CAL-COMP_ELECTRONICS(CCET)：NEW_ORDERS_SHINE_LIGHT_ON_GROWTH-2013-01-31.ppt

mar-12,may-12,jul-12,sep-12,nov-12,jan-12,jan-13,1.42,37.99,18.96,%,thailand,initiating coverage buy (initiation),31 january 2013 cal-comp electronics new orders shine light on growth after a meeting with ccets management, we are confident that,share price: target price:,bt3.68 bt5.00 (initiation),accelerated printer orders will drive the companys performance in fy13f-14f. as the global economy recovers, investment markets around the world are beginning to boom again and demand for office and it,chatchai jindarat chatchai.jmaybank-ke.co.th (02) 658 6300 stock information,equipment, including external hard disks, is rising. we expect ccet will see a return to profit of thb2b in fy13f for the first time in five years, posting an average cagr of 44% over fy12-14f. the share currently trades at only 0.8x p/bv and 7.1x per. we initiate coverage on ccet with a buy call and tp of thb5.00, based on 10x of per 2013 and suggesting an impressive upside of 39%. repeat orders of main clients to underpin growth. ccet client has,description:,the manufacturer for the electronics,lost market share to canon since 2009 as the global economy slowed,products. main products are computer peripheral and telecommunication products. ccet was listed on the set in january 2001.,down and smart devices boomed, dampening printer demand. as a result, ccet saw its earnings contract. however, after many ptinter producer exited the consumer printer business and the world economy,ticker : shares issued (mn) : market cap (us$mn): 3-mth avg. daily turnover (us$mn): set index: free float (%): major shareholders : kinpo electronics, inc. far eastern international bank key indicators roe annualised (%) net cash (btmn): nta/shr (btmn): interest cover (x): historical chart,ccet 2,040 511.7 1,490.82 45.37 10.86 17,169 4.6 7.8,has since bottomed out, printers orders have increased once again. new product launches have supported the radical changes in consumer lifestyles. in the light of this development, we believe ccets growth prospects over the next few years are reasonably bright. profit to grow at 44% cagr. we expect printers orders to be a mainstay of ccets earnings and estimate revenue growth of 29% yoy to thb173.6b in fy13f with another 23% yoy growth to thb230.2b in fy14f. we conservatively project fy13f gross margin at 3.7% and net profit margin at 1.2%, with net profit climbing at 44% cagr on average over fy12-14f. ccet is taking steps to lower its cogs and sg&a expenses in a bid to improve gross margins. if it succeeds, there will be additional upside to our forecasts as a 0.10% change in net profit margin will impact our earnings projections by 8.5%. share price laggard. we initiate coverage on ccet with a buy call and target price of thb5.00. the current share price is still cheaper than the book value, trading at just 0.8x p/bv and 7.1x per vs the corresponding sector average of 1.5x and 8.5x. we expect ccet to impress with a dividend yield of 2.4% for 2h12f and 5.6% for fy13f vs the sector average of 5.1%. our target price of thb5.00 is pegged at 10x fy13f per and an eps of thb0.50, implying an impressive upside of 39%.,50 40 30,ccet summary earnings table fye: dec 31 (btmn) 2010,2011,2012f,2013f,2014f,20 10 0 -10 -20,revenue ebitda recurring net profit recurring basic eps (bt) eps growth (%) dps (bt) per,125,599 3,287 1,466 0.41 23.7 0.15 8.82,131,810 2,401 74 0.02 -95.6 0.16 198.88,134,857 3,611 803 0.20 987.7 0.16 18.28,173,593 4,627 2,058 0.50 156.3 0.20 7.13,230,142 5,678 2,795 0.69 35.8 0.24 5.25,performance 52-week high/low,ccet,set bt3.66/bt2.38,ev/ebitda (x) div yield (%) p/bv(x) net gearing (%),6.34 4.17 0.87 71.28,11.49 4.44 0.85 89.69,8.40 4.44 0.83 106.11,6.88 5.56 0.77 105.33,6.00 6.66 0.70 110.44,absolute (%) relative (%),1-mth 9.8 4.2,3-mth 33.3 19.4,6-mth 38.5 12.6,1-yrs 37.4 0.1,ytd 11.8 7.4,roe (%) 9.91 2.99 roa (%) 3.55 1.46 consensus net profit (btmn) - - source: company reports and mbket research estimates.,7.60 3.20 1,183,10.86 3.94 1,127,13.41 4.17 1,182,see appendix i for important disclosures and analyst certifications,cal-comp electronics (ccet) valuation as is the case with other electronics stocks, we value ccet based on the per methodology. in our view, this method can more accurately reflect growth in the electronics sector over the next 12 months, with changes hinging on the world economy and technological advancements. we have decided against the dcf methodology, as we deem it is more suitable to reflect company earnings over the long term. we conservatively value ccet at 10x fy13f per and expect net profit to grow 52% yoy to thb2.058b, implying an eps of thb0.50. our target price of thb5.00/ share suggests 39% upside gain. initiate with buy. table 1: valuation table recurring eps,2013 0.505,2014 0.685,9.0 10.0 11.0 12.0,4.5 5.0 5.6 6.1,6.2 6.9 7.5 8.2,source: mbket company profile ccet is an original equipment manufacturer (oem) and makes electronics products for many of the worlds leading companies, such as western digital, seagate, advanced digital broadcast, hewlett packard, panasonic, motorola, nikon. as an original design manufacturer (odm), ccet will conduct the research and design for each product on its own. the companys products can be divided into two main types: 1. computer products such as ink printer, multi-function printer, pc circuit for hard disk, pc circuit for external hard disk drive and pc circuit for digital camera. 2. telecommunication products such as satellite receiver, mobile phone, earphone, bluetooth equipment.,31 january 2013,printer external hdd source: company reports,keyboard set-top-box,page 2 of 13,3.5%,cal-comp electronics (ccet) revenue breakdown in 2011, ccet derived 86% of its revenue from computer products and the remaining 14%, from telecommunication products. printers and hard disk drives made up the bulk of computer products while satellite receivers, bluetooth equipment, mobile phone and etc were its main telecommunication products. chart 1: revenue breakdown by product 100%,90%,20.3%,19.4%,13.6%,80% 70% 60% 50%,40%,79.7%,80.6%,86.4%,30% 20% 10% 0%,2009,2010,2011,computer equipment,telecom equipment,source: company reports client market share loss hit ccet earnings from 2009 following the great financial crisis in 2008-2009, consumption growth and sector investments around the world slowed down. meanwhile, competition in the printer market heated up, leading to client ceding market share to canon. as a result, ccets net profit declined by 39% yoy in 2009 and has never reached thb2b since then. add the flood crisis at home in 2011 and the jump in expenses due to an acquisition in brazil, ccets net profit tumbled yet again by another 69% yoy to thb513m in 2011. fortunately, the company concentrated on hdd products during 2010- 2011 and revenue kept growing even though gross margin was low. starting this year, however, we believe a return of printers orders will see ccets product mix change for the better with revenue and gross margin also expected to improve. chart 2: net profit vs gross profit margin,3,500 3,000,2,901 5.0%,6.0% 5.0%,2,500 2,000 1,500 1,000 500,2,128,3.7% 1,301 -39% yoy,3.7% 1,664 -69% yoy 513,2.9%,3.4% 1,353 +164% yoy,2,058 3.7% +52% yoy,4.0% 3.0% 2.0% 1.0%,0,0.0%,2007,2008,2009,2010,2011,2012e,2013e,31 january 2013,source: company report, mbket,netprofit,gross profit margin,page 3 of 13,11.70%,figures ofinclude desktop to mobile pcs,cal-comp electronics (ccet) profit likely to rebound to thb2b level after a meeting with management, we are confident that ccets fy13f- 14f performance will be driven by the acceleration in printers orders for printers. moreover, with the global economy recovering, investment markets are beginning to boom again and there has been an increase in demand for office and it equipment, including external hard disks. we expect ccet will see a return to profit of thb2b in fy13f once again. table 2: worldwide hardcopy peripherals market share and growth source: ,chart 3: computers sold globally (usdm),table 3: computer sales all-time as of 2011 computer sales all-time,400 350 300 250 200 150 100 50,60,251 134.7,346.2 321,355.2 329,number of computer sales all-time computer sales revenue all-time purpose and characteristics percent of computers sold for business percent of desktop computers sold percent of laptop computers sold percent of servers sold,3.287 billion $4.835 trillion 74% 81.50% 16.40% 2.10%,0,0.05,region of sales,1975,2000,2010,2011,percent of computers sold to the u.s.,38.80%,percent of computers sold to europe,25%,no. of computers sold globally,worldw ide computer sales rev enue,percent computers soldpcs,asia-pacific and servers using the intel x86 processor architecture,source: gartner, international data corporation 31 january 2013,source: gartner, international data corporation,page 4 of 13,1,2,-,-,-,-,-,9,-,-,cal-comp electronics (ccet) table 4: global pc market share by units sold,rank,3,company hp dell acer,2011 17.2 %* 12.10% 11.20%,2009 19.3 %* 12.90% 12%,2005 14.50% 16.8 % * 4.60%,2000 7.60% 10.80%,4 5 6 7 8 10 11,apple lenovo asus toshiba samsung gateway fujitsu nec,10.70% 9.30% 5.90% 3.60% 3.30% 1.30% 1.20% 0.80%,8% 6.10% 5.10% 5.40% 2.80% 1.90% 1.40% 0.90%,4% 4.10% 3.70% 2.90% 1.50% 6.10% 3.80% 2%,3.70% 6.40% 4.30%,compaq ibm,merged with hp in 2002 sold its pc business to lenovo in 2005,12.8 %* 6.80%,others,24.40%,24.20%,36%,47.60%,*year leader data includes desk-based pcs, servers, mobile pcs, including mini-notebooks but not media tablets such as the ipad. source: gartner, international data corporation low cost of production the main draw for client reordering thailands minimum wage will increase to thb300 per day this year, but this is just a 58% rise compared with the 380% jump in chinas minimum wage over the past five years. the baht has appreciated in recent times but the difference in magnitude of increase vis-vis the yuan is only 5% (baht: +21%; yuan: +16%). also considering that these are two politically sensitive issues in china, more so than among its neighbours, we believe thailand will appeal to clients as an ideal location for its operations.,chart 4: china increase in minimum wage source: bloomberg chart 6: yuan/us$ source: bloomberg 31 january 2013,chart 5: thailand increase in minimum wage source: bloomberg chart 7: baht/us$ source: bloomberg page 5 of 13,cal-comp electronics (ccet) affiliates to contribute to profit in 2h13f the main drag on ccets earnings are the ems company in brazil, which entailed capex spending of thb306.15m in 2011, and its affiliate in the philippines in 4q12. both have yet to break even and will still need the support of ccet. in short, ccets sg&a expenses have been rising in the past few years, causing net margin to fall to below 1% vs 2-3% previously. nevertheless, we estimate that both affiliates will be able to achieve breakeven in 2h13f because the utilization rate is increasing from increasing of orders. ccet is taking steps to control its expenses and drive gross margin upwards as its revenue comes mainly from sales with a low net margin of 1.19%. we estimate that a 1-2% change in net profit margin can drive net profit up by as much as 100%. we expect fy13f net profit margin to be 1.19%, up from 1% in 2012 but still below the 2-3% achieved in 2009. every 0.1% increase in net margin will cause our net profit projection to rise by 8.5%. hence, if ccet can rein in its expenses, there will be upside to our projections. table 5: profit & npm sensitivity,npm 0.89% 0.99% 1.09% 1.19% 1.29% 1.39% 1.49% 2.00% 3.00%,net profit 1,538.0 1,711.6 1,885.2 2,058.8 2,232.4 2,406.0 2,579.6 3,471.9 5,207.8,% change -25% -17% -8% 0% 8% 17% 25% 69% 153%,eps 0.38 0.42 0.46 0.50 0.55 0.59 0.63 0.85 1.28,tp 3.8 4.2 4.6 5.0 5.5 5.9 6.3 8.5 12.8,source: mbket limited impact from baht appreciation with its revenue and over 90% of costs denominated in usd, we believe the recent baht appreciation will have little impact on ccet. indeed, the company stands to benefit from the weakening greenback and yen.,chart 8: % of operating natural hedge,chart 9: foreign currency debt 120%,120% 100% 80%,70%,75%,85%,90%,100%,100% 80% 60%,83%,85%,87%,89%,99%,60%,40%,40% 20%,20% 0%,13%,4%,14%,1%,3%,10%,11%,0%,0% 1%,0%,kce,svi,delta operational hedge,ccet,smt,smt,delta,us$ debt,svi yen debt,other,ccet,kce,source: company report 31 january 2013,source: company report,page 6 of 13,cal-comp electronics (ccet) share price lags book value ccets current share price is still cheaper than its book value, trading at just 0.8x p/bv and 7.1x per vs the corresponding sector average of 1.5x and 8.5x. of the electronics stocks under our coverage, ccet has the biggest upside and the highest dividend payout. table 6: ccet valuations vs the sectors (2013 data),p/bv,per,yield,upside gain,ccet kce smt svi average,0.77 1.31 1.83 2.09 1.50,7.13 8.08 8.51 10.25 8.49,5.6% 5.0% 4.8% 4.9% 5.1%,40% 24% 29% 18% 28%,source: mbket profit to post impressive growth until 2014f we expect ccet to report 4q12f net profit of thb304m, down 26% qoq on seasonality. for the full year, however, net profit is expected to surge 164% yoy to thb1.353b on only 2% yoy revenue growth, thanks to a one-off gain of thb338m in derivatives in 3q12 and a turnaround net profit from 4q11. in fy12f, we believe ccet recorded a thb1.35b gain in derivatives against forex loss of just thb800m. we thus estimate normalised profit at thb803m, up 988% yoy from thb74m in 2011. in our view, 2013 will turn out to be a good year for ccet, underpinned by computer product sales, in particular printer orders. we estimate revenue to expand 33% yoy to thb173.593b followed by growth of another 33% yoy to thb230.142b in fy14f. gross margin is expected to come in at 3.7% with net margin at 1.2% or thb2.058b, up 52% yoy in fy13f (eps: thb0.50). in fy14f, we expect another 36% yoy growth to thb2.795b (eps: thb0.69). all this means profit growth at a cagr of 44% on average during fy12-14f, assuming a forex rate of thb30/usd. 5% dividend yield ccet pays dividends every year. in 1h12, it paid out thb0.80/share and we expect the same amount in 2h12 (to be announced in the last week of february). we are looking for a dividend yield of 2.2% for the full year. in fy13f, we expect dividend payout of thb0.20/share or 5.6% yield. risks 1. a strong baht may result in earnings growth falling short of our estimate. however, we note that most of ccets costs are denominated in either usd or yen. 2. technological changes will affect clients businesses and, in turn, ccets earnings. 3. high interest expense due to m&a activities will squeeze ccets liquidity. but we expect the impact to ease once the affiliates are able to generate profit in 2013 and the coverage ratio could rise to 6.0x in 2012 and 7.8x in 2013 from 3.7x in 2011.,31 january 2013,page 7 of 13,cal-comp electronics (ccet),chart 10: recurring profit and growth,chart 11: ebitda and dividend paid,6,000,5,677.8,5,322.4,3,000,2,795,5,000,4,627.0,2,500 2,000 1,500,1,340,1,466,2,058,+36% yoy,4,000 3,000,2,401.3,3,611.1,1,000 500,74,803 +988% yoy,+156% yoy,2,000 1,000,652.4,652.4,734.0,896.9,909.8,0,0,2009,2010,2011,2012e,2013e,2014e,2011,2012f,2013f,2014e,2015e,ebitda,div idend paid,source: company report, mbket 31 january 2013,source: company report, mbket,page 8 of 13,-,-,-,-,cal-comp electronics (ccet) cal-comp electronics summary of financials,income statement (btmn),balance sheet (btmn),fy december revenue ebitda depreciation & amortisation operating profit (ebit) interest (exp)/inc,2011 131,810 2,401 1,552 849 227,2012f 134,857 3,611 1,645 1,966 326,2013f 173,593 4,627 1,763 2,864 369,2014f 230,142 5,678 1,880 3,797 408,fy december fixed assets other lt assets cash/st investments other current assets total assets,2011 12,894 421 2,495 42,233 58,042,2012f 13,567 410 3,212 44,318 61,507,2013f 14,230 476 2,794 55,118 72,619,2014f 14,777 573 3,634 72,134 91,118,associates,7,0,0,0,one-offs pre-tax profit tax minority interest net profit recurring net profit,439 622 109 0 513 74,550 1,640 287 0 1,353 803,0 2,495 437 0 2,058 2,058,0 3,389 594 0 2,795 2,795,st debt other current liabilities lt debt other lt liabilities minority interest shareholders equity,15,403 25,402 65 0 0 17,174,18,880 24,773 62 0 0 17,793,19,963 33,643 59 0 0 18,954,23,014 47,208 56 0 0 20,839,total liabilities-capital,58,042,61,507,72,619,91,118,revenue growth %,4.9,2.3,28.7,32.6,ebitda growth (%) ebit growth (%) net profit growth (%) recurring net profit growth (%),-27.0 -57.5 -69.2 -95.0,50.4 131.6 163.7 987.7,28.1 45.7 52.1 156.3,22.7 32.6 35.8 35.8,share capital (m) gross debt/(cash) net debt/(cash) working capital,4,078 15,403 12,908 3,924,4,078 18,880 15,668 3,877,4,078 19,963 17,169 4,306,4,078 23,014 19,380 5,546,tax rate %,17.5,17.5,17.5,17.5,cash flow (btmn),rates & ratios,fy december profit before taxation depreciation net interest receipts/(payments) working capital change cash tax paid others (incld exceptional items) cash flow from operations capex,2011 622 1,552 -227 -4,182 -109 -483 -2,828 -3,247,2012f 1,640 1,645 -326 -2,713 -287 -567 -607 -1,500,2013f 2,495 1,763 -369 -1,931 -437 -789 732 -1,500,2014f 3,389 1,880 -408 -3,451 -594 -630 186 -1,500,fy december gross margin % ebitda margin % op. profit margin % net profit margin % roe % roa % net margin ex. el % dividend cover (x),2011 2.9 1.8 0.6 0.4 3.0 1.5 0.1 0.1,2012f 3.4 2.7 2.1 1.0 7.6 3.2 0.6 1.2,2013f 3.7 2.7 1.8 1.2 10.9 3.9 1.2 2.5,2014f 3.7 2.5 1.7 1.2 13.4 4.2 1.2 2.9,disposal/(purchase),interest cover (x),3.7,6.0,7.8,9.3,others cash flow from investing debt raised/(repaid) equity raised/(repaid) dividends (paid) interest payments others cash flow from financing,167 -3,081 3,430 -552 -652 -227 429 2,427,0 -1,5