HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

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<a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> is expected to generate higher shareholder return through improvement in profitability/cash flow, spin-off, asset disposal and issuance of REITs.</li>
<li>Operationally, backlog reached Rmb3.39trn at end-FY22, enough to cover 3.9x FY23F revenue. It expects revenue to grow at least 7% and new contract by no less than 9.8% in FY23. </li>
<li>Employee incentive scheme has been adopted with targets including FY21-23 earnings CAGR of at least 8% and FY23 return on net assets of 7.7%. This aligns employee interests with shareholders'. </li>
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China Communications Construction (1800 HK) is expected to generate higher shareholder return through improvement in profitability/cash flow, spin-off, asset disposal and issuance of REITs.
Operationally, backlog reached Rmb3.39trn at end-FY22, enough to cover 3.9x FY23F revenue. It expects revenue to grow at least 7% and new contract by no less than 9.8% in FY23. 
Employee incentive scheme has been adopted with targets including FY21-23 earnings CAGR of at least 8% and FY23 return on net assets of 7.7%. This aligns employee interests with shareholders'. 


China Comm Const (1800 HK): We See More Stories Coming

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<li>There is a sharp escalation in business momentum of <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> in 4Q22, with value of new contracts signed surged 95.3% YoY to Rmb510bn.</li>
<li>New contract growth reached 21.6% in FY22, ahead of its target of 11.8%. We estimate its end-FY22 backlog at Rmb3.6trn, which is enough to cover 5x its FY22 revenue. </li>
<li>Local governments' special purpose bond quota may increase by 4-10% in FY23F, boosting CCCC's contract outlook. At 2x PER, 0.2x P/B and 7.6% dividend yield, CCCC stays attractive.</li>
</ul>


There is a sharp escalation in business momentum of China Communications Construction (1800 HK) in 4Q22, with value of new contracts signed surged 95.3% YoY to Rmb510bn.
New contract growth reached 21.6% in FY22, ahead of its target of 11.8%. We estimate its end-FY22 backlog at Rmb3.6trn, which is enough to cover 5x its FY22 revenue. 
Local governments' special purpose bond quota may increase by 4-10% in FY23F, boosting CCCC's contract outlook. At 2x PER, 0.2x P/B and 7.6% dividend yield, CCCC stays attractive.


China Comm Const (1800 HK): Securing Stronger Backlog to Fuel Growth

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> made efforts to reduce debt and realise asset value lately through selling subsidiary minority stakes or issuing REIT. It is deeply undervalued at 0.21x P/B. </li>
<li>CCCC sold 4.84-9.98% stakes in four subsidiaries for Rmb7.5bn while maintaining controlling interests. We estimate this will reduce its end-3Q21 debt by 1.5%, with similar reduction in finance costs.</li>
<li>Its REIT issuance on the Jiatong Section of Wuhan-Shenzhen Expressway is progressing well and we see this to be an important tool for further recycle of projects to generate cash.</li>
</ul>



China Communications Construction (1800 HK) made efforts to reduce debt and realise asset value lately through selling subsidiary minority stakes or issuing REIT. It is deeply undervalued at 0.21x P/B. 
CCCC sold 4.84-9.98% stakes in four subsidiaries for Rmb7.5bn while maintaining controlling interests. We estimate this will reduce its end-3Q21 debt by 1.5%, with similar reduction in finance costs.
Its REIT issuance on the Jiatong Section of Wuhan-Shenzhen Expressway is progressing well and we see this to be an important tool for further recycle of projects to generate cash.


China Comm Const (1800 HK): Taking Meaningful Steps to Reduce Debt

We welcome the strong rebound in new contracts signed by <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> (CCCC) in 3Q21, and believe it is set to maintain good momentum on the back of local governments' infrastructure spending and the recovery in overseas demand. New contracts signed for domestic market rose 52.9% YoY while overseas surged 113% in the quarter, fuelling a 57.6% YoY growth in total new contract signed. Such pace looks very encouraging when compared with the 10.2% YoY drop recorded in overall new contracts in 2Q21.With 9M21 new contract value amounted to Rmb1trn, CCCC has already achieved 86% of its annual new contract target, and it looks very likely that actual full-year figure will beat its guidance. We expect urban construction (48% of total 3Q21 new contract) will continue to fuel the growth, as local governments strive to achieve "common prosperity" by improving overall living standard. The acceleration in issuance of special purpose bonds in 2H21 will definitely boost the funding for more infrastructure construction, thus benefiting CCCC's contracts on hand, in our view.

We welcome the strong rebound in new contracts signed by China Communications Construction (1800 HK) (CCCC) in 3Q21, and believe it is set to maintain good momentum on the back of local governments' infrastructure spending and the recovery in overseas demand. New contracts signed for domestic market rose 52.9% YoY while overseas surged 113% in the quarter, fuelling a 57.6% YoY growth in total new contract signed. Such pace looks very encouraging when compared with the 10.2% YoY drop recorded in overall new contracts in 2Q21.With 9M21 new contract value amounted to Rmb1trn, CCCC has already achieved 86% of its annual new contract target, and it looks very likely that actual full-year figure will beat its guidance. We expect urban construction (48% of total 3Q21 new contract) will continue to fuel the growth, as local governments strive to achieve "common prosperity" by improving overall living standard. The acceleration in issuance of special purpose bonds in 2H21 will definitely boost the funding for more infrastructure construction, thus benefiting CCCC's contracts on hand, in our view. 

China Comm Const (1800 HK): Exciting New Contract Momentum Fuels Outlook

<a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> has a fruitful 1H21 as reflected by impressive new contract growth and profit recovery. Driven by the strength at the domestic market, overall new contract addition reached Rmb685.1bn, a good 28.5% YoY growth. Such pace is the fastest when compared with the annual growth rate since FY15, and this solid project pipeline will translate into positive profit momentum over the next three years.CCCC has also issued positive profit alert for 1H21, guiding for between 109.70% and 139.01% YoY growth in net profit. For 2Q21 standalone, the YoY growth should reach an even higher 1.4-2.1x. We see limited regulatory risks for CCCC given the infrastructure construction industry landscape and its centrally-owned SOE status. In our view, its ROE of 6.9% for FY21F and 7.5% for FY22F highly justify a re-rating in its P/B multiple which currently stands at 0.19x on a 12-month forward basis.

China Communications Construction (1800 HK) has a fruitful 1H21 as reflected by impressive new contract growth and profit recovery. Driven by the strength at the domestic market, overall new contract addition reached Rmb685.1bn, a good 28.5% YoY growth. Such pace is the fastest when compared with the annual growth rate since FY15, and this solid project pipeline will translate into positive profit momentum over the next three years.CCCC has also issued positive profit alert for 1H21, guiding for between 109.70% and 139.01% YoY growth in net profit. For 2Q21 standalone, the YoY growth should reach an even higher 1.4-2.1x. We see limited regulatory risks for CCCC given the infrastructure construction industry landscape and its centrally-owned SOE status. In our view, its ROE of 6.9% for FY21F and 7.5% for FY22F highly justify a re-rating in its P/B multiple which currently stands at 0.19x on a 12-month forward basis. 

China Comm Const (1800 HK): Well Placed for an Upturn

China

China Railway Construction Corporation Limited provides transportation infrastructure construction services. The Company constructs railway, highway, urban track, and other infrastructure. China Railway Construction also provides real estate development and materials trading services.

China Railway Construction Cor (601186 CH)

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China Railway Construction Cor (601186 CH)

China Comm Const (1800 HK): We See More Stories Coming

CCCC is expected to generate higher shareholder return through improvement in profitability/cash flow, spin-off, asset disposal and issuance of...

Osbert Tang, CFA

China Comm Const (1800 HK): Securing Stronger Backlog to Fuel Growth

CCCC recorded a sharp 95.3% YoY growth in new contracts signed in 4Q22, finishing the year sharply ahead of its target. Its shares stay very...

Osbert Tang, CFA

China Comm Const (1800 HK): Taking Meaningful Steps to Reduce Debt

CCCC is progressing to reduce debt by selling minority stakes in subsidiaries and issuing REIT on toll road asset. These moves are positive and its...

Osbert Tang, CFA

China Comm Const (1800 HK): Exciting New Contract Momentum Fuels Outlook

CCCC has a fruiful 3Q21 with overall new contract value grew 57.6% YoY, signficantly accelerated from 28.5% in 1H21. The strong rebound in overseas...

Osbert Tang, CFA

China Comm Const (1800 HK): Well Placed for an Upturn

Good new contract value momentum and positive profit alert are both encouraging to CCCC. We believe its valuations are undemandiing at just 0.19x P...

Osbert Tang, CFA

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