青岛金王(002094.CN)

Qingdao Kingking Applied Chemistry:Transformation into cosmetics boosts earnings

时间:15-07-31 00:00    来源:

Earnings likely to surge 91% YoY in 1H15。

The company preannounced that 1H15 revenue would drop 14.67% YoY to Rmb489mn while net profit would surge91.12% YoY to Rmb36.14mn or Rmb0.112/sh, largely in line, mainly driven by the consolidation of Shanghai Yuefeng.

Trends to watch。

ESOP shows confidence. The company plans to launch an ESOP with no more than Rmb100mn, which will be dividedinto three classes. The Rmb10mn secondary B-class shares will be acquired by >400 employees and Rmb40mnsecondary C-class shares by Kingking Group. The two classes offer guarantees for A-class, showing confidence.

Steady transformation into cosmetics; consolidation of acquired project boosted earnings. Kingkinginvested in Hangzhou UCO, Guangzhou Ridgepole and Shanghai Yuefeng Cosmetics (whose consolidation in 1H15contributed earnings growth). As a holding company, it will continue to strengthen development and promotion of itsproprietary brands, integrate resources and explore cooperation opportunities with domestic & overseas brands anddistribution channels.

Rare internet-based cosmetics business. Kingking holds a 37% stake in Hangzhou UCO, one of the fastestgrowing players and most visible beneficiaries in the internet cosmetics value chain. The rapid growth of its onlinecosmetics distribution business should ensure exponential revenue growth. By selling a 37% stake to Kingking, UCO willlikely gain chances to consolidate resources along the value chain and increase the success rate of cosmetics brandcultivation, positive to profit margin and earnings growth.

Valuation and recommendation。

We tentatively ignore the external expansion expectations as demand for candles and oil products declined. We cut2015/16e EPS by 3%/3% to Rmb0.25/Rmb0.32. We are bullish on Kingking’s role as the rare internet-basedcosmetics play, maintain BUY. The stock is now trading at 60x/48x 2015/16e P/E. Considering the cut in earningsforecast and falling market valuation range, we trim TP by 20% to Rmb20, implying 63x 2016e P/E.

Risks。

Expansion of cosmetics business misses expectation; falling average valuation.