Kstar Alert:Positive 2Q17preliminary results on faster overseas growth

类型：公司研究机构：德意志银行研究员：Frank Lin,Birdy Lu 日期：2017-07-24

Ensured China UPS demand which bodes well for local king and ODM.

    Kstar reported stronger 2Q17 operating results thanks to 1) organic integratedUPS demand in China, and 2) faster UPS market share gain in emergingcountries. The company is confident of delivering 20%+ earnings CAGR in2017-2019E propelled by continued UPS strength and PRC governmentsupport. The positive statement echoes our thesis that leading local UPSbrands is gaining market share from international brands (Emerson, APC) inChina (especially in 10kVA+ above segment). We also see rising outsourcingrate from international brands to qualified ODM (eg. Voltronic, Buy, TWD525)as a cost effective way to compete local kings. We believe Kstar (leading localbrand) and Voltronic (leading ODM) will both benefit from the trend, reiteratingBuy rating on both names.

    Recovered 2Q17 momentum stemming from faster overseas expansion.

    Kstar released positive 2Q17 preliminary results. 2Q17 earnings of RMB99mn(+98% QoQ, +52% YoY) on revenue of RMB677mn (+70% QoQ, +49% YoY).

    Operating profit of RMB106mn (+78% QoQ, +62% YoY) was 40% higher thanour and consensus estimates. Management attributes the strength to strongeroverseas UPS sales. Kstar is promoting its own brand UPS in emerging regionsproactively since 2016. By leveraging its high cost/performance product, thecompany is gaining market share in in Africa and South East Asia aggressively.

    Integrated UPS strength + promotion from government.

    Kstar enjoys strong integrated UPS growth driven by robust IDC setup inChina. The company indicates that 10+kVA UPS may claim for 60-70% of totalon-line UPS sales in 2017 vs. 45% in 2016. Kstar also received governmentsubsidies and tax benefit in 2Q17 (close to RMB10-15mn) for their 20-50kVAon-line UPS development. As the largest PRC UPS brands, which is gainingmarket share aggressively in domestic market, Kstar is also benefiting fromgovernment’s promotion of localized UPS manufacturing.

    Valuation and risks.

    Our target price of RMB16.4 is still based on 30x 2017E P/E, or 1.0x PEG (vs.

    regional peers’ 20-30x P/E, or 1.0x PEG). Risk: weaker-than-expected ChinaUPS demand, price competition, weaker EV proliferation.