Money Talk BUY HUA HONG SEMICONDUCTOR (1347 HK)pg.jrj.com.cn/acc/Res/HK_RES/STOCK/2015/6/22/c5e5390b-42a4-4490-b40f-9... · Money Talk HUA HONG SEMICONDUCTOR (1347 HK) An Undervalued

R e t a i l M a r k e t M o n i t o r Mon day , 2 2 Ju ne 20 15

H u a H o n g S e m i c o n d u c t o r ( 1 3 4 7 )

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H O N G K O N G

Money Talk

HUA HONG SEMICONDUCTOR (1347 HK) An Undervalued Foundry Player

Hua Hong was the world’s second-largest pure-play 200mm foundry in 2013.

The company is well positioned to capture the opportunities brought by the

popularity of smart cards and energy-efficient products as it manufactures

semiconductors for specialty applications in eNVM and power discrete devices.

Valuations are undemanding at 12.1x 2016F PE and 0.88x 2016F P/B

respectively. Initiate coverage with a BUY and target price of HK$12.68.

• Hua Hong’s semiconductors are used in a wide range of products. Hua Hong could benefit from the high demand from end markets, such as consumer electronics and communications, which accounted for nearly 80% of the company’s total revenue in 2014.

• Supportive government policies. Under the State Council’s “National

Guidelines for Development and Promotion of the IC Industry, China’s integrated circuit (IC) industry should achieve a revenue CAGR of 20% from 2014 to 2020. The Ministry of Industry and Information Technology (MIIT) founded a National Integrated Circuit Industry Investment Fund and had already invested in Hong Kong-listed foundry, SMIC (981 HK).

• A good start in 1Q15. Revenue grew 12.5% yoy to US$166m and net profit grew 22.3% yoy to US$24.8m. This performance was better than peer, Vanguard (5347 TT), another pure-play 200mm foundry listed in Taiwan, which reported only a 16.2% yoy growth in revenue and a 1.9% yoy growth in net profit in 1Q15 due to the difference in end-market mix.

• Active cooperation with different parties. Hua Hong works with companies such as eMemory to develop technologies used in Internet of Things and power discrete markets, which allow Hua Hong to expand its product usage in more areas.

• Risks will come from: a) breakdown of production facilities, b) failure to meet expansion targets, c) slower-than-expected nationalisation of ICs, and d) sudden advancement in technology leading to a drop in demand for 200mm wafers

• Initiate coverage with a BUY and target price of HK$12.68, based on 1.01x 2016F P/B, a discount of 15% to SMIC’s due to the latter’s larger size and more advanced technology.

KEY FINANCIALS

Year to 31 Dec (US$m) 2013 2014 2015F 2016F Net turnover 588 665 724 787

EBITDA 178 205 229 259

Operating profit 90 133 150 159

Net profit (rep./act.) 65 93 113 123

Net profit (adj.) 65 93 113 123

EPS (cent) 6.3 9.0 10.9 11.9

PE (x) 22.6 15.8 13.0 11.9

P/B (x) 1.4 1.0 0.9 0.9

EV/EBITDA (x) 8.5 5.3 4.8 4.0

Dividend yield (%) 0 0 0 0

Net margin (%) 11.0 14.0 15.6 15.6

Net debt/(cash) to equity (%) 4.7 (26.1) (23.3) (26.3)

Interest cover (x) 5.5x 11.0x 17.9x 28.7x

ROE (%) 6.1% 6.4% 7.2% 7.3%

Consensus net profit - - 103 122

UOBKH/Consensus (x) - - 1.10 1.01 Source: Hua Hong, UOB Kay Hian

BUY

Share Price HK$11.12 Target Price HK$12.68 Upside 14.0% COMPANY DESCRIPTION

The company manufactures semiconductors on 200mm

wafers for specialty applications. The company’s products

are used in the consumer electronic, communication,

computing and industrial and automotive industries.

GICS sector Information Technology

Bloomberg ticker 1347 HK EQUITY

Shares issued (m): 1,034

Market cap (HK$m): 11,476

Market cap (US$m): 1,480

3-mth avg t’over (HK$m): 31.4

MAJOR SHAREHOLDERS

Shanghai Hua Hong 33.89%

Sino Alliance 22.97%

NEC Corp 9.58%

PRICE CHART

Source: Bloomberg

ANALYST

Jason Tsang

+852 2236 6757

[email protected]

股票报告网整理http://www.nxny.com



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Company Background

According to IBS, an independent third-party market research firm that has been studying

the wafer foundry market for over 20 years, Hua Hong was the world’s second-largest pure-

play 200mm foundry in terms of revenue in 2013. Hua Hong was also the second-largest

pure-play foundry in terms of revenue in 2013 in China with a global market share of 1.4%.

Hua Hong’s top 10 customers include smart card IC solutions providers TMC and Huada,

and Nationz, a leader in security IC solutions.

Hua Hong manufactures semiconductors for specialty applications, such as embedded non-

volatile memories (eNVM) and power discrete devices. The semiconductors that Hua Hong

manufactures are used in a wide range of end-products, including consumer electronics,

communications and computing. Hua Hong operates three fabs in Shanghai with a total

capacity of 129,000 wafers per month as of end-Mar 15 and plans to expand the capacity to

146,000 wafers and 164,000 wafers per month in 2015 and 2016 respectively.

FIGURE 1: WAFERS MADE BY HUA HONG

Source: Hua Hong, UOB Kay Hian

FIGURE 2: REVENUE BY TECH PLATFORM FIGURE 3: REVENUE BY COUNTRY



In terms of technology platform, eNVM was the main revenue driver, followed by power

discrete, analog & PM, and logic & RF in 2014. In terms of end-market, consumer electronics

used up half of the company’s products in 2014, followed by communications (27%). China

accounted for more than half of Hua Hong’s revenue in 2014 and 56.5% in 1Q15. We

believe China will continue to drive the company’s revenue due to the high demand for

eNVM, power discrete devices and Internet of Things (IoT) products.




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The Board of Hua Hong consists of nine directors – two Executive Directors, four Non-

Executive Directors and three Independent Non-Executive Directors. The board members

have much experience in the industry and some even held positions in other companies,

which may add experience to the Board.

FIGURE 4: MANAGEMENT

Name Title Experience

Fu Wenbiao

Executive Director and Chairman

Mr Fu is primarily responsible for overall management, operations and the charting and reviewing of corporate directions and strategies of our Company. Mr Fu was the factory chief of Shanghai Electrical Appliance Plastics Factory, Shanghai Electrical Engineering Mechanics Factory, Shanghai Compressor Factory and Shanghai Cable Factory, and the general manager of Shanghai Wire and Cable Group Co., Ltd. Mr Fu was also the deputy director and director of Shanghai Municipal Commission of Informatisation and the director of the Shanghai Radio Administration Bureau from 2001 to 2008. Mr Fu received his bachelor’s degree in engineering from the University of Shanghai for Science and Technology (previously known as Shanghai Mechanical Engineering Institution) and a master’s degree in economics from Fudan University. He qualified as a senior engineer in industrial automations in 1993.

Wang Yu

Executive Director and President

As president, Mr Wang was instrumental in the successful merger and restructuring. From Jan 98 to Oct 03, he was the financial department manager and director of HHNEC. From Oct 03 to Mar 10, he was the vice president and chief financial officer of HHNEC, and contributed to the set-up from construction to production of the first 200mm wafer semiconductor production line in China. Mr Wang is an independent non-executive director of Xiao Nan Guo Restaurants Holding Ltd (3666 HK). Mr Wang holds a bachelor’s degree in international trade and a master’s degree in international finance from Shanghai University of Finance and Economic.

Wang Yu Cheng

Executive Vice President and CFO

Mr Wang worked at LSI Logic Corporation in Silicon Valley, U.S. from Aug 95 to Mar 01 as the division controller in the broadband entertainment division. Before joining LSI Logic Corporation, Mr Wang was employed by Franklin Templeton Investments in the US. Mr Wang obtained a bachelor’s of science degree in industrial engineering and operations research from College of Engineering, University of California, Berkeley, and a master’s of business administration in finance and banking from the University of San Francisco.

Wang Xiaojun Fu Rao

Joint Company Secretary Joint Company Secretary

Mr Wang was a managing director of CCB International (Holdings) Ltd. He was an independent non-executive director of Guangzhou Shipyard International Company Ltd (317 HK and 600685 SH) from 2005 to 2011. He also served as an independent non-executive director of OP Financial Investments Ltd (1140.HK), Yanzhou Coal Mining Company Ltd (1171 HK, 600188 SH and YZC), NORINCO International Company Ltd (000065 SZ), China Aerospace International Holdings Ltd (31 HK), and Livzon Pharmaceutical Group (1513 HK, 000513 SZ). Mr Wang obtained a bachelor’s degree in law from the Renmin University of China in 1983 and a master of law degree from the Chinese Academy of Social Sciences in 1986. Ms Fu joined Grace Shanghai in 2007 and held various positions, including manager of the legal department and senior legal counsel. Ms Fu graduated with a bachelor’s degree in economics from Jilin University of Finance and Economics (previously Changchun Taxation College) and obtained her Juris Master’s degree from Fudan University School of Law and a master of law degree from Columbia Law School, US.


Industry

According to IBS, the global foundry industry will grow at a revenue CAGR of 7.4% from

2013 to 2020 as integrated device manufacturers (IDM) are outsourcing their wafer

manufacturing process. IBS expects the global 200mm foundry market to shrink at a CAGR

of 1.2% from 2013 to 2020. However, a CAGR of 5.2% is expected in China due to

technological advancement there, but the situation in China is different. IBS estimates

China’s 200mm foundry market to grow at a CAGR of 5.2% from 2013 to 2020 due to the

consumption growth in China’s IC industry. The robust growth in China’s foundry market is

expected to be brought about by the geographical advantage enjoyed by Chinese foundries

as many end-users (such as mobile manufactures and bank IC card manufacturers) are

located in China and this could enable foundries to interact with their customers more closely.

eNVM

eNVM products include microcontrollers (MCU) used in remote controllers, home appliances,

smart meters and smart cards, such as SIM cards, social security cards, national cards and

bank IC cards. The growth of MCUs is due to the adoption of IoT and the popularity of smart

appliances.

POWER DISCRETE DEVICES

Power discrete products include MOSFET, SJNFET and IGBT silicon chips which could be

used in home appliances, computers and automobile products. The usage of discrete

products includes overvoltage protection and improving energy efficiency.




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ANALOG & PM

Products include audio amplifier ICs for mobile products, AC-DC converter ICs for home

appliances and controller ICs for LED lighting bulbs. The LED lighting IC market is expected

to record a CAGR of 11.8% from 2013 to 2020, according to IBS.

LOGIC & RF

Logic products include memory card (SD) controllers and RF products include bluetooth

devices and electronic toll collection.

Many of Hua Hong’s peers such as SMIC and TSMC (2330 TT) are developing more

advanced technology nodes (28/22nm) while Hua Hong’s most advanced technology node is

only 90nm. Moreover, Hua Hong does not have plans to build its own 300mm capacity fabs.

We view this as a disadvantage to Hua Hong in terms of technology advancement but it

does not mean Hua Hong does not have any competitive advantage.

As Hua Hong specialises in manufacturing semiconductors used in eNVM products and

eNVM products need to be modified frequently and less mask layers are required in

production, it is more cost effective for such ICs to be manufactured using 200mm wafers.

Due to the high demand for 200mm wafers in China and Hua Hong is the largest pure-play

8-inch foundry in China, Hua Hong can enjoy geographical advantage over Vanguard (5347

TT), a Taiwan foundry. Moreover, Hua Hong has a 17.72% stake in Huali, a foundry

producing 300mm wafers with advanced technology nodes. Hua Hong may buy Huali if there

is a sudden shift in demand for 300mm wafers or more advanced technology nodes.

Currently, management has no plans to raise its stake in Huali.

On the demand side, the lifespan of 200mm wafers is expected to last at least another five

years. According to IBS, the 200mm wafer market would still be growing at a positive rate,

meaning the market does not expect a near-term fading out of 200mm wafers. With the wide

usage of 200mm wafers on eNVM products, we also do not expect a near-term fading out.

The 150mm wafers faded out in the 2000s when production of the 300mm wafers started.

The fading out of 200mm wafers will likely come from a transition of 300mm wafers to

450mm wafers, looking at the experience of 150mm wafers. Industry players do not yet have

an exact date of the transition due to the costly investment needed to produce 450mm

wafers. Even though the 150mm wafers have faded out, some foundries are still producing

150mm wafers. It may be too early to assess the negative effect if the 200mm wafers were

to fade out.

On the supply side, although equipment suppliers no longer manufacture certain equipment

for 200mm wafers, the manufacturers will work with foundries to extend the life of the

equipment for another 10 to 15 years.

As Hua Hong is the world’s second-largest pure-play 200mm foundry, the negative effect

from both the demand and supply sides should be lesser. Together with its sufficient cash on

hand, Hua Hong should be able to cope with changes in the industry.




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Investment Highlights

Hua Hong’s semiconductors are use in a wide range of products.

a) Consumer Electronics: Microcontrollers, motor drives, touch control devices, power

management, battery management and LED displays.

b) Communications: SIM cards, mobile payment devices, RF frontend, power

management, battery management, displays and MEMS and magnetic sensors.

c) Computing: PC peripherals, power supplies, adapters, power management, battery

management, LED backlights.

d) Industrial and automobile: Smart grids, motor drives, high-speed trains, bank cards,

RFID cards, microcontrollers, engine control units, safety devices, infotainment

systems, battery management, oil pump system and machine-to-machine.

FIGURE 5: REVENUE BY END MARKET


According to IBS, the growth of the 200mm foundry market in China will outpace overall

growth due to the increase in demand in the following markets:

a) Smart cards: This market includes ICs used in SIM cards, bank cards, mobile

payment devices, ID cards and social security cards. The IBS estimated the smart

card IC market to grow at a CAGR of 10.6% from 2013 to 2020, with China to

record a CAGR of 16% over the same period.

b) MCU: This market will be driven by growing demand from smart appliances, the

automobile segment and the global adoption of IoT. IBS expects the MCU market

to record a CAGR of 5.5% from 2013 to 2020 while the IoT market to record a

CAGR of 13.4%.

c) Automobile: IBS expects the automobile IC market to chalk up a CAGR of 9.3%

from 2013 to 2020, driven by the need for higher fuel efficiency and improvement in

safety.

d) RF: Products include Wi-Fi, Bluetooth, and 3G and 4G amplifiers. According to IBS,

this market is expected to grow at a CAGR of 11.7% from 2013 to 2020

e) LED lighting: IBS expects this market to grow at a CAGR of 11.8% from 2013 to

2020.

According to IBS, most of the 200mm wafer foundry fabrication plants globally are operating

at nearly full capacity. We expect Hua Hong’s top-line to grow as fast as capacity expansion,

given the strong demand for 200mm wafers.

The consumer electronics and communications market is becoming Hua Hong’s most

important source of income. Due to China’s advocate of “Internet+”, IoT will become more

popular and the increase in demand of related devices (mainly microcontroller in smart

devices) may benefit Hua Hong. Moreover, contactless payment and non-cash payment will




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also drive demand for Hua Hong’s products (mainly SIM cards and mobile payment devices).

Demand for power discrete products is also rising due to the importance of energy efficiency.

Hua Hong is also well positioned to capture the fast growing smart card market in China as it

shipped nearly half of the global market share for chips used in SIM cards in 2014. The

transition of magnetic-strip bank cards to IC cards could also bring opportunities for the

company.

According to management, the company’s technology development plan is on track. The

90nm process technology for eNVM and logic platforms, which will be used in smart cards

and consumer products, will start production in 2H15. Hua Hong will continue to enhance the

Super Junction technology capability in order to provide clients with low-cost and high-

performance solutions.

Supportive government policies. The semiconductor industry had been identified as one

of the key strategic industries in the 12th Five-Year Plan. As the 13th Five-Year Plan will

start in 2016, the semiconductor industry may receive further support from the government.

In Jun 14, the State Council published the “National Guidelines for Development and

Promotion of the IC Industry” to support the growth of the IC industry in China. The guideline

aims for the IC industry is to achieve a CAGR of 20% for 2014-20. This is an aggressive

target as the CAGR was only 26.5% from 2001 to 2013.

In Sep 14, the Ministry of Industry and Information Technology (MIIT) started a National

Integrated Circuit Industry Investment Fund, which could reach Rmb120b, to support the IC

industry in China. The fund invested in SMIC in Feb 15, a China-based foundry, and the fifth-

largest foundry globally in 2013. This proved the government is supportive of the industry in

both words and action. More supportive policies may come in the future, which will lead to

high demand for China-made semiconductors, hence benefiting Hua Hong. Moreover, being

the second-largest foundry in China, Hua Hong may receive investment from the fund.

The concepts of “Made in China 2025” and “Internet+” may also benefit Hua Hong. “Made in

China 2025” is a plan to transform China from being the “world’s factory” into a

manufacturing powerhouse. Some 9-10 tasks and 10 key industries have been identified and

the plan aims to use innovation to improve the competitiveness of China’s manufacturing

industry. These key industries may be a new source of demand for semiconductors.

“Internet+” is also benefiting Hua Hong as more and more devices are connected to the

internet and Hua Hong is focusing on IoT as one of its key markets.

In 2011, the government had made plans to replace magnetic-strip bank cards with financial

IC cards with the issuance of “Opinions Regarding The Promotion Of Financial Smart Card”《中國人民銀行關於推進金融 IC卡應用工作的意見. From 2015, banks in China should only

issue IC cards instead of magnetic-strip cards. The People’s Bank of China (PBOC)

announced in 1Q15 there were around 5b bank cards in China, of which 4.54b were debit

cards and 424m were credit cards. On average, each person owns only 0.31 credit cards.

According to creditcards.com, the mean number of credit cards owned per person was 3.7 in

the US in 2014. The figure in China suggests the credit card penetration rate is still very low

and the market potential is still huge. Moreover, the government encourages the use of local

ICs due to national security reasons. Bank IC cards are now preparing to use domestic ICs

rather than imported ones. Currently, over 90% of the ICs in the bank IC cards are provided

by a Holland semiconductor NXP. As Hua Hong has the technology to provide chips for

China’s IC card makers, Hua Hong should be able to capture market share from NXP.

The PBOC had established a PBOC 3.0 standard for bank IC cards in 2013 due to the

popularity of contactless payments in China. According to management, Hua Hong is the

only foundry which meets the PBOC 3.0 standard. As it takes time for foreign ICs to migrate

to local ICs which includes the testing of products, management expects to grab 10-15% of

the market share of bank ICs in 2015 and to become the dominant player from 2016.

Moreover, the State Council announced that foreign-bank card operators including Visa and

Master can apply for a bank card clearing licence starting 1 Jun 15. This could allow global

players to gain market share from UnionPay and further encourage the growth of credit

cards in China, which is beneficial to Hua Hong.




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A good start in 2015. Revenue of Hua Hong grew 12.5% yoy to US$166m. Gross margin

improved 140bp qoq and 500bp yoy to 30.5% due to strong demand and higher utilisation of

production facilities. Net profit increased 22.3% yoy to US$24.8m. Utilisation rate improved

to 96.1% in 1Q15 (4Q14: 93.3%, 1Q14: 86.3%). Management guided a 2% growth in

revenue in 2Q15 and gross margin to maintain at current level. Hua Hong’s performance is

better than Vanguard’s, another pure-play 200mm foundry listed in Taiwan, which recorded

only a 16.2% yoy growth in revenue and a 1.9% yoy growth in net profit due to the difference

in end-market mix. Around 40% of the semiconductors that Vanguard produces are used in

the slow growing computer industry while Hua Hong’s end-users are in relatively fast-

growing industries, such as smart cards.

FIGURE 6: REVENUE AND UTILISATION RATE (HUA HONG) FIGURE 7: REVENUE AND UTILISATION RATE (VANGUARD)

Source: Hua Hong, UOB Kay Hian Source: Company report, UOB Kay Hian

Active cooperation with different parties. Although Hua Hong does not own state-of-the-

art technology, it joins other parties to develop technological know-how in fast-growing end

markets.

Hua Hong is cooperating with eMemory Technology (3529 TT), a leading manufacturer of

eNVM, to develop MCU to capture the rapid growing IoT market. Hua Hong also cooperates

with iMQ Technology, a Taiwan company producing MCU products, to enter China’s white

home-appliances and smart meter markets. Hua Hong also collaborated with Lexvu, an

electronic component supplier specialised in the design and manufacturing of MEMS

sensors. Lexvu launched the world’s smallest barometer in Mar 15.

The above strategic co-operations allow Hua Hong to improve on its technological know-how

and to gain experience in developing products which suit various usage, further enhancing

its competitive advantage.




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Earnings

We expect Hua Hong’s revenue growth in 2015 and 2016 to be driven by: a) high demand in

key segments which will drive up utilisation rate and gross margin, b) capacity expansion

which allows Hua Hong to receive more orders, and c) potential M&As as Hua Hong has a

large cash hoard boosted by its IPO proceeds.

FIGURE 8: ASP OF WAFERS


Revenue is mainly driven by the amount of shipments. As management did not give out

guidance on the number of shipments for 2015 and 2016, we assume revenue will grow as

fast as capacity growth. Management guided fabs capacity will expand to 146,000 and

164,000 wafers per month in 2015 and 2016, up 13.2% yoy and 12.3% yoy respectively.

This would result in shipments of 1.58m and 1.78m in 2015 and 2016 respectively. The ASP

of wafers had dropping steadily from 2011 to 2014. We assume the ASP will continue to

drop by around 3% each in 2015 and 2016, which is the average decline in the last three

years. Hence, we forecast revenue of US$723m and US$787m in 2015 and 2016

respectively. We expect gross margin to drop from 30.5% in 1Q15 to 30% in 2015 and

29.5% in 2016, due to the increase in depreciation after the completion of its expansion.

FIGURE 9: COST BREAKDOWN


Administration expense is the main cost item for Hua Hong. With the absence of one-off

listing expenses, we expect administration cost to drop in 2015 and 2016. We expect the

company will not borrow new money as it could fund its expansion by using the IPO

proceeds and it does not have any other new plans yet. This will lead to a drop in finance

cost as it pays down debts.

For 2015 and 2016, management expects capital expenditure at US$229m and less than

US$200m, and depreciation at US$79m and US$100m respectively.

We expect Hua Hong’s net profit to rise 14.7% yoy and 14.1% yoy to US$106m and

US$121m in 2015 and 2016 respectively. Net margin should improve to 15.6% (1Q15:




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14.9%, 2014: 14%), mainly due to relatively smaller depreciation in terms of revenue. A

higher average utilisation rate will further raise revenue, gross margin and net margin.

Valuation

Hua Hong is trading at 12.1x 2016F PE and 0.88x 2016F P/B, a discount of 32.9% and 26%

respectively to Hong Kong-listed SMIC.

We value Hua Hong at a discount of 15% to SMIC’s 2016F P/B due to its smaller size and its

technology know-how is also not as advanced as SMIC’s. Applying a 1.01x 2016F P/B for

Hua Hong, we arrive at our target price of HK$12.68.

FIGURE 10: PEER COMPARISON Company

Market Cap (US$m)

2015F PE (x)

2016F PE (x)

2015F P/B (x)

2016F P/B (x)

TSMC (2330 TT) 119,730 11.93 11.19 2.97 2.54

UMC (2303 TT) 5,390.3 10.87 10.80 0.72 0.69

Vanguard (5347 TT) 2,558.1 14.99 12.81 2.67 2.51

SMIC (981 HK)

Average

4,520.2 18.49

14.07

18.49

13.32

1.25

1.90

1.19

1.73 Source: Bloomberg, UOB Kay Hian (HK)

Risks

a) Breakdown in production facilities.

b) Failure to meet expansion target.

c) Slower-than-expected nationalisation of ICs.

d) Sudden advancement in technology leading to a drop in demand for 200mm wafers.




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PROFIT & LOSS

Year to 31 Dec (US$’000) 2012 2013 2014 2015F 2016F

Revenue, net 571,480 587,719 664,586 723,544 786,622

Operating expenses (486,880) (497,427) (531,638) (573,713) (627,793)

EBIT 84,600 90,292 132,948 149,831 158,829

Net interest income/(expense) (16,928) (16,479) (12,136) (8,382) (5,540)

Pre-tax profit 67,672 73,813 120,812 141,449 153,290

Tax (7,993) (8,964) (27,722) (28,290) (30,658)

Net profit(rep./act.) 59,679 64,849 93,090 113,159 122,632

Net profit(adj.) 59,679 64,849 93,090 113,159 122,632

Deprec. & amort. 125,320 87,514 71,613 79,000 100,000

EBITDA 209,920 177,806 204,561 228,831 258,829

Per share data (US$ cent) EPS - diluted 0.06 0.06 0.09 0.11 0.12

Reported EPS - diluted 0.07 0.08 0.11 0.11 0.12

Book value per shares (BVPS) 0.93 1.02 1.42 1.52 1.62

Dividend per share (DPS) 0 0 0 0 0

BALANCE SHEET

Year to 31 Dec (US$’000) 2012 2013 2014 2015F 2016F

Cash/Near cash equiv. 218,170 317,045 646,773 549,101 561,263

Accounts receivable/debtors 105,158 105,525 107,509 115,767 125,860

Other current assets 203,106 181,216 146,756 150,297 154,127

Current assets 526,434 603,786 901,038 815,165 841,250

Fixed assets 798,780 770,402 760,159 861,659 884,159

Other non-current tangible assets 282,760 273,429 328,872 343,461 343,960

Total non-current assets 1,081,540 1,043,831 1,089,031 1,205,120 1,228,119

Total assets 1,607,974 1,647,617 1,990,069 2,020,285 2,069,369

Accounts payable/creditors 57,299 60,227 63,532 66,709 70,044

Short-term debt/borrowings 99,750 101,513 81,690 62,079 60,000

Other current liabilities 157,234 162,119 184,349 188,541 191,495

Current liabilities 314,283 323,859 329,571 317,329 321,539

Long-term debt 317,981 265,012 183,031 120,952 60,952

Other non-current liabilities 11,953 2,527 11,988 11,988 11,988

Total non-current liabilities 329,934 267,539 195,019 132,940 72,940

Total liabilities 644,217 591,398 524,590 450,269 394,479

Minority interest - accumulated 0 0 0 0 0

Shareholders' equity 963,757 1,056,219 1,465,479 1,570,016 1,674,890

Liabilities and shareholders' funds 1,607,974 1,647,617 1,990,069 2,020,285 2,069,369




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CASH FLOW

Year to 31 Dec (US$’000) 2012 2013 2014 2015F 2016F

Operating cashflows 168,932 184,234 221,740 221,901 251,280

Pre-tax profit 67,672 70,813 120,812 141,449 153,290

Tax (4,547) (8,302) (8,100) (28,100) (30,460)

Deprec. & amort. 125,320 87,514 71,613 79,000 100,000

Working capital changes (42,843) 12,871 19,312 21,706 23,599

Others 23,330 24,338 18,103 7,846 4,851

Cash from investing activities (149,560) (16,754) (96,930) (228,500) (170,500)

Capex (59,400) (34,800) (80,200) (233,000) (175,000)

Others (90,160) 18,046 (16,730) 4,500 4,500

Cash from financing activities (130,644) (72,059) 206,731 (90,073) (67,619)

Dividend payments 0 0 0 0 0

Issue of shares 0 0 331,730 0 0

Proceeds from borrowings (44,479) (55,580) (101,301) (81,690) (62,079)

Others/interest paid (86,165) (16,479) (23,698) (8,383) (5,540)

Net increase/(decrease) in cash (111,272) 95,421 331,541 (96,671) 13,162

Beginning cash 329,738 218,170 317,045 646,773 549,102

Changes due to forex impact 296 3,454 (1,813) (1,000) (1,000)

End cash 218,170 317,045 646,773 549,102 561,263

KEY METRICS

Year to 31 Dec (%) 2012 2013 2014 2015F 2016F

Growth Turnover (6.3%) 2.8% 13.1% 8.9% 8.7%

EBITDA (18.6%) (15.3%) 15.0% 11.8% 13.1%

Pre-tax profit (36.5%) 9.1% 63.7% 17.1% 8.4%

Net profit (37.6%) 8.7% 43.5% 21.6% 8.4%

Net profit (adj.) (37.6%) 8.7% 43.5% 21.6% 8.4%

EPS (37.6%) 8.7% 43.5% 21.6% 8.4%

Profitability EBITDA margin 36.7% 30.3% 30.8% 31.6% 32.9%

EBIT margin 14.8% 15.4% 20.0% 20.7% 20.2%

Gross margin 20.6% 21.9% 29.8% 30.0% 29.5%

Pre-tax margin 11.8% 12.6% 18.2% 19.5% 19.5%

Net margin 10.4% 11.0% 14.0% 15.6% 15.6%

ROE 6.2% 6.1% 6.4% 7.2% 7.3%

ROA 3.7% 3.9% 4.7% 5.6% 5.9%

ROIC 6.3% 7.2% 9.4% 9.9% 10.2%

RONTA 5.9% 6.2% 7.0% 8.3% 8.7%

Leverage Interest cover (x) 5x 5.5x 11.0x 17.9x 28.7x

Debt to total capital 35.5 33.1 24.2 15.1 9.7

Debt to equity 43.3 34.7 18.1 11.7 7.2

Net debt/(cash) to equity 20.7 4.7 (26.1) (23.3) (26.3)

Current ratio (x) 1.68x 1.86x 2.73x 2.57x 2.62x





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H O N G K O N G

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H O N G K O N G

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