Hsin Chong Construction Group (404.HK)

Transcription

1 Company Research Report Company Research Report Date Industry 2013/09/02 Construction Hsin Chong Construction Group (404.HK) 2013/1H Interim Result Buy Closing Price Target Price $1.06 $1.99 Share Information Stock Code 404 Outstanding Shares (bn) 1.18 Market Cap ($bn) mth Avg Daily Turnover ($mn) mth High/Low ($) 1.67/0.84 CFPS ($) 0.23 BVPS ($) 2.23 P/E (x) 10.2 P/B (x) 0.48 ROA (%) 9.14 ROE (%) 2.82 Debt/Equity (%) 26.5 Div. Yield (%) 4.72 Source : Bloomberg, Emperor Securities Research Price Performance HKD HC HSI /12 11/12 02/13 05/13 1-mth 3-mth 6-mth 12-mth Change (%) Rel. to HSI (%) Source : Bloomberg, Emperor Securities Research Research Department Tel : (852) Fax : (852) esl.research@emperorgroup.com Revenue up 44%: HC reported a strong underlying results in 1H/FY13 with revenue increasing 44% to $5.70bn (after excluding nominated subcontractors works the total revenue increased 15% to $4.5bn), Gross profit increased 9% to $280mn mainly contributed from gross profit of construction business increased by 24% to $203mn. GPM slightly increased 0.24 ppt to 5.65%. Net profit increased 7% to $79.9mn. EPS maintain at HK7.9 cents and the company declared an interim dividend of HK2.2 cents a share. New contract orders of HK$2.4bn in 2013/1H: In construction business, HC received new orders intake of $2.4bn, up 14% in 1H/FY13. The current level of new order intake consistent with the level of last 2 years. As of 30 June 2013, the total outstanding workload exceeded $14bn ($22bn if NSC were included), which contracts is equivalent to over 2 years HC s turnover. Acquisition New Times Plaza will be completed in September: On April, 2013, HC has acquired the New Times Plaza in Beijing, a completed mixed residential and commercial development, with a GFA of approximately 70,000 sqm., with valuation over RMB1.7 bn. The transaction is expected to be completed before the end of September We believe that after the acquisition of New Times Plaza in Beijing, it will provide a steady rental income for HC in the near future. Maintain Buy recommendation, target price $1.99: Our NAV per share estimate for HC is $1.95 on a fully diluted basis. The building construction business is valued at $2.14bn based on 8X FY13E P/E. (FY13 net profit is projected to be $268mn). Being a leader in the construction industry, HC justifies a valuation premium. We maintain the buy recommendation with a target price of $1.99, based on 19.0x FY13E P/E falling to 7.9x FY14E. The NAV discount will be narrowed eventually as investors begin to recognize its property development profit potential in China. Financial Information Year Ended 31 Dec. FY11 FY12 FY13E FY14E FY15E Revenue ($mn) 5,884 7,249 9,725 13,975 15,869 Growth (%) 53% 23% 34% 44% 14% Net Profit ($mn) Growth (%) 26% 4% 57% 142% -13% EPS ($) Growth (%) 22% -23% -45% 142% -13% P/E (x) DPS Dividend Yield (%) 5.7% 4.4% 2.4% 5.8% 5.1% Source : Bloomberg, Emperor Securities Research 1

2 Company Highlight HC reported a strong underlying results in 1H/FY13 with revenue increasing 44% to $5.70bn, mainly attributed to the construction business strong order book and completed work being booked In construction business segment, HC received new orders intake of $2.4bn, up 14% in 1H/FY13, the current level of new order intake consistent with the level of last 2 years. Revenue up 44%: HC reported a strong underlying results in 1H/FY13 with revenue increasing 44% to $5.70bn (after excluding nominated subcontractors works, the total revenue increased 15% to $4.5bn), mainly attributed to the construction business strong order book and the completion of work being booked (Construction segment revenue increased 17% to $4,126mn). Gross profit (GP) increased 9% to $280mn mainly contributed from gross profit of construction business increased by 24% to $203mn. GPM slightly increased 0.24 ppt to 5.65%. Net profit increased 7% to $79.9mn. EPS maintain at HK7.9 cents and the company declared an interim dividend of HK2.2 cents a share. (See Figure 1) New contract orders of HK $2.4bn in 2013/1H: Considering HC s construction business, HC received new orders intake of $2.4bn, up 14% in 1H/FY13, these new orders include inter-alia a building contract for the Tsuen Wan Adventist Hospital and an electrical and mechanical contract for the Tin Shui Wai Hospital. The current level of new order intake consistent with the level of last 2 years. As of 30 June 2013, the total outstanding workload exceeded $14bn ($22bn if NSC were included), which contracts is equivalent to over 2 years HC s turnover. Figure 1: Hsin Chong s Income statement 1H2012/2013 Year ended 30 December 2013/1H 2012/1H Change(%) HKD(mn) HKD(mn) Building Construction % Civil Engineering % Interiors & Special Projects % Electrical & Mechanical % Property & Facility Mgt % Property Development & Investment % Revenue* % Construction Division received total new orders of HK$2.4billion (2012: HK$2.1 billion), including inter-alia a building contract for the Tsuen Wan Adventist Hospital and an electrical and mechanical contract for the Tin Shui Wai Hospital In April 2013, HC is intending to acquire the New Times Plaza in the Beijing City, The completion of the transaction is expected to be completed on or before 17 September 2013 Strong order book of the construction business with increased revenues, for work completed, being booked. Gross Profit % Share of J.C. Entities % % of sales (%) 0.502% 1.064% -0.56ppt Other income % % of sales (%) -0.2% -0.2% +0.01ppt GAE (176) (164) 7% % of sales (%) 3.9% 4.1% -0.28ppt Fair value loss on Invest. Prop. (8.53) (6.39) 33% % of sales (%) 3.3% 3.0% +0.33ppt Amort. of intangible assets (7.58) (7.00) 8% % of sales (%) 0.2% 0.2% -0.01ppt Operating Profit % Interest income % Interest expenses (8.03) (3.98) 102% Profit before taxation % Taxation (11) (10) 12% Profit % Equity Holders to Co % NC interests (0.67) (0.19) 261% EPS Basic (HK Cents) % Diluted (HK Cents) % Ratio Gross Profit Margin 5.65% 5.41% +0.24ppt Operating Margin 2.10% 2.17% -0.07ppt Net Profit Margin 1.74% 1.88% -0.14ppt * Excluding nominated subcontractors' works(nsc) Source: Hsin Chong Construction Group 2

3 55% of outstanding order from public sector: In 2013/1H, HC s construction business revenue increased 17% to $4.1bn YoY. About 64% of total gross profit of $203mn was generated from traditional building business in Hong Kong and Macau; 19% from civil engineering; and the rest of 17% was evenly distributed among the other business segments. Out of the $14bn outstanding orders (excl. NSC) on hand, nearly 55% were from Hong Kong Government, public institutions and MTR, including: Public housing development projects: at Anderson Road & Hung Shui Kiu; Public works: sewerage contracts of Drainage Services Department; University building projects: at HKUST and St. Joseph University, Macau; MTR projects: a) Nam Cheong Station foundation works, b) Huanggang to Mai Po Tunnels1, c) West Kowloon Terminus 2 of the Express Rail Link; d) Superstructure works of Wong Chuk Hang depot of the South Island Line; e)two railway stations and Tunnels of the Shatin Central Link3. Acquired New Times Plaza will be completed in September: On 15 April, 2013, HC has acquired the New Times Plaza in Beijing, a completed mixed residential and commercial development, with a gross floor area of approximately 70,000 sqm., with valuation over RMB1.7 bn. The transaction is expected to be completed before the end of September We believe that after the acquisition of New Times Plaza in Beijing, it should provide steady rental income from the commercial shopping mall. Valuation: Maintain Buy recommendation, target price $1.99: Our NAV per share estimate for HC is $1.95 on a fully diluted basis (see Figure 2). The building construction business is valued at $2.14bn based on 8X FY13E P/E. (FY13 net profit was $268mn). Being a leader in the construction industry, a valuation premium is justified. We maintain the buy recommendation with a target price of $1.99, based on 19.0x FY13E P/E falling to 7.9x in FY14E. The NAV discount will be narrowed eventually as investors begin to recognize its property development profit potential in China (see Figure 3). Figure 2: Market NAV Estimate for Hsin Chong Source: Hsin Chong Construction Group Est Mkt Value per share Notes (HK$ bn) (HK$) Construction building and related operations Property Development (at cost) Property Investment (at cost) Total asset value Add: Net Cash Net asset value (NAV) * Assuming total no. of share = 2.72bn shares Figure 3: Peers Comparison 8x FY13 Net Profit of HK$268mn Company Code Price MktCap. PE (x) PB (x) (HKD) HKD (bn) E E HSIN CHONG N/A TYSAN HLDS VISION FAME N/A N/A YAU LEE HANISON CHUN WO N/A BUILD KING N/A N/A Louis XIII CHINNEY ALLI N/A N/A Average Source: Hsin Chong Construction Group 3

4 Income Statement HKD(million) Year Ended 31 Dec E 2014E 2015E Revenue Cost of Good Sold (5378) (6789) (9032) (12593) (14520) Gross Profit Share of net profit GA Exp. (319) (342) (459) (660) (750) Other income Other loss (27) (30) (44) (63) (72) Operating Profit Net Finance Cost (4.0) 9.0 (13.6) (17.4) (19.7) Profit Before Tax Tax (22) (21) (34) (156) (136) MI Net Profit EPS DPS Cash Flow Statement HKD(million) Year Ended 31 Dec E 2014E 2015E CF from Operating Act CF from Investment Act. (273) 60 (948) (832) (498) CF from Financial Act Cash & CE at beg. of year Inc./(dec.) in Cash & CE (35) (18) 90 Exchange gains / loss Cash & CE at end of year Balance Sheet HKD(million) E 2014E 2015E Prop. Develop Stocks & Contracts Rec. & Prepay Other Current Asset Bank bal. & Cash Current Assets PPE Invest. Prop Intangible Asset Goodwill J-Control Entities Other NC Asset Non-current Assets Total Assets Bank loans Payable & Accruals Cur. tax liab Others (0) 0 0 Current liabilities Senior loan note Convertible bonds Def. tax liab Others Non-current liabilities Total Liabilities Equity Financial Ratio Year Ended 31 Dec E 2014E 2015E Profitability (%) Gross Margin 9% 6% 7% 10% 8% EBITDA Margin 6% 5% 5% 8% 6% EBIT Margin 4% 3% 3% 6% 5% Pre-tax profit margin 4% 3% 3% 6% 5% Net Profit Margin 3% 2% 3% 5% 4% Growth Rate (%) 0% 0% 0% 0% 0% Revenue 53% 23% 34% 44% 14% EBITDA 16% -1% 46% 109% -8% EBIT 16% -11% 72% 160% -12% Net Profit 26% 4% 57% 142% -13% EPS 22% -23% -45% 142% -13% Operation Current Ratio (X) Quick Ratio (X) GA Exp/ Sales (%) 5% 4% 4% 4% 4% A/R (Day) A/P (Day) Financial Ratio Div. Payout Ratio (%) 27% 24% 24% 24% 24% Net debt/equity (%) 47% 36% 16% 17% 14% Sales / total assets (x) Total assets / equity (x) Return on Asset (%) 4% 3% 4% 7% 6% Return on Equity (%) 14% 9% 9% 16% 12% 4

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