HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>Underpinned by higher ASP and sequentially lower input costs, <a href="https://www.smartkarma.com/entities/cpmc-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10427:1" rel="noopener">CPMC Holdings (906 HK)</a> should achieve better margin in 2H22. Its 17% fall in share price YTD makes it appealing.</li>
<li>Average aluminum price was down 14% so far in 2H22, vs. 1H21, good to its costs. Well-controlled selling and administrative costs will help to support profitability recovery.</li>
<li>New two-piece can capacity will grow by 54% over the next three years as 5 production lines are expected to be added. Most of them already have demand lined up.</li>
</ul>


Underpinned by higher ASP and sequentially lower input costs, CPMC Holdings (906 HK) should achieve better margin in 2H22. Its 17% fall in share price YTD makes it appealing.
Average aluminum price was down 14% so far in 2H22, vs. 1H21, good to its costs. Well-controlled selling and administrative costs will help to support profitability recovery.
New two-piece can capacity will grow by 54% over the next three years as 5 production lines are expected to be added. Most of them already have demand lined up.


CPMC Holdings (906 HK): Good Time to Re-Visit

<ul>
<li>FY21 result of <a href="https://www.smartkarma.com/entities/cpmc-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10427:1" rel="noopener">CPMC Holdings (906 HK)</a> indicated it is under pressure from higher input costs in 2H21, as profit growth rate has slowed to 3.1%, from 36.5% in 1H21. </li>
<li>1H22 will stay challenging, but management guided for improvement in 2H22. That said, CPMC expects gross margin for FY22 can be marginally higher than in FY21.</li>
<li>Structural story of higher can demand, rise in industry concentration and increase de-plasticisation remains intact. We see any pull-back in share price as opportunity. </li>
</ul>


FY21 result of CPMC Holdings (906 HK) indicated it is under pressure from higher input costs in 2H21, as profit growth rate has slowed to 3.1%, from 36.5% in 1H21. 
1H22 will stay challenging, but management guided for improvement in 2H22. That said, CPMC expects gross margin for FY22 can be marginally higher than in FY21.
Structural story of higher can demand, rise in industry concentration and increase de-plasticisation remains intact. We see any pull-back in share price as opportunity. 


CPMC Holdings (906 HK): Short Term Tough but Long Term Story Intact

<a href="https://www.smartkarma.com/entities/cpmc-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10427:1" rel="noopener">CPMC Holdings (906 HK)</a> looks to have kept its input cost managed and alleviated such pressure through hedging of raw material costs and raising product prices. The recent retreat in commodity prices upon the government's efforts to keep them under control also partly mitigates the pressure. Interestingly, the company sees influx of orders previously placed with smaller competitors as they are badly affected by elevated cost and power storage.The company revealed that its production has not experienced material interruption during power shortage as its plants are highly-graded by local governments. It continued to expect a stable margin for FY21 despite all disruptive factors in 2H21. At 7.8x PER and 0.65x P/B for FY22F, we think that CPMC is appealing after a 26% retreat in share price from the peak. Its ROE of 9.7% for FY22F is also a historically high level.

CPMC Holdings (906 HK) looks to have kept its input cost managed and alleviated such pressure through hedging of raw material costs and raising product prices. The recent retreat in commodity prices upon the government's efforts to keep them under control also partly mitigates the pressure. Interestingly, the company sees influx of orders previously placed with smaller competitors as they are badly affected by elevated cost and power storage.The company revealed that its production has not experienced material interruption during power shortage as its plants are highly-graded by local governments. It continued to expect a stable margin for FY21 despite all disruptive factors in 2H21. At 7.8x PER and 0.65x P/B for FY22F, we think that CPMC is appealing after a 26% retreat in share price from the peak. Its ROE of 9.7% for FY22F is also a historically high level. 

CPMC (906 HK): Cost Pressure Appears Controlled While Demand Looks Firm

<a href="https://www.smartkarma.com/entities/cpmc-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10427:1" rel="noopener">CPMC Holdings (906 HK)</a> has staged another set of good result with net profit grew 36.5% YoY and 20.6% HoH to a record of Rmb249.4m. It is encouraging to see that, even with sharp rise in raw material prices, its gross margin has just contracted marginally and gross profit still rose 20.1% YoY. We think this demonstrated the solid underlying product demand and its ability to pass on a significant portion of higher costs.In the post-result call, management looks to be very optimistic about 2H21, expecting good HoH recovery in margin. The ramp up in production capacity, further price hikes and solid structural demand growth are key drivers. We think CPMC will be able to achieve an ROE of 10% by FY22, and with record profit for next two years, its current 0.76x 12-month forward P/B is clearly not sufficient in reflecting its improvement in profitability over the horizon.

CPMC Holdings (906 HK) has staged another set of good result with net profit grew 36.5% YoY and 20.6% HoH to a record of Rmb249.4m. It is encouraging to see that, even with sharp rise in raw material prices, its gross margin has just contracted marginally and gross profit still rose 20.1% YoY. We think this demonstrated the solid underlying product demand and its ability to pass on a significant portion of higher costs.In the post-result call, management looks to be very optimistic about 2H21, expecting good HoH recovery in margin. The ramp up in production capacity, further price hikes and solid structural demand growth are key drivers. We think CPMC will be able to achieve an ROE of 10% by FY22, and with record profit for next two years, its current 0.76x 12-month forward P/B is clearly not sufficient in reflecting its improvement in profitability over the horizon.  

CPMC Holdings (906 HK): Healthy 1H21 Despite Rising Cost, Highlights from Post-Result Call

While rising input cost is a challenge to <a href="https://www.smartkarma.com/entities/cpmc-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10427:1" rel="noopener">CPMC Holdings (906 HK)</a>, we found the company able to manage the impact following our brief chat with management. Pricing mechanism will allow the company to shift part of the higher cost to customers, while the good volume growth YTD can also alleviate the cost pressure. In our view, there may not be significant negative impact on margin on combination of these two factors.CPMC's new capacity plan has been moving ahead according to its schedule and this is expected to support stronger earnings for 2H21 as well. We believe CPMC's 0.85x 12-month forward P/B multiple (+1SD above historical average) can be justified by the escalating ROE since FY18 and the improvement in financial position.

While rising input cost is a challenge to CPMC Holdings (906 HK), we found the company able to manage the impact following our brief chat with management. Pricing mechanism will allow the company to shift part of the higher cost to customers, while the good volume growth YTD can also alleviate the cost pressure. In our view, there may not be significant negative impact on margin on combination of these two factors.CPMC's new capacity plan has been moving ahead according to its schedule and this is expected to support stronger earnings for 2H21 as well. We believe CPMC's 0.85x 12-month forward P/B multiple (+1SD above historical average) can be justified by the escalating ROE since FY18 and the improvement in financial position.   

CPMC Holdings (906 HK): Catch-Up with Company Indicates Cost Pressure Manageable

China

CPMC Holdings Limited is primarily engaged in the manufacture of packaging products for consumer goods in China. These products include tinplate packaging (such as milk powder cans, aerosol cans, metal caps, and steel barrels), aluminum packaging (two-piece beverage cans and one-piece bottles), and plastic packaging (for milk bottles, shampoo bottles, and other daily use products). The company was incorporated on October 25, 2007, and is headquartered in Hangzhou, China.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

CPMC (906 HK)

CPMC Holdings (906 HK): Good Time to Re-Visit

CPMC's current valuations cannot sufficiently reflect the uptrend in its ROE. Higher ASP and lower input costs will see better profit margin in...

Osbert Tang, CFA

CPMC Holdings (906 HK): Short Term Tough but Long Term Story Intact

CPMC registered a marked slowdown in 2H21 earnings on the back of rise in input costs. 1H22 will remains tough but the company stays well...

Osbert Tang, CFA

CPMC (906 HK): Cost Pressure Appears Controlled While Demand Looks Firm

CPMC has raised prices to counter the elevated cost pressure from higher aluminium price. It also achieved good grades from local governments which...

Osbert Tang, CFA

CPMC Holdings (906 HK): Healthy 1H21 Despite Rising Cost, Highlights from Post-Result Call

Spectacular 1H21 should extend into 2H21 underpinned by the ramp up in production capacity, further price hikes and solid structural demand growth....

Osbert Tang, CFA

CPMC Holdings (906 HK): Catch-Up with Company Indicates Cost Pressure Manageable

We see CPMC's cost pressure can be managed through its pricing mechanism and mitigate by the solid volume growth. The stock's 0.85x P/B is well...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)