Qingdao Kingking Applied Chemistry:Stretching on Cosmetic Industry Chain发布时间：2016-05-08 研究机构：兴业证券
Qingdao Kingking Applied Chemistry Co., Ltd. designs, manufactures and exports wax products,glassworks, epoxy resin based products and craftworks
Qingdao Kingking Applied Chemistry Co., Ltd. announced it made CNY 1.48 billion in revenue in2015, up 20.7% YoY. The net profit attributable to shareholders stood at CNY 91 million, anincrease of 84.6% compared to a year earlier. (It rose by 85.4% YoY after deducting non‐recurringprofits and losses.) EPS was CNY 0.28.
Operating revenue of 16Q1 surged by 161.74% YoY to CNY 466. The net profit reached CNY 15million, up 46.02% YoY. (Net profit after deducting non‐recurring profits and losses grew by 42.2%YoY) EPS was 0.047.
Qingdao Kingking’s wholly‐owned industry chain management subsidiary is going to obtain 60%stake in Anhui Hong Fang through investing in CNY 138 million. The target company promisedthat revenue of 2016, 2017 and 2018 will be no less than CNY 112 million, CNY 280 million andCNY 360 million respectively (net profit no less than CNY 9 million in 2016, CNY 20 million in 2017and CNY 25 million in 2018).
Cosmetic business achieved fast expansion (353% YoY) after incorporating earnings results ofShanghai Yu Feng. Traditional businesses managed to sustain revenue level (candle productiondown 4.1% YoY, oil trading up 16% YoY). Gross profit margin and net profit margin increased 3.4percentage points and 3.1 percentage points with more profitable cosmetic products taking up alarger proportion in total sales. Swing of RMB price and raw materials for manufacturing candlesgetting cheaper helped reduce losses of traditional business.
Qingdao Kingking acquired Anhui Hong Fang to step into Anhui market and it has bought offlinecosmetics distributors previously in Yunnan, Shandong, Sichuan and Zhejiang, demonstrating theCompany’s firm resolve in integrating channel resources to form into a comprehensive salesnetwork. Considering the spending (CNY 138 million for 60% stake) and earnings commitment(CNY 15 million net profit) the target company made, we think it is a reasonable price (15x PE).
Earnings Forecast and Investment Recommendations: (1) getting involved in R&D, productmanufacture, brand operation of cosmetic industry (2) launched ESOP and industrial fund. Wemade EPS forecast for the Company at CNY 0.48 in 2016, CNY 0.60 in 2017, implying 52x/41x PE(excluding profit of Anhui Hong Fang). We gave OUTPERFORM rating for the Company.
Potential Risks: M&A generated worse‐than‐expected results, progress of M&A is slower‐thanexpected.