27页，纯英文。
Top 5 smallcaps at China Forum
We detail our top 5 top small cap ideas from our recent China Forum. Top
Buy remain Tiangong at 7x PE. We also upgrade TP for two: Xinyi Glass
on the back of further margin expansion in float glass, and Prince Frog on
growth momentum in a milestone year as they launch their major TV
show. In the non-covered universe, we also flag Ka Shui as an underresearched
but fast growing industrial pick. Niche HK property company
Soundwill„s discount to NAV is also of interest.
Top pick: Tiangong – exports outperforming, at 7x PE
 Our top small cap pick in the sector, Tiangong’s revenues from export markets
positively surprised and should offset the continued flatness in domestic revenue.
 Growth in their export market has continued to accelerate: in January it was up
23% YoY; February +50% and March +48%.
 Stock still is only trading on 7x fwd PE. We continue to reiterate Buy here with a
target price of HK$3.20 or 35% upside.
Upgrade: Xinyi Glass – favourable margin growth
 After a recent company visit we are feeling more bullish on the stock despite the
recent rally. We maintain BUY and upgrade our target price based on a consistent
12x 14CL PE. Three drivers which are likely to push the share price even higher:
o Lower raw material prices lifting margins (we upgrade NP by 9% in FY14).
o Electronic glass line with >50% gross margins to start contributing next year.
o Continued share buybacks by management improving sentiment.
Upgrade: Prince Frog – halfway through a milestone year
 2013 is a milestone year for PF as they launch season 3 of their TV show.
 We have upgraded our net profit forecast by around 4% in each of our forecast
years to FY15.
 The stock is not expensive relative to consumer peers in China and globally, with
the fwd PE at 13.3x. ROE is at 23% and rising, with the company’s balance sheet
remaining net cash rich.
 We have also lifted our target PE on the stock to 12x FY14, up from 11x previously
on higher confidence of execution. Our new TP is HK$6.50, up from HK$5.50, which
implies 23% upside.
New non-rated idea: Ka Shui – quality provider to industry giants
 This under-researched >30 year old HK managed company has delivered 31%
revenue and 50% net profit cagr last 3 years.
 Growth is driven by increasing demand in its magnesium alloy die-casting business