Yum Cha 飲 茶 June 27, 2016
Source: Bloomberg
INDICES Closing DoD%
Hang Seng Index 20,259.1 (2.9)
HSCEI 8,530.1 (2.9)
Shanghai COMP 2,854.3 (1.3)
Shenzhen COMP 1,900.6 (0.8)
Gold 1,333.5 4.7
BDIY 609.0 2.2
Crude Oil, WTI(US$/BBL) 47.2 (1.0)
Crude Oil, BRENT(US$/BBL) 48.0 (0.8)
HIBOR, 3-M 0.5 0.2
SHIBOR, 3-M 3.0 0.1
RMB/USD 6.6 0.6
TALKING POINT - STOCKS WITH HIGHER EARNINGS VISIBILITY
The surprising win of the “Leave” camp in the Brexit referendum last Friday led to huge market volatility. As the future of the European Union remains highly uncertain in the near term, we have prepared a list of stocks under our coverage with higher earnings visibility for investors’ reference. The list includes stocks for the renewables, water utilities, pharmaceuticals, construction and education sectors. We also include two stocks without any track record of cutting regular DPS in the past five years. PCCW (0008.HK) is offering >5% dividend yield, and LINK REIT (0823.HK) is offer-ing >4% yield. Both stocks have been largely range-bound recently because of con-cerns about the US rate hike. However, the market turmoil last week should largely lower the possibility of a rate hike in Q3, and investors are likely to revisit yield plays in a volatile market, in our view. In addition, both companies collect most of their rev-enue in HKD, which is free from the risk of RMB depreciation.
DATA RELEASES DUE THIS WEEK
Jun 27 Leading Index
Jun 28 Westpac-MNI Consumer Sentiment
Jun 29 Swift Global Payments CNY
Jun 29 BoP Current Account Balance
Jun 30 Manufacturing PMI
Jun 30 Non-manufacturing PMI
Jun 30 Caixin China PMI Mfg
SHUN TAK [0242.HK; HK$2.40; NOT RATED]- We believe the Company’s core earnings in 2016 and 2017 will be unexciting because of limited revenue booking from its property business and the lower indirect dividend from SJM (0880.HK). How-ever, there will be a substantial jump in profit in 2018 with revenue booking from Ma-cau Nova City Phase 5 (we estimate potential attributable pre-tax profit to Shun Tak is about HK$6.5bn (89% of its current market cap)) and the one-off pre-tax profit of HK$1.3bn from the transaction with the Abu Dhabi Investment Authority (ADIA). With a net cash position of HK$3.48bn (47.6% of total market cap) and a PBR of 0.28x (Note: NAV per share is about HK$10 based on street estimates), the Company is clearly undervalued on an absolute basis and its historical trading range. Given the lacklustre earnings outlook in 2016 and 2017, further cooperation with the ADIA or other reputable partners in investment projects will be the key to drawing more atten-tion from investors and triggering a re-rating.
CHINA CEMENT WEEKLY – Last week the average cement price (nationwide) de-clined 0.45% week-on-week to RMB 255.42/tonne. Cement prices in part of east China dropped RMB10-20/tonne, owing to weaker execution of production limits in the Yangtze River Delta region. Market demand was still weak in mid-June, led by multi-factors such as rainfall, national college/high school entrance exams (suspension of some construction works to reduce noise levels) and the peak of the harvest season. Daily shipment volume was around 50%-70% in most areas, except in Guangdong and Guangxi, where it was around 80%. Average inventory level (nationwide) was still at 70.56%.
RESEARCH NOTES
Sources: Bloomberg, CGIS Research
Analyst: Wong Chi-man, CFA
Company namePrice
(HK$)
Market cap
(HK$m)Rating PER (x)
2016E
PER (x)
2017E
PER (x)PBR (x)
Dividend
yield (%)958 HK Equity Huaneng Renew ables Corp Ltd 2.42 23,542 BUY 10.80 9.58 8.07 1.13 1.45
916 HK Equity China Longyuan Pow er Group Corp Ltd 6.06 48,701 BUY 14.42 12.29 10.95 1.18 1.40
968 HK Equity Xinyi Solar Holdings Ltd 2.99 20,179 BUY 16.13 10.68 8.08 3.51 2.92
855 HK Equity China Water Affairs Group Ltd 4.13 6,277 BUY 15.45 12.52 10.87 1.41 1.69
1093 HK Equity CSPC Pharmaceutical Group Ltd 6.52 38,540 BUY 21.76 19.18 15.52 4.41 1.68
867 HK Equity China Medical System Holdings Ltd 11.24 27,957 BUY 23.75 17.35 14.37 4.50 1.72
3311 HK Equity China State Construction International 9.84 44,163 BUY 9.54 7.81 6.47 1.89 3.15
1317 HK Equity China Maple Leaf Educational Systems Ltd 6.63 9,015 BUY 33.27 28.09 23.41 4.24 0.63
8 HK Equity PCCW Ltd 4.95 38,143 NR 16.19 14.69 13.27 3.42 5.05
823 HK Equity LINK REIT 49.7 111,036 NR 6.92 22.75 21.61 0.88 4.15
COMPANY / INDUSTRY NEWS
Analysts: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)
SHUN TAK [0242.HK; HK$2.40; NOT RATED] – PROFIT SKEWED TO 2018; MORE CORPORATE ACTION THE KEY TO DRAWING ATTENTION
Market Cap: US$941m; Free Float: 37.3%
SHUN TAK (0242.HK; NOT-RATED) Company background. Shun Tak Holdings, which was listed on
the main board in 1973, is a conglomerate with businesses includ-
ing property, transportation, hospitality and investment. Most of its
revenue comes from Macau and Hong Kong. The Ho family controls
the Company with a combined 58.2% stake.
Recap of the transaction with the Abu Dhabi Investment Au-
thority (ADIA). Last Wednesday, Shun Tak announced that it will
sell a 50% stake in the Nova City Phase 5 shopping centre (under
development) to the ADIA for a total consideration of HK$3.2bn. It is
located in Taipa, Macau and has a GFA of 655,000 sq. ft. Shun Tak
will collect net proceeds of about HK$3bn and book a pre-tax profit
of HK$1.3bn (17.8% of its market cap).
Potential for more cooperation with the ADIA. In our discussion
with Shun Tak, we learned that one of the goals of the Nova City
Phase 5 shopping centre deal with the ADIA was to form a strategic
partner relationship. It was not a one-off transaction for short-term
capital gains. The Company sees the potential to work with the
ADIA because of the latter’s investment experience in a wide range
of sectors and regions. However, no details have been provided yet.
No decision on a special dividend. Since the payment from the
ADIA will be settled by installments, with the last payment expected
to be settled in Q4 2018, the Company has not made a decision on
the payment of a special dividend. The pre-tax disposal gain of
about HK$1.3bn will be booked when the deal is fully completed.
Property profit to see strong recovery in 2018. The Company’s
revenue from its property business dropped 85% year-on-year
(YoY) to HK$869m in 2015 because of very limited booking of prop-
erty sales. It expects the revenue booking this year to remain rela-
tively low as sales are expected to come mainly from the Chung
Hom Kok Collection, a relatively small luxury residential project with
a salable GFA of about 26,000 sq.ft (five houses in total). It plans to
sell two units this year; we understand the market price of nearby
houses is about HK$50,000-80,000/sq. ft. Property revenue should
pick up mildly in 2017 from sales of about 100 units of Nova City
Phase 4 (ASP about HK$11,500/sq. ft with average unit size of
>1,000 sq.ft. In 2018, revenue booking is likely to be much stronger
thanks to Nova City Phase 5 (under development) with a GFA of
2.3m sq. ft. The ASP of nearby projects is about HK$8,000/sq. ft.
now. This implies the total revenue of the project may reach about
HK$18bn (71% of which is attributable to Shun Tak). We estimate
potential attributable pre-tax profit to Shun Tak is about HK$6.5bn
(89% of its current market cap).
Source: Bloomberg
June 27, 2016
Other promising projects but time required to realize val-
ue. Shun Tak owns a 24% stake in Beijing Tongzhou Inte-
grated Development (residential, office and serviced apart-
ments) Phase 1 (GFA: 334,000 m2) and a 19.35% stake in
Phase 2 (GFA: 300,000 m2). The projects, which are ex-
pected to be completed in 2018, will benefit from the authori-
ties’ decision to pick Tongzhou to share some of the functions
of the Beijing municipal government. According to press re-
ports, the ASP for residential housing in Tongzhou reached
RMB35,000/m2 in May. Another key project is the 70%-
owned Hengqin Integrated Development (office, serviced
apartments, hotel, commercial) (GFA: 131,000 m2) near Ma-
cau. The expected completion date is 2019. About 75% of the
GFA will be reserved for leasing. In the medium term, the
Company intends to increase its revenue contribution from
rental income.
(more on next page)
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60
80
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3
4
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Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 Jun16
(HK$ million)(HK$)
Turnover (RHS) Price (LHS)
HK$ 2014 2015 2016E 2017E
Revenue (m) 9,151 4,116 4,762 5,034
COGS (m) (4,670) (1,495) n.a. n.a.
Gross profit (m) 4,482 2,621 n.a. n.a.
Gross margin (%) 49 64 n.a. n.a.
EBIT (m) 3,242 636 1,315 1,899
Net profit (m) 4,453 745 856 968
Net margin (%) 49 18 18 19
Core net profit 2,577 548
EPS 1.47 0.25 0.28 0.32
ROE (%) 18.73 2.82 3.14 3.16
Dividend yield (%) 2.92 0.83 1.17 2.50
PER (x) 1.6 9.8 8.6 7.5
PBR (x) 0.3 0.3 0.3 0.3
COMPANY / INDUSTRY NEWS
Analysts: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)
SHUN TAK [0242.HK; HK$2.40; NOT RATED] – PROFIT SKEWED TO 2018; MORE CORPORATE ACTION THE KEY TO DRAWING ATTENTION
Transportation business to remain resilient thanks to low oil prices. Although TurboJET’s flagship Hong Kong-Macau ferry
routes reported a 2% decline in total passenger throughput (14m) last year, adjusted segment profit still grew 218% YoY to HK$321m
as a result of lower fuel costs. As oil prices remain at a relatively low level this year, we expect the transportation business to contin-
ue to report earnings growth in 2016, despite lower passenger numbers.
Outlook for hospitality business to remain challenging but limited impact on overall performance. The weakness of the Ma-
cau tourism industry has adversely affected the Company’s hotel business. The occupancy rate for the Mandarin Oriental, Macau
remains at a relatively low level. The Hong Kong SkyCity Marriott Hotel also faced some pressure on room rates, but was still able to
keep its occupancy rate over 80%. Any further impact on the Company’s financial performance should be limited, as this segment
accounted for only 4.7% of the total adjusted segment profit in 2015.
Investment segment to remain unexciting because of the indirect link with SJM (0880.HK). Shun Tak owns an effective interest
in STDM of about 11.5%, which in turn has a 54.13% stake in SJM. The performance of this segment largely reflects the dividend
paid by SJM in the previous financial year. As the dividend declared by SJM in 2015 dropped about 70% YoY, it will inevitably affect
the dividend to be collected by Shun Tak this year.
Unexciting core earnings before 2018 but deeply undervalued; more corporate action will be the key to triggering a re-
rating. We believe the Company’s core earnings in 2016 and 2017 will remain unexciting because of limited revenue booking from its
property business and the lower indirect dividend from SJM. However, there will be a substantial jump in profit in 2018 with revenue
booking from Macau Nova City Phase 5 and the one-off pre-tax profit of HK$1.3bn from the transaction with the ADIA. With a net
cash position of HK$3.48bn (47.6% of total market cap) and a PBR of 0.28x (Note: NAV per share is about HK$10 based on street
estimates), the Company is clearly undervalued on an absolute basis and its historical trading range. Given the lackluster earnings
outlook in 2016 and 2017, further cooperation with the ADIA or other reputable partners in investment projects will be the key to
drawing more attention from investors and triggering a re-rating.
0.277x
Figure 1: PBR of Shun Tak
Sources: Capital IQ, CGIS Research
COMPANY / INDUSTRY NEWS
Analysts: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)
SHUN TAK [0242.HK; HK$2.40; NOT RATED] – PROFIT SKEWED TO 2018; MORE CORPORATE ACTION THE KEY TO DRAWING ATTENTION
Figure 2: 2015 results highlights
Sources: Company, CGIS Research
Y/E Dec 31 (HK$'000) 2014 2015 YoY change
Revenues
Turnover 9,538,561 4,405,312 -53.8%
Property 5,909,420 868,840 -85.3%
Transportation 2,437,768 2,406,098 -1.3%
Hospitality 772,758 801,889 3.8%
Investment 418,615 328,485 -21.5%
Other Income 257,198 290,496 12.9%
Total Revenues 9,795,759 4,695,808 -52.1%
Expenses
Cost of Inventories Sold and Services Provided (4,669,794) (1,494,894) -68.0%
Staff Cost (1,234,493) (1,288,973) 4.4%
Other Operating Costs (528,003) (636,183) 20.5%
Other Gain/(Loss), Net 22,713 23,123 1.8%
Depreciation and Amortization (155,387) (153,820) -1.0%
Fair Value Changes on Investment Properties 941,420 257,508 -72.6%
Share of Results of Associates 50,801 (43,753) -186.1%
Share of Results of Joint Ventures 1,581,224 122,611 -92.2%
Finance Costs (135,408) (170,089) 25.6%
Earnings before Taxes 5,668,832 1,311,338 -76.9%
Taxes and Other Expenses
Provision for Income Tax (404,999) (138,371) -65.8%
Minority Interest (After Tax) (810,924) (428,297) -47.2%
Net Income (Loss) 4,452,909 744,670 -83.3%
Core net profit 2,577,000 548,000 -78.7%
Adjusted segment profit
Property 2,809,000 524,000 -81.3%
Transportation 101,000 321,000 217.8%
Hospitality 93,000 56,000 -39.8%
Investment 385,000 281,000 -27.0%
Supplementary Info (HK$)
Basic EPS - Continuing Operations 1.47 0.25 -83.3%
Diluted EPS - Continuing Operations 1.44 0.25 -82.9%
COMPANY / INDUSTRY NEWS
Analysts: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)
SHUN TAK [0242.HK; HK$2.40; NOT RATED] – PROFIT SKEWED TO 2018; MORE CORPORATE ACTION THE KEY TO DRAWING ATTENTION
Figure 3a: Schedule of major properties
Sources: Company, CGIS Research
COMPANY / INDUSTRY NEWS
Analysts: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)
SHUN TAK [0242.HK; HK$2.40; NOT RATED] – PROFIT SKEWED TO 2018; MORE CORPORATE ACTION THE KEY TO DRAWING ATTENTION
Figure 3b: Schedule of major properties
Sources: Company, CGIS Research
COMPANY / INDUSTRY NEWS
Analysts: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)
SHUN TAK [0242.HK; HK$2.40; NOT RATED] – PROFIT SKEWED TO 2018; MORE CORPORATE ACTION THE KEY TO DRAWING ATTENTION
Figure 3c: Schedule of major properties
Sources: Company, CGIS Research
COMPANY / INDUSTRY NEWS
Analysts: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)
SHUN TAK [0242.HK; HK$2.40; NOT RATED] – PROFIT SKEWED TO 2018; MORE CORPORATE ACTION THE KEY TO DRAWING ATTENTION
Figure 3d: Schedule of major properties
Sources: Company, CGIS Research
China Cement Weekly
June 27, 2016
Wong Chi Man—Head of Research
(852) 3698-6317
Livy Lyu—Research Assistant
(852) 3698-6393
Rainfall and Harvest Season Continued to Cap Cement Price Upside; Asia Cement
Intends to Increase Stake in Shanshui Cement
Cement prices down 0.45% week-on-week as result of continuing rainfall. Last week the
average cement price (nationwide) declined 0.45% week-on-week to RMB 255.42/tonne.
Cement prices in part of east China dropped RMB10-20/tonne, owing to weaker execution of
production limits in the Yangtze River Delta region. Market demand was still weak in mid-June,
led by multi-factors such as rainfall, national college/high school entrance exams (suspension of
some construction works to reduce noise levels) and the peak of the harvest season. Daily
shipment volume was around 50%-70% in most areas, except in Guangdong and Guangxi,
where it was around 80%. Average inventory level (nationwide) was still at 70.56%.
Coal prices stable since early June. The comprehensive average price index for Bohai-Rim
Steam Coal (Q5500K) remained at RMB400/tonne last week. The index was 4.0% lower on a
year-on-year basis.
Asia Cement still intends to increase its stake in Shanshui Cement. The board of directors
of China Shanshui Cement [0691.HK] approved a proposal to restore the public float earlier this
month, involving an open offer on the basis of four new shares for each existing share, in
combination with a placement of new/existing shares to raise about HK$4bn to settle the
outstanding debt of the Company, including any outstanding amount for the 2020 Notes. In
addition to its major shareholder Tianrui (International) Holding Company’s indication of interest
in underwriting the rights issue, Asia Cement [1102.TT] revealed its intention this week to
increase its stake once trading resumes. As the application for the construction of new clinker
production lines has been suspended in China, acquisition is the only way to expand a
company’s cement business, according to the chairman of Asia Cement. Management of
Shanshui Cement intends to resume trading three months from now, according to press reports.
Cement stocks under coverage down 0.5% on average. Overall market performance was
volatile last week amid concerns of Brexit. Best performer CR Cement [1313.HK; HOLD] was
up 1.7%. BBMG[2009.HK;BUY] was the weakest among our coverage stocks, falling 2.1%.
China Cement Sector
Sources: Company, Bloomberg, CGIS Research estimates
Valuation Table
Net debt/equity (%)
Company Ticker Rating Price (HK$) Market cap (US$m) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E 2016E
Anhui Conch 914 HK Equity BUY 17.64 11,343 13.1 9.4 9.4 1.20 1.09 1.01 7.0 5.4 5.1 3
CNBM 3323 HK Equity HOLD 3.33 2,305 25.3 6.4 6.5 0.39 0.37 0.35 9.9 9.5 9.3 218
BBMG 2009 HK Equity BUY 2.28 5,421 11.4 7.7 7.2 0.56 0.55 0.52 8.6 7.3 6.8 63
CR Cement 1313 HK Equity HOLD 2.37 1,985 7.4 10.2 10.3 0.57 0.55 0.54 7.4 6.6 6.7 64
Simple average 14.3 8.4 8.3 0.68 0.64 0.61 8.2 7.2 7.0 87
Weighted average 13.5 8.7 8.6 0.88 0.82 0.77 7.8 6.4 6.1 48
PER (x) PBR (x) EV/EBITDA(x)
2015 -2017E PEG(x)
Company Ticker 2016E 2017E CAGR (%) 2016E 2015 2016E 2017E 2015 2016E 2017E
Anhui Conch 914 HK Equity 46.2 5.2 24.0 0.4 8.93 12.09 11.66 2.9 3.2 3.2
CNBM 3323 HK Equity 315.0 2.4 106.1 0.1 1.49 5.95 5.80 1.3 2.1 2.3
CR Cement 1313 HK Equity (28.0) (0.1) (15.2) (0.5) 7.51 5.49 5.33 3.4 2.1 1.8
BBMG 2009 HK Equity 56.0 11.1 31.7 0.3 5.41 7.42 7.70 1.8 1.5 1.5
Simple average 97.3 4.6 36.7 0.1 5.84 7.74 7.62 2.4 2.2 2.2
Weighted average 71.2 5.9 31.3 0.3 7.08 9.59 9.40 2.5 2.5 2.5
EPS Growth (%) ROE (%) Dividend yield (%)
1-Year Relative Performance
Sources: Capital IQ, CGIS Research
Peer Comparison
Sources: Bloomberg, CGIS Research
Market cap
Company Ticker Rating Price (LC) (US$m) 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E
Anhui Conch 914 HK Equity BUY 17.64 11,343 13.1 9.4 9.4 1.20 1.09 1.01 7.0 5.4 5.1
CNBM 3323 HK Equity HOLD 3.33 2,305 25.3 6.4 6.5 0.39 0.37 0.35 9.9 9.5 9.3
BBMG 2009 HK Equity BUY 2.28 5,421 11.4 7.7 7.2 0.56 0.55 0.52 8.6 7.3 6.8
CR Cement 1313 HK Equity HOLD 2.37 1,985 7.4 10.2 10.3 0.57 0.55 0.54 7.4 6.6 6.7
TCC International 1136 HK Equity NR 1.24 786 - - 24.8 0.31 0.32 0.32 8.1 11.8 8.6
China National Materials 1893 HK Equity NR 1.68 769 6.6 7.2 5.4 0.34 0.32 0.29 6.5 6.0 5.5
Asia Cement 743 HK Equity NR 1.35 271 - - 52.3 0.20 0.20 0.21 6.5 11.2 8.9
West China Cement 2233 HK Equity NR 1.59 1,105 - 23.8 17.6 1.26 1.33 1.30 9.7 9.5 7.2
Tianrui Cement 1252 HK Equity NR 2.20 677 14.7 n.a. n.a. 0.60 n.a. n.a. 10.1 n.a. n.a.
Simple average 4.3 8.1 16.7 0.54 0.59 0.57 8.2 8.4 7.2
Weighted average 12.1 8.7 9.7 0.85 0.78 0.73 7.9 6.6 6.1
PER (x) PBR (x) EV/EBITDA(x)
Figure 1: Regional Cement Price
Sources: Digital Cement, CGIS Research
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China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459
Room 3501-3507, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.
BUY share price will increase by >20% within 12 months in absolute terms :
SELL share price will decrease by >20% within 12 months in absolute terms :
HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :