Goldman Sachs and Cinda International Issued Notes after Visiting Dongpeng's Annual Distributor Conference and Maintained "BUY" Ratings with TP HK$4.0 and HK$3.8 Respectively

Feb 10, 2015 19:33 JST

HONG KONG, Feb 10, 2015 - (ACN Newswire) - On 4-5 February, analysts of Goldman Sachs ("GS") and Cinda International ("Cinda") attended Dongpeng's (stock code: 3386.HK) Annual Distributor Conference, noticing the positive feedback the conference has received from the 1,300 distributors.

Goldman Sachs: Enhance the cooperation with distributors and distributor management to boost the sales
GS issued a note after the visit, stating that Dongpeng will spend continuous efforts to increase sales volume with certain measures: 1) increase sales efficiency of existing outlets by encouraging employee incentive plans at the distributor level (no expense borne by Dongpeng), which should help to increase sales volume, especially for high value added products; 2) capture more demand with integrated home-decoration service, moving sales platform from outlets to new property projects.

In addition, Dongpeng will further strengthen distributor management by helping distributors install a customized SAP system (Systems Applications and Products in Data Processing, an enterprise resource planning software). GS believes a key potential benefit would be more effective inventory management in the full product chain, enabling more timely adjustments to marketing strategy, putting Dongpeng in a better position to weather an overall property market slowdown.

Given the fragmentation of China's ceramic tile market and trend of consumers trading up, GS believes there is still plenty of growth potential for Dongpeng despite difficulties in the property market - even as China's biggest high-end producer, Dongpeng's market share is less than 10%.

Cinda International: Newly launched product series are attractive and one-stop home decoration solution services has growth potential
Cinda believes the newly launched product series "Beauty of the World" will be especially appealing to the younger population who generally look for a stylish living environment. And the initiatives, such as interior design simulation software which could demonstrate 3D design rendering and the SAP system that Dongpeng encourages the distributors to connect with, both keep the distributors upbeat and help the company outperform its peers.

To seize the tremendous opportunity in the one-stop home decoration solution market, Dongpeng has launched "Dongpeng Home" in a few real estate projects and received positive feedback. Management stated the key advantages included its 1) extensive distribution and logistics network to support the operation in different target markets, and 2) cooperation with other renowned furniture and home appliance brand owners to allow a lower purchase costs.

Valuation
GS maintains "Buy" rating (Conviction List), with PE based 12-month target price of HK$4.0 (FY15E target PER at 9.0x unchanged), implying 41% upside. Dongpeng is currently trading at 6.5x FY15E PER, compared with China cement peers at 9.8x, despite much higher margins and returns.

Cinda maintains "Buy" rating with target price at HK$3.80, and reaffirms that Dongpeng is capable of delivering a decent performance and winning more market share in the fragmented PRC ceramic tiles market.

Sectors: Daily Finance, Daily News