 2015-05-07 |
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Improved Operating Margin: Xinzhou Global Expected to Challenge NT$2 EPS This Year
MoneyDJ News, May 6, 2015, 11:20 AM Reporter: Cheng Yingzhi
Xinzhou Global (3171) has benefited from significant improvements in its Chinese distribution operations in Q1. Analysts are optimistic that the operating margin will see substantial growth, with quarterly after-tax net profit potentially increasing by 30-40% compared to the same period last year. However, due to the expansion of the share capital, the EPS growth rate will be less than the growth in after-tax net profit. Analysts suggest that with the recovery in Taiwanese distribution profits and the expected turn to profitability in Chinese distribution, the operating margin will improve significantly, and the EPS is likely to challenge NT$2 for the year.
Xinzhou Global primarily engages in the packaging distribution business, operating under a B2B model. The company offers one-stop services to various clients and increases customer loyalty through continuous expansion of product offerings. Currently, about 80% of Xinzhou's revenue comes from Taiwanese distribution, with the remaining 20% from China. While the Taiwanese distribution is relatively stable due to its long-standing operation, Xinzhou is optimistic about the potential of the Chinese market. In recent years, Xinzhou has been optimizing its distribution network in China, aiming for the Chinese market’s revenue contribution to be on par with Taiwan within three years.
Although Xinzhou's consolidated revenue for Q1 slightly decreased compared to the previous year, analysts are positive that with the recovery of the Chinese distribution network, Xinzhou's Q1 operating margin will significantly improve. The Q1 operating margin is expected to exceed 5%, which will likely drive a 30-40% year-over-year increase in after-tax net profit. However, due to the expansion of share capital, the EPS growth is expected to be more moderate.
Looking ahead to this year, analysts indicate that with domestic market demand expected to increase compared to last year, Taiwanese distribution profits are anticipated to grow by 30% over the previous year, remaining the main driver of the company's profitability. The Chinese distribution, which lost approximately NT$20 million last year, is expected to turn profitable this year, contributing to a significant improvement in Xinzhou's profit structure.
Additionally, ACHEM (1715), which holds a 24.35% stake in Xinzhou, is about to issue NT$200 million in secured exchangeable bonds, with Xinzhou common stock as the exchange target. Analysts point out that Xinzhou has had limited stock liquidity in the market due to its smaller share capital and the fact that over 60% of its shares are held by YC (4306) and Xinzhou itself. The issuance of secured exchangeable bonds by ACHEM is expected to improve the liquidity of Xinzhou's stock.
Xinzhou's Q1 consolidated revenue was NT$388 million, down 5.4% year-over-year. Analysts estimate that the Q1 operating margin will range between 5% and 10%, up from 4.08% in the same period last year. The Q1 EPS is expected to reach NT$0.35 to NT$0.40, with the full-year EPS projected at NT$1.80 to NT$2.00, and the possibility of resuming dividends next year. |
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