Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

China State Construction Development / Equity Bottom-Up

In our last report on <a href="https://www.smartkarma.com/entities/china-state-construction-development-holdings" target="_blank" data-smartkarma-citation="entities:3892:1" rel="noopener">China State Construction Development (830 HK)</a> entitled <a href="https://www.smartkarma.com/insights/china-state-construction-development-830-hk-a-short-term-opportunity-with-tremendous-upside" target="_blank" data-smartkarma-citation="insights:54001" rel="noopener">China State Construction Development (830 HK): A Short-Term Opportunity with Tremendous Upside</a>, we highlighted an opportunity to play the name before its results due to our belief that the company would report a profit alert. With this catalyst playing out now, we see limited upside in the short term.Notable highlights of the result and our conversations with management:<ul>
<li>New orders increased by 76% YoY from 2.5 bn HKD to 4.5 bn HKD in H1 FY21.</li>
<li>A 50 bps increase in gross profit margin from 13.6% to 14.1%.</li>
<li>A stated intention of decreasing net gearing from 38.7% to 10% by the end of FY21. </li>
<li>A goal of paying out 40-50% of the net profits as dividends.</li>
</ul>We believe that the stock has a reasonable valuation of 13x FY21 and 10x FY22 but provides a limited upside.  We expect a drop in profits (in line with previous years ) HoH, but an increase YoY by 70-80%.

In our last report on China State Construction Development (830 HK) entitled China State Construction Development (830 HK): A Short-Term Opportunity with Tremendous Upside, we highlighted an opportunity to play the name before its results due to our belief that the company would report a profit alert. With this catalyst playing out now, we see limited upside in the short term.Notable highlights of the result and our conversations with management:
New orders increased by 76% YoY from 2.5 bn HKD to 4.5 bn HKD in H1 FY21.
A 50 bps increase in gross profit margin from 13.6% to 14.1%.
A stated intention of decreasing net gearing from 38.7% to 10% by the end of FY21. 
A goal of paying out 40-50% of the net profits as dividends.
We believe that the stock has a reasonable valuation of 13x FY21 and 10x FY22 but provides a limited upside.  We expect a drop in profits (in line with previous years ) HoH, but an increase YoY by 70-80%.

China State Construction: Great Numbers, But Taking a Breather for Now

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>We see 37 potential adds (including plenty of new listings) and 25 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in September.</li>
<li>We expect 32 stocks to be added to Southbound Stock Connect following the rebalance while 24 stocks could be deleted from the trading link and become Sell-only.</li>
<li>There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.</li>
</ul>


We see 37 potential adds (including plenty of new listings) and 25 potential deletes (on market cap and liquidity) for the Hang Seng Composite Index in September.
We expect 32 stocks to be added to Southbound Stock Connect following the rebalance while 24 stocks could be deleted from the trading link and become Sell-only.
There are stocks that have a very high percentage of holdings via Stock Connect and there could be some unwinding prior to the stocks becoming Sell-only.


HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September

Analyst

Steve Zhou, CFA

China Overseas Property / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-overseas-property-holdings-ltd" target="_blank" data-smartkarma-citation="entities:22794:1" rel="noopener">China Overseas Property (2669 HK)</a> announced an acquisition on October 11 of a technical consultancy business from China State Construction Development (830 HK), a sister company. </li>
<li>The deal consideration will be not higher than HKD950m, which amounts to a PE ratio of 17.5x based on estimated 2023 earnings of the acquired business.</li>
<li>In the current extremely shaky market, this kind of deal is very damaging to the market confidence of the stock.  Further derating is likely. </li>
</ul>



China Overseas Property (2669 HK) announced an acquisition on October 11 of a technical consultancy business from China State Construction Development (830 HK), a sister company. 
The deal consideration will be not higher than HKD950m, which amounts to a PE ratio of 17.5x based on estimated 2023 earnings of the acquired business.
In the current extremely shaky market, this kind of deal is very damaging to the market confidence of the stock.  Further derating is likely. 


China Overseas Property (2669 HK):  Questionable Acquisition From Sister Company

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Thematic (Sector/Industry)

<ul><li>China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).</li><li>While the sector retreated in May due to weak market, we think the story has yet to come to an end as the sector (H-share) is trading at only 4.5x 2023E P/E (Bloomberg consensus).</li><li>We see multiple drivers ahead: (1) Continuous market share gain of the state-owned construction companies; (2) Belt-and-Road opportunities following the enhanced China-Middle East relations; (3) Better incentives to achieve higher profitability following the revised KPI matrix for SOEs.</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).While the sector retreated in May due to weak market, we think the story has yet to come to an end as the sector (H-share) is trading at only 4.5x 2023E P/E (Bloomberg consensus).We see multiple drivers ahead: (1) Continuous market share gain of the state-owned construction companies; (2) Belt-and-Road opportunities following the enhanced China-Middle East relations; (3) Better incentives to achieve higher profitability following the revised KPI matrix for SOEs.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Construction Sector – Multiple drivers to achieve Valuation with China characteristics

APAC IPOs & Placements, Aequitas Research

Ethan Aw

APAC IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Horizon Construction Development / Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/horizon-construction-development" target="_blank" data-smartkarma-citation="entities:35117:1" rel="noopener">Horizon Construction Development (1887128D HK)</a> is looking to raise US$250m in its upcoming Hong Kong IPO.</li>
<li>HCD is an equipment operation service provider in China. It provides services covering the full cycle of projects.</li>
<li>In our previous note, we looked at the company’s past performance. In this note, we take a look at the company’s refiled PHIP updates.</li>
</ul>



Horizon Construction Development (1887128D HK) is looking to raise US$250m in its upcoming Hong Kong IPO.
HCD is an equipment operation service provider in China. It provides services covering the full cycle of projects.
In our previous note, we looked at the company’s past performance. In this note, we take a look at the company’s refiled PHIP updates.


Horizon Construction Dev Pre-IPO - Refiled PHIP Updates - Affected by COVID-19 & Fueled by More Debt

Hong Kong

China State Construction Development Holdings Limited operates as an exterior engineering contractor and solutions provider. The Company offers one-stop curtain wall services. China State Construction Development Holdings operates projects the United Kingdom, United States, Canada, Dubai, Singapore, Japan, Australia, Chile, and other overseas markets.

China State Construction Development (830 HK)

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China State Construction Development (830 HK)

China State Construction: Great Numbers, But Taking a Breather for Now

Leading curtain wall solution provider in HK and Macau trading at 13x FY21 and 10x FY22 PE provides a decent dividend yield of 3.5%.

Sameer Taneja

HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September

There could be nearly 80 adds/deletes for the HSCI in September. That will trigger changes to the Southbound Stock Connect list and increase flows...

Brian Freitas

China Overseas Property (2669 HK): Questionable Acquisition From Sister Company

China Overseas Property (2669 HK) acquires technical consultancy business from sister company China State Construction Development (830 HK) for up...

Steve Zhou, CFA

China Construction Sector – Multiple drivers to achieve Valuation with China characteristics

China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).

CMB International

Horizon Construction Dev Pre-IPO - Refiled PHIP Updates - Affected by COVID-19 & Fueled by More Debt

Horizon Construction Development (1887128D HK) is looking to raise US$250m in its upcoming Hong Kong IPO. In this note, we take a look at the...

Ethan Aw

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China State Construction: Great Numbers, But Taking a Breather for Now

Leading curtain wall solution provider in HK and Macau trading at 13x FY21 and 10x FY22 PE provides a decent dividend yield of 3.5%.

Sameer Taneja

HSCI Index Rebalance Preview and Stock Connect: Potential Changes in September

There could be nearly 80 adds/deletes for the HSCI in September. That will trigger changes to the Southbound Stock Connect list and increase flows...

Brian Freitas

China Overseas Property (2669 HK): Questionable Acquisition From Sister Company

​China Overseas Property (2669 HK) acquires technical consultancy business from sister company China State Construction Development (830 HK) for up...

Steve Zhou, CFA

China Construction Sector – Multiple drivers to achieve Valuation with China characteristics

China SOE construction names have outperformed the index YTD on the back of the “Valuation system with China characteristics” (中特估).

CMB International

Horizon Construction Dev Pre-IPO - Refiled PHIP Updates - Affected by COVID-19 & Fueled by More Debt

Horizon Construction Development (1887128D HK) is looking to raise US$250m in its upcoming Hong Kong IPO. In this note, we take a look at the...

Ethan Aw

China Overseas Property (2669 HK) acquires technical consultancy business from sister company China State Construction Development (830 HK) for up...