COCREATION GRASS(605099)：STOCK INCENTIVE PLANS UNVEILED;EARNINGS TARGETS UNDERSCORE CONFIDENCE IN DEVELOPMENT

　　What's new
　　CoCreation Grass recently released its proposal for 2024 stock option and restricted share incentive plans. According to the proposal, the firm plans to grant 3.81mn stock options (3.388mn options to be granted in Phase I), accounting for 0.952% of its total share capital. It intends to grant 1.825mn restricted shares (1.529mn shares in Phase I), accounting for 0.456% of the firm's share capital.
　　Comments Targets for revenue and attributable earnings CAGR over 2024-2026 set at no less than 20% and 15%, underscoring management's
　　confidence in growth. According to the proposal, revenue growth targets over 2024-2026 compared with 2023 are no less than 20%, 44%, and 73%, implying a CAGR of 20%, and attributable net profit growth targets are at least 15%, 32%, and 53%, translating into a CAGR of 15%. One of the preconditions for the granting is that 2024-2026 revenue and attributable net profit CAGR should be no less than 12% and 10%. In our view, the firm's targets for the incentive plans are encouraging, and include both revenue and profit. We believe they underscore management's confidence in the firm's high-quality, rapid growth.
　　The incentive plans target many employees and is attractive enough
　　to fully motivate core staff. The stock option incentive plan covers 122 mid-level managers and core technicians at an exercise price of no less than Rmb16.68/sh. The restricted share incentive plan covers 14 core employees (including directors and deputy general managers), with an awarding price of Rmb9.81/sh. We believe the incentive plans cover many employees and are encouraging for aligning the interests of its core business teams with those of the firm, fully motivating employees, and supporting its future growth.
　　Strong end-market sales overseas to help the firm maintain rapid earnings growth in 2Q24; upbeat on sustained mid- and long-term growth of the firm as a global synthetic turf leader.
　　In the near term, we expect the firm's orders to remain strong and its earnings to maintain rapid growth in 2Q24 as end-market sales of synthetic turf are improving in the Americas and Europe.
　　In the medium and long term, we believe the firm’s market share could continue to increase for two reasons. First, as a global leader in synthetic turf, the firm has strong competitive advantages in production and research systems, customer resources, and channel network. Second, its overseas plants have started to accept orders from regions such as North America.
　　The firm is expanding into new product categories such as facade decoration materials that can generate full synergies with existing distribution channels. We expect organic growth and M&As to unleash growth potential in the medium and long term.
　　Financials and valuation
　　We leave our earnings forecasts unchanged. The stock is trading at 13x 2024e and 11x 2025e P/E. We maintain our OUTPERFORM rating and target price of Rmb27, implying 19x 2024e and 16x 2025e P/E and offering 47% upside.
　　Risks
　　Volatile raw material prices; weaker-than-expected end-market demand; volatile foreign exchange rates.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。