GRG Banking Equipment:Stronger ATM market competition;strategic cooperation with DCH offers new hope发布时间：2016-11-09 研究机构：瑞银证券
Lower our 2016-18 earnings estimates on fiercer competition in ATM market.
In Q1-Q316, GRG Banking Equipment's (GRG) revenue grew ~23% YoY, slightly belowour previous estimate of 25-28%. Management said China's ATM market growth hasdecelerated, and there is pressure from price competition. A major competitor,Cashway, is planning an A-share IPO, which may put new pressure on GRG's marketshare. Considering all these negative factors, we lower our 2016/2017/2018 EPSestimates by 9%/8%/9%.
Q1-Q316 results not bad if tax impact is excluded.
GRG's Q1-Q316 earnings only grew 6% YoY, but we think investors should not panic.
It was mainly due to a YoY drop in the value-added tax (VAT) rebate and a rise in thecorporate tax rate. We expect such impact from taxes to be short-lived and corrected inend by 2017. Meanwhile, the company's Q1-Q3 operating profit rose ~20% YoY.
Despite market headwinds, we still believe GRG can deliver a ~24% earnings CAGR in2016-18.
Strategic cooperation with DCH could begin in 2017.
During Digital China Holdings' (DCH) special shareholders' meeting on 25 October,GRG voted "Yes" to equity issuances for DCH's management and core employees.
GRG said that after communication with DCH management, it believes such a planwould be positive for DCH's long-term growth. We think this may symbolise thebeginning of strategic cooperation with DCH and GRG. DCH's strength in bankingindustry IT solutions will be crucial for GRG's sustainable growth, and we expectsynergy in 2017 and beyond.
Valuation: maintain Buy; lower price target from Rmb23.75 to Rmb21.40.
Trading at 22x/16.9x 2016E/2017E PE, GRG's valuation is much lower than the A-sharepeer average. The stock has fallen ~27% YTD, in line with the A-share IT index. Webelieve the market is overly concerned about short-term industry headwinds. We baseour price target on DCF, assuming a WACC of 8.1%. We maintain a Buy rating.