NARI Tech:Strong 1H momentum will sustain;reiterating Buy with raised target price

类别:公司研究 机构:德意志银行 研究员:Michael Tong 日期:2017-08-02

1H results beat; reiterating Buy as sector top pick

    NARI Tech reported stronger-than-expected 1H profit growth (+25%) andshowed encouraging order momentum. As we discussed in A value-accretiveasset injection plan; looking forward to a stronger NARI (19May), we expect itsoverall competitiveness to be greatly enhanced upon parentco asset injection(subject to approvals). NARI is our sector top pick, as we believe its favorableproduct exposure, diversification efforts and competitive R&D capability willlead to a quality earnings growth profile (16% CAGR in 17-19E) with betterdefensiveness and sustainability than peers. On the earnings forecast lift andconsolidation of target asset, we raise TP to Rmb20.2and reiterate Buy.

    Grid automation drives 1H results; strong group-level order momentum

    1H NP was +25% yoy to Rmb350m, primarily driven by strong gross profitgrowth in the power grid automation segment, despite some weakness inothers. Meanwhile, 1H order intake at the group level rose 18% yoy, anencouraging momentum level seen broadly across segments. This could pointto a strong full-year performance for NARI (post-consolidation of target assets).

    Why do we like NARI the best?

    NARI Tech is our favorite sector pick, because 1) it has multiple growth drivers,especially rising secondary grid automation equipment and HVDC-Flexibletransmission investment; 2) its diversification in both products and marketsshould help defend a stable earnings outlook; 3) its unparalleled R&D capabilityshould keep driving new product initiatives, supporting sustainable long-termgrowth; 4) we see upside from post-merger synergies in terms of cost saving,efficiency/R&D enhancement and potential share incentive scheme.

    Lifting TP to Rmb20.2(previously Rmb18.5); key risks

    We raise FY17-19EPS 28-41% on 1H results beat and consolidation of targetassets with share issuance. Our TP is therefore lifted to HKD20.2(HKD18.5),with target P/E lowered to 20x FY18E as the valuation premium from the assetinjection should be removed. Risks: failure/poor execution of asset injection,lower grid investment, and market share/margin volatility on competition.

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