Stock research on global mid-cap companies

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Stock research on global mid-cap companies, Evaluate Research

Equity Bottom-Up

Leoch International Technology / Equity Bottom-Up

Leoch reported strong results for the second half ended December 2017. Revenue increased by 57.2% YoY to RMB5,403.4 mn [7% above our estimate] while the net income/EPS increased by 16.1% YoY to RMB150.7 mn/RMB11 cents, slightly below our estimate. The increase in revenue was driven by a solid growth of 25.8% in its core lead-acid battery business along with contribution from the lead recycling business which was acquired in January 2017. The lower EPS growth was due to a decline in gross profit margins and an increase in interest expense. The company is investing in increasing the production capacity of its traditional lead-acid batteries and has also announced its plan to start its first ever lithium-ion battery manufacturing facility. During our conversation with management, they mentioned that they are currently focusing on developing lithium-ion batteries mainly for telecom applications and will gradually enter into automotive batteries as well.
For the full year FY2017, revenue came in at RMB9,465 mn, up 51.1% YoY, while EPS was RMB18 cents, flat YoY. The revenue growth included 23.3% organic growth from the existing battery business while the rest was contributed by the lead recycling business. The growth in battery revenue was driven by a 13% increase in price and about 10% increase in volume. For the year, the lead recycling business contributed revenue of RMB1,754.8 mn accounting for about 18.5% of the company’s total revenue. Gross profit margin reduced from 16.4% in FY2016 to 12.3% in FY2017 due to lower margin on the battery business [a result of an increase in the average lead price which the company was unable to completely pass on to its customers] as well as due to the addition of the lead recycling business which has lower margins than the battery business. We expect the gross margins to remain in the 12% -14% range in the future. CAPX for FY2017 was RMB314.2 mn. For FY2018, we forecast CAPX to increase to about RMB550 mn as the company invests to ramps up its production capacity. In FY2017, gross debt increased by about 70% to RMB3,014 mn. The company did not announce any dividends for the year [HK5.5 cents in FY2016] mainly to preserve its funds to finance its production capacity expansion.
Analyst: Ajeya Patil

Leoch reported strong results for the second half ended December 2017. Revenue increased by 57.2% YoY to RMB5,403.4 mn [7% above our estimate] while the net income/EPS increased by 16.1% YoY to RMB150.7 mn/RMB11 cents, slightly below our estimate. The increase in revenue was driven by a solid growth of 25.8% in its core lead-acid battery business along with contribution from the lead recycling business which was acquired in January 2017. The lower EPS growth was due to a decline in gross profit margins and an increase in interest expense. The company is investing in increasing the production capacity of its traditional lead-acid batteries and has also announced its plan to start its first ever lithium-ion battery manufacturing facility. During our conversation with management, they mentioned that they are currently focusing on developing lithium-ion batteries mainly for telecom applications and will gradually enter into automotive batteries as well.
For the full year FY2017, revenue came in at RMB9,465 mn, up 51.1% YoY, while EPS was RMB18 cents, flat YoY. The revenue growth included 23.3% organic growth from the existing battery business while the rest was contributed by the lead recycling business. The growth in battery revenue was driven by a 13% increase in price and about 10% increase in volume. For the year, the lead recycling business contributed revenue of RMB1,754.8 mn accounting for about 18.5% of the company’s total revenue. Gross profit margin reduced from 16.4% in FY2016 to 12.3% in FY2017 due to lower margin on the battery business [a result of an increase in the average lead price which the company was unable to completely pass on to its customers] as well as due to the addition of the lead recycling business which has lower margins than the battery business. We expect the gross margins to remain in the 12% -14% range in the future. CAPX for FY2017 was RMB314.2 mn. For FY2018, we forecast CAPX to increase to about RMB550 mn as the company invests to ramps up its production capacity. In FY2017, gross debt increased by about 70% to RMB3,014 mn. The company did not announce any dividends for the year [HK5.5 cents in FY2016] mainly to preserve its funds to finance its production capacity expansion.
Analyst: Ajeya Patil

Strong Results; Revenue up 57.2%, EPS up 16.1%