Research and Trading Portal for US-listed China Stocks · April 28, 2017
China Tracker - Details for China Ceramics (CCCL)
We will update our model after new capacity become operational. We maintain our BUY rating and $16.00 PT - Our $16.00 target is based on 6.6x our FY11 EPS estimate of $2.41, a discount to peers in the U.S and in China.
For FY11, we increased our revenue and EPS on slightly higher ASP and sales volume assumptions. For FY12, we increased our revenue estimate on higher ASPs but decreased our EPS to reflect lower a GM assumption due to increasing raw material costs.
We maintain our BUY rating and $16.00 PT - Our $16.00 target is based on 6.6x our FY11 EPS estimate of $2.41, a discount to peers in the U.S and in China.
We are initiating research coverage on China Ceramics Co., Ltd (CCCL) – one of the leading ceramic tiles manufacturers in China. CCCL is one of the three market leaders in the exterior ceramic tile industry. We believe the company is well-positioned to penetrate the market based on brand recognition, product quality, broad distribution network and R&D capability. More importantly, strong cash flow from operations and a customized production process create competitive advantages and support capacity expansion and robust growth going forward.
High growth of China's real estate market supports demand for ceramic tiles – While China's real estate market has experienced sustained high growth, the market is still under supplied, in our view. Market drivers include 1) continued urbanization; 2) steadily increasing personal income; 3) large government spending in the form of subsidies and low-income housing programs.
The government's stringent real estate policies unlikely to affect housing supply and the construction materials market - Statistics show a steady increase in property under construction, despite volatile real estate sales volume each year. In other words, while sales fluctuate sharply year over year, particularly for residential buildings, new construction projects are supported by inelastic housing demand.
Growth outlook - We believe CCCL's plan to double capacity by 2012 will drive revenue growth of more than 33% annually for the next three years. Capacity utilization should remain high during the expansion given the positive demand outlook for ceramic tiles. We anticipate a gradual margin improvement from increased sales of high margin rustic and ultra-thin products.
BUY rating and $16.00 PT - Our $16.00 target is based on 6.8x our FY11 EPS estimate of $2.36, a discount to peers in the U.S and in China. We believe the current valuation discount reflects investor concern created by the uncertainty of China's real estate development. However, as we discuss throughout the report, and based on CCCL's historical performance, we believe the company will have sustainable growth in the future, despite the housing price and transaction fluctuations. As such, we believe recent share weakness presents an attractive entry point for investors.