Eastern Communications: Steady Growth in 2012 Performance, Financial Electronics and Private Network Communication Equipment to Drive Growth in 2013

Event
    The company released its 2012 annual report: full-year revenue of RMB 3.298 billion, up 5.83% year-on-year; net profit of RMB 193 million, up 2.55% year-on-year; EPS of RMB 0.15.
    Commentary
    Steady growth in revenue and net profit in 2012
    The company's overall main business revenue grew by 5.83%, of which communication electronics revenue grew by 25.12% and financial electronics revenue grew by 11.09%, showing solid performance. In communication electronics, digital trunking products began small-volume supply, such as the Hangzhou digital trunking wireless government private network. In financial electronics, approximately 6,000 ATM units were sold in 2012, mainly to Bank of China, ICBC, and Postal Savings Bank. In 2012, the company's net profit was RMB 193 million, up 2.55% year-on-year.
    Financial electronics and private network communication are key highlights in 2013
    With the development of financial informatization, financial IC cards will replace magnetic stripe cards in the future, and related terminals and systems will require upgrades. The company has been operating in the ATM market for many years and will benefit accordingly. Full-year financial electronics revenue is expected to grow by 22%, with a slight improvement in gross margin.
    The technology for transitioning private network communication from analog to digital has matured. Small-scale tendering and application took place in 2012, and large-scale public security tendering is expected to commence in the second half of 2013. Considering the company's historical market share, we expect approximately RMB 100 million in revenue in 2013, with a gross margin of around 40%.
    Earnings forecast and rating
    The company's main business is growing steadily. Financial electronics and private network communication will contribute incremental performance. We adjust the company's earnings forecast and target price, estimating EPS of RMB 0.18, RMB 0.22, and RMB 0.26 for 2013-2015 respectively. We maintain an "Accumulate" rating. The target price for the next 6 months is RMB 5.00.
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