HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

<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> saw its 4Q23 new contracts increased 14%, faster than the 13.5% growth in 9M23. Full-year new contracts are 3.5% ahead of its target.</li>
<li>Our estimated backlog of Rmb4.26trn at end-FY23 is 25.6% higher than end-FY22. Such backlog covers 4.9x FY24F revenue, which is a 0.6pp improvement YoY.</li>
<li>The inclusion of market cap management as a KPI for senior SOE officials will drive return, while CSRC's encouragement to raise payout ratio may easily push yield to over 10%.</li>
</ul>



China Communications Construction (1800 HK) saw its 4Q23 new contracts increased 14%, faster than the 13.5% growth in 9M23. Full-year new contracts are 3.5% ahead of its target.
Our estimated backlog of Rmb4.26trn at end-FY23 is 25.6% higher than end-FY22. Such backlog covers 4.9x FY24F revenue, which is a 0.6pp improvement YoY.
The inclusion of market cap management as a KPI for senior SOE officials will drive return, while CSRC's encouragement to raise payout ratio may easily push yield to over 10%.


China Comm Const (1800 HK): New Contracts Gathering Steam

<ul>
<li>The fall in share price in the last five months have sent <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> back to very attractive level. The market has misread the strong 2Q23 result.</li>
<li>2Q23 recurring net profit surged 68.5% as 2Q22 has an inflated base. Gross margin has recorded meaningful YoY recovery while capex, particularly for BOT, has scaled back significantly. </li>
<li>There should not be concerns about CCCC's contract outlook. Its backlog is enough to cover 4.9x FY23F revenue and its PER of 2.7x has provided more than sufficient buffer.</li>
</ul>


The fall in share price in the last five months have sent China Communications Construction (1800 HK) back to very attractive level. The market has misread the strong 2Q23 result.
2Q23 recurring net profit surged 68.5% as 2Q22 has an inflated base. Gross margin has recorded meaningful YoY recovery while capex, particularly for BOT, has scaled back significantly. 
There should not be concerns about CCCC's contract outlook. Its backlog is enough to cover 4.9x FY23F revenue and its PER of 2.7x has provided more than sufficient buffer.


China Comm Const (1800 HK): Well Worth Revisiting

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<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> 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>
</ul>



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

<ul>
<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

China

China Railway Construction Corporation Ltd is a full service construction company.  The Company's services include construction operations, survey design and consulting. China Railway also has manufacturing operations, real estate operations, and logistics. The Company specializes in railway construction.

China Railway Construction Corp (1186 HK)

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China Railway Construction Corp (1186 HK)

China Comm Const (1800 HK): New Contracts Gathering Steam

CCCC's 4Q23 new contracts increased 14%, surpassing the 9M23 growth rate. Full-year new contracts are 3.5% above target. The estimated backlog for...

Osbert Tang, CFA

China Comm Const (1800 HK): Well Worth Revisiting

CCCC has become very attractive due to an unjustified fall in share price. Recurring net profit surged 68.5% in 2Q23 and its contract outlook is...

Osbert Tang, CFA

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

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