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报告摘要

Market Report Summary - 10 June 2015

Core Content Overview

This report provides an analysis of China Tianyi Holdings (756.HK), focusing on its new product launch, market potential, financial performance, and valuation. It also includes updates on the TMT sector, major equity indices, and commodity prices.

China Tianyi Holdings: New Product; New Start

Company Profile

Founded in 1993 and listed in 2008 on the Hong Kong Stock Exchange.
A vertically integrated orange company that operates from orange plantation to orange products.
As of December 2014, it had 76,000 mu of self-owned orange plantations and four processing plants in major citrus-growing areas (Chongqing, Fujian, Hunan).
Previously focused on Frozen Concentrated Orange Juice (FCOJ), now transitioning to Not-from-Concentrate Orange Juice (NFCOJ).

NFCOJ Strategy

Launched under the "Summi" brand in March 2015.
NFCOJ is considered a high-end, more natural product compared to FCOJ, which requires more processing.
The product is expected to have greater growth potential due to rising consumer awareness of health and food safety in China.

Market Potential

China's orange juice market is underdeveloped with per capita consumption at 85g in 2013, compared to a global average of 272g.
The company expects per capita NFCOJ consumption in China to reach 0.2 liters by 2020, implying a CAGR of 82%.

Financial Benefits

NFCOJ is expected to have less price fluctuation and higher gross margins due to its premium positioning.
It requires only 2 tons of orange per liter, compared to 13 tons for FCOJ, significantly improving cost efficiency.
The selling price of NFCOJ is estimated to be RMB20/liter, higher than RMB18/liter for FCOJ.

Share Placement as a Safeguard

In February 2014, Tianyi issued 104 million shares to Templeton at HK$1.12.
The chairman, Mr. Sin, is obligated to compensate if Templeton sells shares below HK$1.7 within 3 months of the transaction.
The placement is seen as a support mechanism for the stock price, especially if it falls below 15.1x FY16E PE.
Recent share buybacks by Mr. Sin through his holding company, Key Wise, further reinforce this view.

Valuation

The company currently trades at 13x FY16E PE (approximately 12-month forward).
Despite a 48% rally in the past month, the valuation is still considered attractive due to the growth potential of the NFCOJ business.
Only one analyst's estimate is available on Bloomberg, making the valuation relatively uncertain.

TMT Sector Highlights

Key Developments

Aliyun collaborates with overseas providers to enhance cloud ecosystem.
Yufeng Capital invests in Wandong, a medical equipment maker.
Samsung plans to launch mobile payment services in China and Europe.
A Chinese social e-commerce startup raises $10M+ from GGV Capital.
Mobvoi launches a smartwatch powered by its custom Android ROM 'Ticwear'.

Market Performance

Hong Kong Equities

Hang Seng Index (HSI): 26,990 (down 1.2%)
H-share Index: 13,862 (down 1.8%)
Turnover: HK$166.9 billion (up 10.5%)
Free float %: 56.75%
Templeton's holding %: 7.71%

China Equities

CSI 300 Index: 5,317 (down 0.7%)
Shanghai Composite Index: 17,399 (down 0.3%)
Shenzhen Composite Index: 2,995 (down 0.1%)

Asian Equities

Nikkei 225: 20,096 (down 1.8%)
Korea KOSPI: 2,064 (down 0.1%)
Taiwan TWSE: 9,192 (down 1.9%)
India Sensex 30: 26,481 (down 0.2%)

US/European Equities

DJIA: 17,764 (flat)
S&P 500: 2,080 (flat)
NASDAQ: 5,014 (down 0.2%)
UK FTSE 100: 6,754 (down 0.5%)
Germany DAX: 11,001 (down 0.6%)
France CAC40: 4,850 (down 0.2%)

Key Financial Metrics

Income Statement (YE 30 June)

Net Income: RMB116.9 million in FY14.
EPS: RMB0.09.
Diluted EPS: RMB0.09.
Operating Profit: RMB132.6 million in FY14.

Balance Sheet (YE 30 June)

Total Assets: RMB2,262.3 million in FY14.
Total Liabilities: RMB700.6 million.
Total Equity: RMB1,561.6 million.

Cash Flow

Cash from Operations: RMB-11.1 million in FY14.
Capital Expenditures: RMB-191.0 million.
Net Changes in Cash: RMB-7.3 million.

Investment Risks

Agricultural Risks

Exposed to weather and disease risks in Brazil, the US, and China.
Concentration risk: 92.9% of revenue comes from five major customers (Coca Cola, Wahaha, etc.).

Biological Assets and Valuation

Biological assets (immature oranges) are a minor portion of total assets but contribute 43.7% to net profit.
The company does not own the orange trees, thus reducing exposure to price volatility of biological assets.

Conclusion

China Tianyi Holdings is transitioning from FCOJ to NFCOJ, targeting a more premium market with better pricing stability and margin potential. The company's vertical integration and expanding plantation capacity support long-term growth. While agricultural risks remain, the current valuation of 13x FY16E PE is seen as attractive. The share placement and recent buybacks offer mid-term price support, and the NFCOJ market is expected to grow significantly. The TMT sector also showed key developments, with cloud computing, mobile payments, and smart devices leading the way.