2015年11月3日
全球投资研究 中国：资本品
Exhibit 7: Our base case, bull case and bear case valuations.
Bear case valuation implied upside/downside (2011-2014 median val ratio on 15E-17E CROCI)Bull case implied upside/downside (10yr blue sky valuation discounted to 2016E)GS base case 12mth TP implied upside/downside1200?`@ %0%-20%-40%-60%-80%Han's LaserInovance (Buy)Huagong TechSTEP ElectricSiasun RobotEstun(Buy*)(Neutral)(Neutral)(Neutral)Automation(Sell)*Conviction List Source: Gao Hua Securities Research.
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2015年11月3日
中国：资本品
Valuation methodology: Using EV/GCI vs. CROCI/WACC framework
全球投资研究 Base case: 2016E cash return based valuation to derive our 12-month TP
We use an EV/GCI vs. CROCI/WACC valuation framework (Director’s Cut) to derive our 12-month target prices. The Director’s Cut methodology considers how the market values the cash invested in a business (EV/GCI) relative to the returns (value) created by the
company from those assets (CROCI/WACC). This implies that the market expects stocks above the regression line to see accelerated returns relative to the sector, or else are overvalued relative to their cash returns and as such may represent good potential selling opportunities and vice-versa. The underlying assumption in the Director’s Cut basic framework is that a company’s ratio will converge with the sector average over the long term as under/overvaluations are arbitraged away.
We initiate Han’s Laser/Huagong Tech/Estun with this report. We forecast average 2015E-2017E CROCI of 22.9% for Han’s Laser,
comparable to Inovance, which we forecast at 25.3%, ranking as the top CROCI profile among our automation names and onshore
machinery names (Exhibit 53). Han’s improving CROCI in 2015E-2017E from an average of 19.5% during 2011-2014 is mainly due to 1) smartphone upgrade demand as well as newly obtained lithium battery welding orders to drive up high-margin small power equipment contribution and growth; 2) slightly improving SG&A after streamlining multiple non-core businesses since 2010.
Estun was listed only in March 2015, so it has a short trading history. We forecast CROCI dilution to 13.1% in 2015E-2017E, from 22.4% before the IPO, much lower than its closest peer Siasun given its inferior scale.
We set a 2016E target cash return multiple at 4.0X for onshore automation stocks and apply a 35% discount for Han’s, a 5% premium for Inovance, a 5% discount for Huagong, a 10% discount for STEP, a 70% premium for Siasun and a 60% premium for Estun (Exhibit 57) Our 12-month target price of Rmb32.5/16.1/28.8 for Han’s/Huagong/Estun implies 31X/60X/81X 2016E P/E compared to an historical
average of 23X/49X/44X (for Estun, we refer to Siasun’s P/E trading history) and is equal to +29%/-9%/-49% from the current share price. We revise up our 12-month target prices for Inovance/STEP/Siasun by 34%/27%/46% with revised sector cash return multiple, resulting in +27%/-18%/-29% upside/downside.
Bull case: We test our 10-year blue sky valuation discounted to 2016E
By trading at an average 4.3X 2016E EV/GCI vs. CROCI/WACC, and trending higher from an average 2.5X during 2011-2014, valuations for the sector may reflect long-run prospects rather than the 2016E-2017E CROCI/earnings outlook. This is due to the longer-term visibility
stemming from the government’s 10-year blueprint to push forward intelligent manufacturing and past experience from DM as the benchmark. From 4Q15-2016, given that both the central and local governments may introduce more concrete action plans and supporting policies in
their 13th
FYP to add further visibility to the industry outlook, we test a 10 year blue sky valuation by assuming a 2025E sector cash return multiple of 1X, in line with current trading level for global peers (Exhibit 58) and discount 2025E enterprise value to 2016E with time value of WACC under the likely maximum DACF growth during 2015E-2025E:
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2015年11月3日
全球投资研究 中国：资本品
?
We apply 2015E-2025E robots/laser/CNC industry demand CAGR to each company’s 2016E revenue exposure to the structural
opportunity and the maximum growth contributed by foreseeable segment expansion and pace of the market share gain to derive the blue sky topline growth.
?
We benchmark each company’s EBIT margin with global peers. For instance, we assume Chinese firms currently with Q1 2015E-2017E CROCI (Inovance/Han’s/Siasun) to reach the level of global peers with Q1 2015E-2017E CROCI (50% for Keyence during 2004-2014 and 35% for Fanuc during 2004-2014). We assume the smaller names Huagong/STEP/Estun to reach the level of global peers with Q2 2015E-2017E CROCI (avg. 20% during 2004-2014)
?
We see an average 49% upside for the sector if the 10 year blue sky valuation is realized in 2016E, while on the stock level, the upside has been largely factored in for companies like Estun. With the current trading 2016E cash return multiple for each stock, the market is assuming Han’s/Inovance/Huagong/STEP/Siasun/Estun could deliver 8%/13%/17%/18%/28%/33% DACF CAGR in 2016E-2025E.
Bear case: 2016E-17E earnings path unlikely to be smooth for selective stocks
By forecasting 5%/14%/18% lower than consensus earnings in 2015E-2017E for the sector on average, we expect the 2016E-2017E earnings growth trajectory is unlikely to be smooth as the blue sky scenario suggests with a continued downstream capex headwind. We therefore test our bear case valuation under 2011-2014 average cash return multiple for each stock with our 2015E-2017E CROCI forecasts, which implies 40% average downside for the sector on average, led by Huagong/STEP/Siasun and Estun.
Weighing risk/reward, we prefer Han’s, remain Buy on Inovance, Sell on over-valued Estun
We initiate on Han’s with a Buy, and add it to our Conviction List given it has 29% upside to our TP:
1) 1st
quartile CROCI industry leader with a solid track record in boosting its market share (1.4% in 2006 to 7.7% in 2014 as measured
against the global market with revenue CACR of 26% in 2006-2014 outpacing China’s laser market growth of 22% during the same period) 2) Poised to capture growth opportunities from short cycle smartphone capex and lithium battery welding orders (c.45% revenue in
2016E); 3) Strong R&D focus in absolute $ amount to help a) substitute high power fiber laser from foreign brands (expected from 2017E) and b)
tap into Additive Manufacturing & 3D detection/LIDAR. 4) 24.3X/17.7X 2016E/2017E P/E, most attractive among our coverage. ? Remain Buy on Inovance with sustained EV growth, and likely sustaining strong momentum into 2016E. However, we remove it from
our Conviction List given it has less upside.
? We are cautious on small robotics names, so we are Sell on over-valued CNC/robotics firm Estun given downstream headwinds like the challenging outlook for metal forming machine tools production, and the company’s earnings risk.
?
We are Neutral on robotics leader Siasun given its rich valuations, and Huagong Tech with deteriorating CROCI that is likely receding to its key competitor Han’s. Upgrade STEP to Neutral from Sell after the recent underperformance.
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2015年11月3日
中国：资本品
Intelligent manufacturing: A top priority for China’s “Manufacturing 2025” plan
全球投资研究 Urgent need to upgrade China’s manufacturing industry
On the face of it, China’s giant manufacturing sector is suffering with value-added yoy growth slowing from 18.3% in 2010 to 7.0% in the first nine months of 2015 (Exhibit 9). It is facing three major challenges:
? Investment and export growth is slowing down; ? Labor costs are continuing to rise;
?
Resource and environmental constraints are adding extra pain.
But much of the problem is that China is only midway through industrialization and therefore dealing with low productivity levels. While its manufacturing value-added (MVA) level reached US$3.2trn in 2014, making it the largest in the world and contributing a fifth to global MVA, productivity was only on a par with US and Japan’s levels in the 1980s, and Korea in the 2000s (according to our calculations - see Exhibit 10). Even today, the level stands at 28% of the US and 39% of Japan, Germany and Korea in 2014, revealing a large gap with developed countries.
Other emerging-markets are also trying to catch up, while developing countries are re-shoring factories back home, adding another impetus for China to move up the manufacturing value curve and boost its comparative advantage.
But seeking to boost China’s competitiveness, the central government in May announced “Manufacturing 2025”, the first 10-year action plan to transform China’s manufacturing industry from a “resource-based, pollution-heavy, low value-added” sector to “innovation-driven,
environmental friendly, and high value-added”. On Sept 29, the State Council and Ministry of Industry and Information Technology (MIIT) jointly announced the road map for 10 focus industry areas that are targeted to be upgraded:
1. New generation information technology 2. High-end machine tools & Robots 3. Aerospace & aviation technology
4. Marine engineering equipment & high-tech vessel 5. Advanced rail transportation equipment 6. New energy vehicles
7. Electric power equipment
8. Agricultural machinery equipment 9. New materials
10. Biomedical & high performance medical devices
Over the next 10 years, the government is targeting manufacturing productivity growth of 7.5%/6.5% p.a. during the 13th five year plan (FYP) and 14th FYP respectively. The value-added rate (value-added as % of output) is expected to bottom out during the 13th FYP, and to improve by 2pp by 2024, and 4pp by 2025 (Exhibit 2). This suggests that value-added yoy growth will outpace the growth of regular manufacturing output by 1.7pp p.a.
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2015年11月3日
Exhibit 8: China’s manufacturing activity continued its multi-year downward trend since 2010
China manufacturing output and value-added yoy growth%
Manufacturing output value yoy growth%
Manufacturing value added yoy growth@50% %5%0%
Source: NBS, Wind
Exhibit 10: China’s manufacturing productivity is where the US and Japan
were in the 1980s, and Korea was in the 2000s Manufacturing productivity comparison
thUS$/pplManufacturing productivity (value-added per worker)
140US 120 100JapanGermany 80Korea 60 40China 20 - Source: Wind, CEIC, Worldbank, International Labor Organization, Gao Hua Securities Research.
全球投资研究 中国：资本品
Exhibit 9: With slowing output growth, China targets lifting manufacturing productivity and over 10 years for value-added rate back to pre-GFC levels Manufacturing productivity yoy growth and value-added rate
Manufacturing value-added per worker, yoy increase% (LHS)Manufacturing value-added rate (RHS)200%%\20 25\10%targets 7.5% increase p.a15%8%during 13th FYP...and 6.5% increase p.aduring 14th FYP6%4%5%2%0%0%
Source: NBS, Wind, Central government “Manufacturing 2025” guideline
Exhibit 11: A pressing need to move up the manufacturing value curve Manufacturing value-adds contribution by industry
Auto & transportation equipmentsElectrical and electronicsGeneral & special equipmentsPlastics and chemicalsFood and beverageMetalFibers, lumber, paper and printingOthers (incl. textile, clothing etc)100%8%7%7%8%7?%4%4%6%3%4%4%5%9%4?%4%6!%4p%6`%7%?10%3%2P%9)@ A0%91%72%7 "%9%0%ChinaUSJapanKoreaChinaUSJapanKoreaUSJapanKorea20131985198520022025E199720032007201320132013
Source: Wind, CEIC, Worldbank, Gao Hua Securities Research.
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高华证券-机械：资本品：中国智能制造：相对机器人更看好激光;首次覆盖大族激光,强力买入 (摘要)
