Wasion (3393 HK, HK$2.93, BUY) – Prospect unchanged

FY12/08A results beat our estimates with profit up 22.8% to RMB261.5m. Surprise came from overseas market, which generated RMB115.0m revenue for FY12/08A, up from RMB40.2m last year. Hunan Weiming, acquired in May 2008, contributed another RMB58.3m, bringing the total top line to RMB1,059.4m, up 31.8% YoY and 12.0% higher than our estimate (RMB946.0m at "Powered by the Stimulus Package, 18 Mar 09). A major improvement during the period, in our view, was that the company managed to shorten its cash conversion cycle by 18 days to 124 days thanks to: 1) strengthening payment collection from main customers (i.e. grid companies); 2) development of non-power grid clients (FY12/08A: 23% of total sales, FY12/07A: 16%) such as Petro China and overseas customers, who usually pay deposit for the procurement. We highly credit this improvement given it will largely reduce working capital requirement and release more free cash flow. We lift our earnings forecasts by 15.9% for FY12/09F to RMB291.5m and 16.4% for FY12/10F to RMB379.0m. Accordingly, the new DCF fair value comes out to be HK$3.75, which we adopt as our new target price (previous: HK$2.95).

Prospect unchanged