标题：Glarun TechnologyStrengthening radar signals; initiating with Buy
发布日期：2016-02-17 10:12:58
内容： High-return defense play with restructuring potential; Buy ahead of 3 catalysts Glaruntech is a leading radar supplier in China, with a dominant position inboth civil and military markets. We project an earnings CAGR of 30% over2016-2018, driven by strong radar-related sales, and expect its ROE to expandto 26% by 2018, the highest within our defense coverage universe. Strongorganic growth and returns, along with three catalysts that could potentiallylead to significant asset restructuring and an enhanced long-term growthoutlook, lead us to initiate coverage with a Buy rating and a TP of Rmb62. Strong organic growth powered by rising radar demand We project a sales CAGR of 30% over 2016-18 for Glaruntech’s radar-relatedbusiness (c.70% of its sales), with the air traffic management (ATM) radarbusiness emerging as a significant growth driver on the back of acceleratingimport substitutions. We are also positive on its weather radar business withthe successful development of its indigenous meteorological system andextended areas of applications. We expect PLA’s ongoing weapon upgradecycle to drive a 32% CAGR in its military radar component sales over 2016-18. Substantial asset restructuring potential Glaruntech’s current operations only represent 15% of its parentco’s total netprofit. Our analysis suggests a full injection of the parentco’s unlisted assetswould boost the listco’s 2017 EPS by 129%. Moreover, we believe thecompany could potentially consolidate the radar business of Anhui Sun-Create– its sister listco, which competes against Glaruntech in the radar segment. Valuation, catalysts and risks We base our target price of Rmb62 on a 2016 P/E of 65x, one standarddeviation above its mid-cycle level, supported by its accelerating growth. Thismultiple is in line with the average for its A-share peers but more significantlyis a reflection of the potential from asset injections. If implemented, thesewould reduce our target P/E to 22x. We see three near-term catalysts: 1) theannouncement of policy initiatives on research institute reform; 2) potentialconsolidation of CETC Group’s listed radar business; and 3) the unveiling ofChina’s 13th Five-Year Plan for the general aviation industry. Key risks includeweaker-than-expected radar demand and unfavorable asset restructuring.
发布日期：2016-02-17 10:12:58
内容： High-return defense play with restructuring potential; Buy ahead of 3 catalysts Glaruntech is a leading radar supplier in China, with a dominant position inboth civil and military markets. We project an earnings CAGR of 30% over2016-2018, driven by strong radar-related sales, and expect its ROE to expandto 26% by 2018, the highest within our defense coverage universe. Strongorganic growth and returns, along with three catalysts that could potentiallylead to significant asset restructuring and an enhanced long-term growthoutlook, lead us to initiate coverage with a Buy rating and a TP of Rmb62. Strong organic growth powered by rising radar demand We project a sales CAGR of 30% over 2016-18 for Glaruntech’s radar-relatedbusiness (c.70% of its sales), with the air traffic management (ATM) radarbusiness emerging as a significant growth driver on the back of acceleratingimport substitutions. We are also positive on its weather radar business withthe successful development of its indigenous meteorological system andextended areas of applications. We expect PLA’s ongoing weapon upgradecycle to drive a 32% CAGR in its military radar component sales over 2016-18. Substantial asset restructuring potential Glaruntech’s current operations only represent 15% of its parentco’s total netprofit. Our analysis suggests a full injection of the parentco’s unlisted assetswould boost the listco’s 2017 EPS by 129%. Moreover, we believe thecompany could potentially consolidate the radar business of Anhui Sun-Create– its sister listco, which competes against Glaruntech in the radar segment. Valuation, catalysts and risks We base our target price of Rmb62 on a 2016 P/E of 65x, one standarddeviation above its mid-cycle level, supported by its accelerating growth. Thismultiple is in line with the average for its A-share peers but more significantlyis a reflection of the potential from asset injections. If implemented, thesewould reduce our target P/E to 22x. We see three near-term catalysts: 1) theannouncement of policy initiatives on research institute reform; 2) potentialconsolidation of CETC Group’s listed radar business; and 3) the unveiling ofChina’s 13th Five-Year Plan for the general aviation industry. Key risks includeweaker-than-expected radar demand and unfavorable asset restructuring.
