标题：Desay Battery TechnologyDowngrade： fierce competition; earnings sensitive to shipments
发布日期：2016-03-17 7:20:51
内容： Action Downgrade to HOLD; trim TP 35% to Rmb37. Earnings hurt as the US client changed their subsidy methods in4Q15, and competition turned fierce; the situation is unlikely to improve in 1H16; earnings may see turnaround in 3Q16. Reasoning Earnings miss; 4Q15 NP growth hits five-year low: in 2015, revenue +32% YoY; net profit fell 2% YoY,21%/22% below market/our expectation. In 4Q15, revenue edged up only 0.4% YoY, as shipments of the large client(contributing 67% of 2015 revenue) probably stayed flat YoY. 4Q15 net profit -37% YoY to only Rmb57mn, flat toquarterly net profits during 1~3Q15 (vs. surging 4Q NP during previous years). Earnings more sensitive to sales volume; fiercer price competition: the US client changed its subsidy methodfrom 4Q15, and started to subsidize machine depreciation costs by shipments. Under such a business model, lowshipments will result in greater impact on earnings, as: 1) directly reflected in revenue; and 2) low capacity utilizationand fewer subsidies resulted in falling gross margin. In addition, companies strived to make the most of pricecompetition for a larger volume share; new suppliers may also enter this year. Tough challenges in 1H16; earnings may see turnaround in 3Q16: the new subsidy method will widen the gapbetween earnings in 1H and 2H. 1) 1Q may become the first quarter with negative YoY sales-volume growth sinceiPhone’s launch, leading to heavier pressure on earnings—such a situation is unlikely to improve in the traditional slackseason of 2Q; and 2) however, improvements in the US client’s shipments and contributions from new product lines(MacBook) may drive the company’s earnings to improve YoY in 3Q. Progress in SOE reform slow; steady progress in energy storage battery business: on July 11 2015, Desayannounced it would cope with minority interests (25% stake in subsidiaries), but no material progress has been made.It remains uncertain when and how it will address the issue. With strong NEV demand, Desay has established a vehiclebattery BMS platform for its energy storage battery segment. With small-scale shipments and smooth progress in clientbase expansion, it would still take some time to see contributions from the segment. Earnings forecast and valuation Trim 2016 EPS forecast 30% to Rmb1.33 and set 2017e EPS at Rmb1.59 due to lower-than-expectedearnings in 2015 (leading to a 15% cut in 2016e earnings forecast) and falling gross margin. Downgrade to HOLD;trim TP 35% to Rmb37, implying 28x 2016e P/E. The stock is trading at 27.3x/22.9x 2016/17e P/E. Risks Downside: new entrants; fiercer price competition; sales volume for the US client misses. Upside:higher-than-expected US client’s shipments and contributions from its new product lines.
发布日期：2016-03-17 7:20:51
内容： Action Downgrade to HOLD; trim TP 35% to Rmb37. Earnings hurt as the US client changed their subsidy methods in4Q15, and competition turned fierce; the situation is unlikely to improve in 1H16; earnings may see turnaround in 3Q16. Reasoning Earnings miss; 4Q15 NP growth hits five-year low: in 2015, revenue +32% YoY; net profit fell 2% YoY,21%/22% below market/our expectation. In 4Q15, revenue edged up only 0.4% YoY, as shipments of the large client(contributing 67% of 2015 revenue) probably stayed flat YoY. 4Q15 net profit -37% YoY to only Rmb57mn, flat toquarterly net profits during 1~3Q15 (vs. surging 4Q NP during previous years). Earnings more sensitive to sales volume; fiercer price competition: the US client changed its subsidy methodfrom 4Q15, and started to subsidize machine depreciation costs by shipments. Under such a business model, lowshipments will result in greater impact on earnings, as: 1) directly reflected in revenue; and 2) low capacity utilizationand fewer subsidies resulted in falling gross margin. In addition, companies strived to make the most of pricecompetition for a larger volume share; new suppliers may also enter this year. Tough challenges in 1H16; earnings may see turnaround in 3Q16: the new subsidy method will widen the gapbetween earnings in 1H and 2H. 1) 1Q may become the first quarter with negative YoY sales-volume growth sinceiPhone’s launch, leading to heavier pressure on earnings—such a situation is unlikely to improve in the traditional slackseason of 2Q; and 2) however, improvements in the US client’s shipments and contributions from new product lines(MacBook) may drive the company’s earnings to improve YoY in 3Q. Progress in SOE reform slow; steady progress in energy storage battery business: on July 11 2015, Desayannounced it would cope with minority interests (25% stake in subsidiaries), but no material progress has been made.It remains uncertain when and how it will address the issue. With strong NEV demand, Desay has established a vehiclebattery BMS platform for its energy storage battery segment. With small-scale shipments and smooth progress in clientbase expansion, it would still take some time to see contributions from the segment. Earnings forecast and valuation Trim 2016 EPS forecast 30% to Rmb1.33 and set 2017e EPS at Rmb1.59 due to lower-than-expectedearnings in 2015 (leading to a 15% cut in 2016e earnings forecast) and falling gross margin. Downgrade to HOLD;trim TP 35% to Rmb37, implying 28x 2016e P/E. The stock is trading at 27.3x/22.9x 2016/17e P/E. Risks Downside: new entrants; fiercer price competition; sales volume for the US client misses. Upside:higher-than-expected US client’s shipments and contributions from its new product lines.
