241.421.4262.800.62353.00,2985501846327901401,061,Hold(3)Buy(1)Buy(1)Buy(1)Buy(1)Sell(5)Buy(1),8.27.24.38.116.
16、610.228.1,7.16.23.26.412.49.021.0,0.81.80.62.32.80.54.8,0.81.50.51.92.50.54.1,3.94.82.43.914.54.119.4,3.14.11.72.710.83.814.9,4.94.28.56.24.03.01.1,10.427.214.229.717.65.422.6,HIWIN TECHNOLOGIES 2049 TT,214.00,1,761 Outperform(2),19.5,14.7,5.6,4.4,16.4,12.4,2.1,31.7,INTL TAIFENG,873 HK,1.83,236,Buy(
17、1),2.9,2.4,0.8,0.6,0.5,0.2,13.6,28.4,LILANG,1234 HK,5.60,867 Outperform(2),7.8,6.6,2.2,1.9,4.3,3.6,7.7,29.5,PACIFIC TEXTILESREXLOTSHENZHOU INTLSTELLA INTL,1382 HK555 HK2313 HK1836 HK,4.940.5212.5218.22,9135712,1471,866,Hold(3)Buy(1)Buy(1)Hold(3),8.04.87.913.3,7.13.96.813.3,1.70.81.72.2,1.50.61.52.1,
18、4.03.24.78.9,3.32.13.88.0,6.34.24.55.3,22.217.625.617.1,ST.SHINE OPTICAL,1565 TT,352.00,593 Underperform(4),15.6,14.7,5.6,5.1,11.6,10.7,4.7,37.5,TECHTRONICTEXWINCATRINITYVANCEINFOVTECH,669 HK321 HK891 HKVIT US303 HK,11.986.315.048.2594.35,2,8161,1091,1143493,046,Buy(1)Sell(5)Buy(1)Buy(1)Hold(3),11.7
19、8.317.310.814.7,9.57.314.28.313.6,1.71.42.91.25.3,1.51.32.71.15.1,7.45.211.55.810.1,6.34.59.14.49.2,2.17.24.3n.a.6.4,15.217.317.311.936.6,XINGDA INTL,1899 HK,2.33,458 Underperform(4),10.1,8.9,0.7,0.6,4.9,4.4,2.5,6.6,Average,11.4,9.6,2.3,2.0,7.4,6.0,5.1,21.2,Source:Bloomberg,Daiwa forecasts-3-,Affect
20、ed by,Win8 launch;,cloud,Cris Xu,John Choi,Liz Zeng,8 is delaying replacement cycle,Company expects cloud,computing and big data to,drive enterprise demand,Electronics/China31 August 2012Digital China861 HK,Target price:n.a.,Up/downside:-,Share price(30 Aug):HK$12.90,in demand for consumer PCsfollow
21、ing the launch of Win8 andthat it would reserve more inventoryfor Win8-related products in thecoming months.aims to beMeanwhile,management saiddriven by the changes in the competitive landscapehad been unfavourable for DC in theconsumer-PC market.For instance,Hewlett-Packard(HPQ US,US$16.78,Outperfo
22、rm 2),one of its major(852)2773 8736 notebook suppliers,had been market share to Lenovo(992 HK,HK$6.34,Outperform 2),affecting(852)2773 8730 DCs revenue growth However,among the consumer-PC(852)2532 4349 distribution channels,the sees strong revenue growth in e-commerce.More end-customers areshiftin
23、g from buying in physical IT Upcoming launch of Windows malls to e-commerce.Althoughcompetition appears to be fierce,DCbelieves the e-commerce channel istoo important to ignore.However,the ongoing price war could be athreat to future profitability,Unlike other IT solutions according to management.pr
24、ojects,believes Smart Cityproject has operating leverage In August,DC invested HK$130mfor a stake of about 5%in ePro(NotBackground rated),a GEM-board listed company,Digital China(DC),a leading IT-engaged in B2C e-commerce.product distribution and IT-Management believes thisservices/solutions provide
25、r in China,investment will enable DC to gainrecently reported its 1Q FY13 results.expertise in serving e-commerce,that it was well-positioned to benefitfrom increased demand due toenhanced co-operation with corevendors(such as IBM)and its goodimplementation capability.IT service segment.Revenue from
26、the government(up 68%YoY)andbanking(up 90%YoY)segmentswere the key revenue-growth driversin DCs IT-services segment for 1QFY13.In the banking segment,DC isfocusing more on regional/municipalcommercial banks due to thepotential there.The company plansto leverage on its experience ofworking with natio
27、nwide banks andfocus more on cloud computing,which it said was easy to replicate.Management said the Smart Cityproject(government-to-citizenplatform)in China remained thecompanys key business-growth focus.Unlike other IT-solution projects,DCbelieves the Smart City project willhave significant operat
28、ing leverageonce the platform is established.Inaddition,the end-user baseaccumulated from this platformcould be another business driver.ValuationBased on the Bloomberg-consensusforecasts,the stock is tradingcurrently at PERs of 9.6x for FY13and 8.3x for FY14.,clients and help expand its exposureHigh
29、lights to this channel.Lacklustre revenue growth indistribution business due to Strong revenue growth inWin8 and change in channel systems.DCs systems-businessmix.Revenue for the distribution revenue rose by 28%YoY for 1Qbusiness was flat YoY for 1Q FY13.FY13,aided by solid demand forManagement said
30、 the upcoming storage and networking products,onlaunch of the Windows 8(Win8)the back of the trend cloudoperating system by Microsoft had computing and big data(a data-delayed the replacement cycle in mining technology).Managementconsumer PCs to some extent over said it was optimistic that these new
31、the past few quarters.It also said it technologies would continue to drivehad high expectations for a recovery IT spending in the enterprise,and-4-,Share price performance(HK$)191613107Aug-11 Nov-11 Feb-12Digital China(LHS)12-month rangeMarket cap(US$bn)Average daily turnover(US$m)Source:Bloomberg,D
32、aiwa,(%)1401201008060May-12 Aug-12Relative to HSI(RHS)8.14-16.441.74.54,Automobiles&components/China29 August 2012Chaowei Power951 HK,Target price:HK$5.50 HK$6.00,Up/downside:+39.9%,Share price(28 Aug):HK$4.29,Shouldcontinue tobenefit fromconsolidationJohn Choi(852)2773 1H12 results were solid,withc
33、ompany likely to have gainedmarket share Continuing capacity expansionshould drive sales-volumegrowth Sharp rise in net gearing couldtrigger a capital-raisingexerciseWhats newFor 1H12,Chaowei Powers(Chaowei)sales and net earningsrose by 117%and 127%YoY,respectively.We believe thecompany continued to
34、 gain marketshare over the period,as most of thebattery companies were affected bythe tighter environmentalregulations introduced last year.Whats the impactFor 1H12,Chaoweis sales volumeincreased to 35m units(1H11:18munits).As we have noted in previousreports,we believe the company hasbeen aggressiv
35、ely ramping upproduction capacity in order to gainshare in the lead-acid batterymarket for electric bikes.Over the next few years,we expectthe leading battery players in China,such as Chaowei and TiannengPower(Not rated),to raise capacity,further in order to widen the leadthey have over smaller play
36、ers.Meanwhile,Chaowei has beenexpanding its presence in thesecondary market,wheredistributors play a key role inproduct distribution.The number ofdistributors of the companysproducts rose to 892 at the end of1H12 from 524 at the end of 1H11.We expect sales in the secondarymarket to grow at a much fa
37、sterpace over the next few years,due torising replacement demand,andsales growth in this market tooutpace that in the primary marketover the long term.One of our key concerns in theresults was the sharp rise in the net-gearing ratio to 45%for 1H12,asshort-term debt rose to Rmb1.9bn.Although the comp
38、any might havesufficient cash and banking facilitiesfor its capacity expansion over thenext 2-3 years,we cannot rule outthe possibility of it seeking to raisefunds in order to refinance its debt.As Chaowei has aggressive capacity-expansion plans for the next fewyears,maintaining a stable capitalstru
39、cture will be vital,in our view.We are raising our EPS forecasts,by6%for 2012 and 10%for 2013,afterrevising up our output-volumeassumptions.We see Chaowei as theclear beneficiary of the ongoingconsolidation in the industry andthe increasing demand for lead-acidbatteries for electric bikes in China.W
40、e now forecast total sales volumefor Chaowei to exceed 70m units for2012(66m previously)and to be85m units(75m previously)for 2013.What we recommendAs a result of the revisions to ourforecasts,we are raising our six-month target price to HK$6.00-5-,(from HK$5.50),based on anunchanged PER of 8x on th
41、e averageof our 2012 and 2013 EPS forecasts.The key risks to our call includepotential policy risks as a result ofenvironmental issues,which couldhave an adverse impact onChaoweis production.How we differOur 2013 EPS forecast is 2.7%lowerthan the Bloomberg-consensus dueto our sales-volume and gross-
42、margin assumptions.Forecast revisions(%)Year to 31 Dec 12E 13E 14ERevenue change 12.1 19.9 30.6Net-profit change 5.8 9.8 17.3EPS change 5.8 9.8 17.3Source:Daiwa forecastsShare price performance(HK$)(%)5.3 1204.6 1003.9 803.2 602.5 40Aug-11 Nov-11 Feb-12 May-12 Aug-12Chaowei Power(LHS)Relative to HSI
43、(RHS)12-month range 2.83-4.78Market cap(US$m)556.05Average daily turnover(US$000)707.61Shares outstanding(m)1,005Major shareholder Mingming Zhou(41.5%)Financial summary(Rmb)Year to 31 Dec 12E 13E 14ERevenue(m)8,626 10,425 12,480Operating profit(m)1,014 1,235 1,440Net profit(m)560 671 804Core EPS 0.5
44、57 0.668 0.800EPS change(%)30.4 19.9 19.7Daiwa vs Cons.EPS(%)(2.8)(2.7)(6.4)PER(x)6.3 5.3 4.4Dividend yield(%)4.8 5.7 6.8DPS 0.167 0.200 0.240PBR(x)1.6 1.3 1.1EV/EBITDA(x)4.3 3.7 3.1ROE(%)28.6 27.7 27.0Source:Bloomberg,Daiwa forecasts,Transportation/China27 August 2012Anhui Expressway995 HK|AUHEY US
45、,Target price:HK$5.90 HK$4.80,Up/downside:+39.9%,Share price(27 Aug):HK$3.43,Weak results,but valuationattractive,already low compared with those inthe coastal provinces.According to management guidance,AHEs capex will be Rmb1.2bn for2012 and Rmb1.8bn for 2013.Themajor spending would be on the,How w
46、e differOur 2012-14 EPS forecasts are 11-12%lower than those of theBloomberg consensus,as we believethe current consensus numbers donot yet take into account theweaker-than-expected results.,Kelvin Lau(852)2848 Karen Chan(852)2848,Ningxuanhang Expressway,forwhich phase 1 is due to be opened in2013 a
47、nd phase 2 in 2015.As with last year,no interimdividend was declared.,Forecast revisions(%)Year to 31 DecRevenue changeNet-profit changeEPS changeSource:Daiwa forecasts,12E(17.0)(18.5)(18.5),13E(19.8)(26.9)(26.9),14E(18.8)(29.0)(29.0),Net profit declined by 13%YoYfor 1H12,worse than expected We thin
48、k the current valuationalready reflects the weak 2H12outlook Low valuation and dividendyield still look attractiveWhats newAnhui Expressway(AHE)recorded anet profit of Rmb391m(EPS ofRmb0.239)for 1H12,down 13%YoY,worse than our and the marketsforecasts.However,we believe thestock is still attractive
49、in terms ofvaluation and dividend.Whats the impactToll revenue came to Rmb1.1bn,down 4%YoY.The decline was duemainly to a decrease in truck trafficand the policy of toll-exemption foragricultural products(estimatedrevenue impact of the policy to be10%annually).Regarding the impact of the tollexempti
50、on during national holidays,management expects revenue todecline by 1%per year,equivalent toaround Rmb25m per year.Management believes there is a lowchance of a further toll ratereduction in Anhui,as toll rates are,AHE:capital expenditure for 2012Project 1H12 2H12E 2012EReconstruction ofNational Tru
