Not vested. From Phillips:-
Risks
Up risks
1. Rapid RMB appreciation increases exchanges profit.
2. Further to purchase excellent asset with reasonable price.
3. Handset distribution develops than expected.
Down risks
1. Profitability rebound lower than expected.
2. Chinese economy recovers below expectation.
3. Business shares in market declines.
Performance growth with high certainty brings up-room for valuation
Given its distribution and systems business strength improving as well as the outlook of IT services business, we believe in its high certainty of future performance growth. Furthermore, efficient operating expense control supplies safe margin guard for this increase.
Therefore, we think it is reasonable to give 12x PE to its distribution and systems business and 25x PE to its IT services business on FY09/10 EPS.
We expect Digital China`s EPS in FY09/10 and FY10/11 will be HK$0.898 and HK$1.165, and give 12-month TP of HK$12.66 initiatively, Buy rating.