1
Yum Cha 飲 茶 April 28, 2015
RESEARCH NOTES
Source: Bloomberg
INDICES Closing DoD%
Hang Seng Index 28,433.6 1.3
HSCEI 14,741.2 1.7
Shanghai COMP 4,527.4 3.0
Shenzhen COMP 2,271.3 0.7
Gold 1,201.0 (0.1)
BDIY 600.0 -
Crude Oil, WTI(US$/BBL) 56.7 (0.5)
Crude Oil, BRENT(US$/BBL) 64.8 (0.7)
HIBOR, 3-M 0.4 (1.1)
SHIBOR, 3-M 4.2 (2.4)
RMB/USD 6.2 0.4
DATA RELEASES DUE THIS WEEK
Apr 28 Leading Index
Apr 29 Westpac-MNI Consumer Sentiment
May 01 Manufacturing PMI
May 01 Non-manufacturing PMI
May 04 HSBC China Manufacturing PMI
VST HOLDINGS [0856.HK; HK$3.10; BUY] - Despite concerns triggered by
economic slowdown, VST Holdings Limited (VST) management remains positive on
the outlook for the group given: a) contribution from distribution of wearable devices &
game consoles, b) fast growing enterprise system products segment, c) development
of cloud related business. Strong operating performance, joint-promotion of
Microsoft’s cloud based products and the new O2O platform should create medium to
long term growth opportunities. Increasing contribution from the group’s
software/services makes VST an indirect proxy to continuous IT spending in the
region. Maintain BUY and a target price of HK$3.75 (based on 8.5x 2015E PER,
higher than historical average but discount to its peers).
LONGYUAN [0916.HK; HK$9.93; BUY] - Longyuan’s net profit in Q1 2015 came in
at RMB1,029m (+43% YoY). Adjusting for the change in value of trading securities
(Q1 2015: RMB13m gain; Q1 2014 RMB63m loss), core net profit in Q1 was
RMB1,016m (+30% YoY), better than our expectation, thanks to a 46% YoY surge of
coal power net profit. We raised our 2015E/2016E earnings estimates by 9%/12%
after revising our coal power utilization hours, unit fuel cost as well as finance cost.
We raised our DCF-based TP to HK$11.00 from HK$9.70 accordingly. Maintain BUY.
ZCSR [3898.HK; HK$64.35; BUY] - Operating revenue stayed flat at RMB2bn, while
net income up 26% YoY to RMB400m, thanks to the GPM improvement. According to
management, revenue booking in Q1 2015 is in line with expectation and they
reiterate the KPI on 2015 booking. We push our valuation forward from FY15E to
FY15/16E, and raise our target valuation from 23x to 25x FY15/16E PER for stronger
contract flow expected from OBOR development scheme as well as increase in
visibility on merger of CSR & CNR. Our new target price is HK$ 76.31, reiterate BUY.
Short term catalysts will be the first batch of tender opening from CRC for locomotive
and MUs procurement expected in Q2.
CR CEMENT [1313.HK; HK$5.03; HOLD] - During the company’s post-results
telephone conference yesterday, management has seen some recent signs of
gradual demand recovery and average selling price (ASP) stabilization. Meanwhile,
management estimated the full-year effective tax rate to stay at 28%-30% this year
despite a tax reversal in Q1, as losses in some provinces could not offset the profit in
others. Overall, management is relatively conservative about the outlook in Q2 due to
seasonality and market competition but maintains a better outlook in 2H15. We
maintain our HOLD rating with a target price of HK$5.20, based on 1.1x 2015E PBR
(unchanged).
SNIPPETS
SASAC announcement may not quash rumor of SOE merger - Referring to a news report about a potential large scale merger among central SOEs to reduce the
total number of central SOEs to 40, State-owned Assets Supervision and Administra-
tion Commission (SASAC) issued a statement to clarify the media “has not inter-
viewed or verified with SASAC”. Exact wordings are quite interesting, in our view, as
the announcement did not deny anything in the news report. Following a rally of
many big SOEs yesterday, we will not be surprised to see profit-taking today. Howev-
er, we believe the weak tone of SASAC is unlikely to quash speculation on SOE mer-
ger. Analyst: Wong Chi-man, CFA
2
VST Holdings Limited [856.HK]
Despite concerns triggered by economic slowdown, VST Holdings Limited (VST)
management remains positive on the outlook for the group given: a) contribution from
distribution of wearable devices & game consoles, b) fast growing enterprise system
products segment, c) development of cloud related business. Strong operating perfor-
mance, joint-promotion of Microsoft’s cloud based products and the new O2O plat-
form should create medium to long term growth opportunities. Increasing contribution
from the group’s software/services makes VST an indirect proxy to continuous IT
spending in the region. Maintain BUY and a target price of HK$3.75 (based on 8.5x
2015E PER, higher than historical average but discount to its peers).
Enterprise business continues to growth. VST management highlights that
major vendors including HP, Dell, Microsoft and IBM are now more reliant on value-added resellers like VST to promote one-stop solutions (including server, networking products, storage and software) to corporate customers and system integrators. Profitability of the selling one-stop solutions is much higher than ex-isting distribution and enterprise business. Major vendors are selective in choos-ing partners and only the leading players like VST can secure supports from
vendors. VST is benefiting from increasing investment in cloud-related products and services. Distribution of cloud-based software and services required a well-established platform for billing and metering, and management believes the entry barrier is relatively high.
Good start in 1Q15. Despite concerns triggered by economic slowdown in Chi-
na, management highlights that operating performance in 1Q15 was satisfactory and in line with management, who is positive on the group’s operating perfor-mance in 2015 as distribution segment will resume growth and a strong growth in enterprise system segment. Game consoles distribution business which started in Nov14 would make meaningful contribution in 2015. VST acquired Xiaomi MiPad distributionship on Singapore and Malaysia in Mar15 and signed agreement to
cooperate with Sugon to develop China market. We are confident that VST will report strong operating performance in 2015.
Potential upside. We leave our earnings forecasts for 2015 and 2016 un-
changed. We expect the group to release the details on development of Mi-crosoft’s cloud based products in near term. VST will benefit from increasing pop-ularity of cloud computing.
Mark Po, CFA — Senior Analyst
(852) 3698-6318
Wong Chi Man, CFA —Head of Research
(852) 3698-6317
TMT Sector—
Hardware Distribution Key takeaway from luncheon. Maintain BUY
BUY
Close: HK$3.10 (Apr 28, 2015)
Target Price: HK$3.75 (+21.0%)
Share Price Performance
Market Cap US$610m
Shares Outstanding 1,525m
Auditor KPMG
Free Float 46.8%
52W range HK$1.62-3.14
3M average daily T/O US$0.2m
Major Shareholding Chairman (36.96%)
April 28, 2015
Investment Highlights
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Apr14 Jun14 Aug14 Oct14 Dec14 Feb15
(HK$ million)(HK$)
Turnover (RHS) Price (LHS)
Key Financials
(in HKDm)2012 2013 2014 2015E 2016E
Revenue 37,097.8 40,239.3 41,892.7 45,696.1 50,033.6
Change (YoY %) 13.7 8.5 4.1 9.1 9.5
Gross Profit 1,407.6 1,517.0 1,672.7 1,868.4 2,094.8
Gross Margin % 3.8 3.8 4.0 4.1 4.2
Net Profit 444.4 502.7 607.4 673.2 777.8
Net Margin % 1.2 1.2 1.4 1.5 1.6
EPS (Basic) 0.30 0.34 0.41 0.44 0.51
Change (YoY %) (18.9) 13.1 20.4 8.5 15.5
DPS $0.080 $0.080 $0.110 $0.132 $0.102
ROE (%) 15.9 15.7 16.5 16.0 16.4
Dividend Yield (%) 2.58 2.58 3.55 4.27 3.29
PER (x) n.a. 9.2 7.6 7.0 6.1
PBR (x) 1.3 1.4 1.2 1.1 0.9
FCF Yield (%) -12.07% 1.94% -2.82% 6.98% 8.08%
3
Figure 1: Earnings projection
Sources: Company, CGIHK Research
Income Statement (HKDm) FY2012 FY2013 FY2014 FY2015F FY2016F Cash Flow Statement (HKDm) FY2012 FY2013 FY2014 FY2015F FY2016F
Revenue 37,098 40,239 41,893 45,696 50,034 Net Income 604 699 833 912 1,049
Growth yoy% 13.7% 8.5% 4.1% 9.1% 9.5% Depreciation & Amort. 19 20 21 22 24
Gross Profit 1,408 1,517 1,673 1,868 2,095 Change in Working Capital (1,347) (585) (1,010) (476) (543)
Growth yoy% (7.0%) 7.8% 10.3% 11.7% 12.1% Cash from Ops. (725) 134 (156) 458 529
Selling General & Admin Exp. (817) (866) (844) (961) (1,051) Capital Expenditure (14) (15) (17) (20) (23)
Others Operating Expenses/Items 13 48 4 5 5 Sale of Property, Plant, and Equipment - - - - -
Operating Income 604 699 833 912 1,049 Change in Investing Acitivities 14 (12) (101) (8) (10)
Growth yoy% n.a. 15.7% 19.2% 9.4% 15.0% Cash from Investing 1 (27) (118) (27) (33)
Interest Expense (75.9) (81.2) (104.4) (129.9) (142.2) Net increase in bank borrowings 380 438 859 323 368
Interest and Invest. Income 7.8 8.5 10.9 13.3 16.0
Income/(Loss) from Affiliates 36.3 32.9 29.5 31.6 33.2 Issuance of Common Stock 0 0 90 0 0
Other Non-Operating Inc. (Exp.) 0 0 0 0 0 Common Dividends Paid (99) (99) (120) (168) (202)
Impairment of Goodwill - - - - - Special Dividend Paid - - - - -
Gain (Loss) On Sale Of Invest. - - - - - Other Financing Activities (248) (192) (222) (254) (286)
Gain (Loss) On Sale Of Assets - - - - - Cash from Financing 33 146 607 (99) (119)
Income Tax Expense (107) (134) (143) (153) (178)
Minority Int. in Earnings (20) (22) (18) 0 0 Net Change in Cash (691) 253 333 331 377
Net Income 444 503 607 673 778
Growth yoy% (3.9%) 13.1% 20.8% 10.8% 15.5%
Balance Sheet (HKDm) FY2012 FY2013 FY2014 FY2015F FY2016F Ratios FY2012 FY2013 FY2014 FY2015F FY2016F
ASSETS Profitability
Cash And Equivalents 936 1,169 1,496 1,819 2,188 Return on Assets % 4.8% 4.7% 4.9% 4.9% 5.1%
Receivables 5,340 6,861 7,658 8,353 9,146 Return on Capital % 10.0% 9.7% 10.0% 9.7% 10.1%
Inventory 2,723 2,644 3,085 3,365 3,685 Return on Equity % 15.9% 15.7% 16.5% 16.0% 16.4%
Other Current Assets 0 0 0 0 0
Total Current Assets 9,000 10,674 12,239 13,537 15,018 Margin Analysis
Net Property, Plant & Equipment 123 116 112 109 108 Gross Margin % 3.8% 3.8% 4.0% 4.1% 4.2%
Long-term Investments - - - - - SG&A Margin % 2.2% 2.2% 2.0% 2.1% 2.1%
Other Intangibles - - - - - EBIT Margin % 1.6% 1.8% 2.0% 2.0% 2.1%
Deferred Tax Assets, LT - - - - - EBITDA Margin % 1.7% 1.8% 2.1% 2.1% 2.2%
Other Long-Term Assets 725 738 780 819 861 Net Income Margin % 1.2% 1.2% 1.4% 1.5% 1.6%
Goodwill - - - - -
Accounts Receivable Long-Term - - - - - Asset Turnover
Total Long Term Assets 848 853 892 929 970 Total Asset Turnover 3.8x 3.5x 3.2x 3.2x 3.1x
Total Assets 9,847 11,528 13,130 14,466 15,988 Fixed Asset Turnover 43.8x 47.2x 47.0x 49.2x 51.6x
Accounts Receivable Turnover 7.9x 6.6x 5.8x 5.7x 5.7x
LIABILITIES & EQUITY Inventory Turnover 13.6x 15.2x 13.6x 13.6x 13.6x
Accounts Payable 4,266 5,125 5,496 5,995 6,564
Accrued Exp. - - - - - Liquidity
Short-term Borrowings 1,547 2,002 3,557 3,880 4,248 Current Ratio 1.5x 1.5x 1.3x 1.4x 1.4x
Curr. Port. of LT Debt - - - - - Quick Ratio 1.1x 1.1x 1.0x 1.0x 1.0x
Curr. Income Taxes Payable - - - - - Avg. Days Sales Out. 52.5 62.2 66.7 66.7 66.7
Unearned Revenue, Current - - - - - Avg. Days Inventory Out. 26.8 24.0 26.9 26.9 26.9
Other Current Liabilities 26 31 39 43 47 Avg. Days Payable Out. 40.9 44.3 48.2 47.8 47.8
Total Current Liabilities 5,840 7,159 9,092 9,918 10,860 Avg. Cash Conversion Cycle 38.4 40.7 46.8 46.9 46.9
Long-Term Debt 719 696 0 0 0 Net Debt to Equity 44% 45% 52% 46% 41%
Def. Tax Liability, Non-Curr. 30 37 36 40 44
Other Non-Current Liabilities 24 15 8 8 9 Growth Over Prior Year
Total Liabilities 6,613 7,907 9,136 9,967 10,913 Total Revenue 13.7% 8.5% 4.1% 9.1% 9.5%
Common Stock 124 149 153 153 153 Net Income (3.9%) 13.1% 20.8% 10.8% 15.5%
Additional Paid In Capital - - - - - Payout Ratio % 21.7% 26.8% 23.7% 27.1% 30.0%
Retained Earnings 2,877 3,239 3,802 4,308 4,883
Treasury Stock - - - 0 0
Comprehensive Inc. and Other - - - - -
Minority Interest 234.0 231.9 38.2 38.2 38.2
Total Equity 3,235 3,620 3,993 4,498 5,074
Total Liabilities And Equity 9,847 11,528 13,129 14,465 15,987
4
Figure 2: Peer comparison
Sources: Bloomberg, Company, CGIHK Research estimates for covered stocks
Ticker Company PE EV/EBITDA
Price Market Cap 2015F 2016F 2017F 2015F 2016F 2017F 2014 2015F 2014 2015F 2014 2015F 2014 2015F
Lcy US$m x x x x x x x x % % % % % %
HK Listed Distributors and Software plays
856 HK Vst Holdings Ltd 3.10 610 6.9 6.2 5.9 7.2 6.5 6.1 1.2 1.1 15.7 15.9 4.9 5.0 3.8 4.3
400 HK Cogobuy Group 9.91 1,724 31.4 23.5 18.7 26.9 20.3 15.5 19.3 5.4 44.0 17.1 n.a. 7.9 n.a. n.a.
861 HK Digital China Holdings Ltd 12.10 1,708 13.9 12.5 10.1 12.9 11.2 9.4 1.5 1.4 3.9 10.0 2.2 3.0 1.7 2.0
1184 HK Sas Dragon Holdings Ltd 2.00 161 n.a. n.a. n.a. n.a. n.a. n.a. 1.5 n.a. 24.7 n.a. 5.3 n.a. 6.5 n.a.
1588 HK Chanjet Information Tech-H 27.70 776 24.5 20.2 15.3 n.a. n.a. n.a. 3.9 3.4 22.4 12.1 n.a. 10.8 1.8 3.1
1297 HK Sinosoft Technology Group Lt 6.01 800 27.7 22.5 21.4 19.6 15.3 14.4 6.7 5.5 23.6 19.4 17.6 17.8 0.4 0.7
2280 HK Hc International Inc 13.10 1,128 26.0 18.5 16.2 15.0 12.3 9.7 6.0 4.3 24.7 23.8 7.2 9.8 0.0 0.0
268 HK Kingdee International Sftw r 4.48 1,498 34.9 28.8 23.7 14.1 12.4 10.9 4.7 4.3 7.6 12.4 4.7 6.3 0.3 0.5
354 HK Chinasoft International Ltd 4.43 1,074 25.0 19.5 13.2 14.4 12.1 n.a. 4.3 2.3 7.1 10.0 4.6 5.2 0.0 n.a.
Average 26.2 20.8 17.0 17.2 13.9 12.0 6.0 3.8 19.7 15.0 6.9 8.7 1.5 1.3
Overseas Listed Distributors
AVT US Avnet Inc 43.47 5,904 9.7 9.2 8.7 6.6 6.4 6.0 1.3 1.3 11.0 11.5 5.6 5.5 1.4 1.5
ARW US Arrow Electronics Inc 61.95 5,928 10.0 9.3 9.2 7.1 6.8 6.3 1.4 1.3 9.8 13.2 4.1 4.8 0.0 0.0
3702 TT Wpg Holdings Ltd 38.30 2,072 9.8 9.3 n.a. 12.8 12.0 n.a. 1.4 1.4 12.2 14.5 3.9 4.1 n.a. 7.3
ECM LN Electrocomponents Plc 243.50 1,622 18.9 17.6 15.9 10.5 9.9 9.1 3.0 2.9 15.9 15.6 9.6 n.a. 4.8 4.8
3036 TT Wt Microelectronics Co Ltd 47.00 625 8.8 8.2 n.a. 9.9 9.3 n.a. 1.2 1.2 11.4 14.3 4.8 5.1 n.a. 7.8
Average 11.4 10.7 11.3 9.4 8.9 7.2 1.7 1.6 12.1 13.8 5.6 4.8 2.1 4.3
Overseas Listed Online Platforms
BABA US Alibaba Group Holding-Sp Adr 84.57 208,466 38.9 30.4 22.8 30.4 22.7 17.1 9.5 9.4 n.a. 33.8 14.3 16.5 0.0 0.0
JD US Jd.Com Inc-Adr 34.72 47,979 629.5 108.0 55.3 n.a. 115.6 36.1 7.9 10.4 -165.4 0.9 n.a. -1.1 n.a. 0.0
DANG US E-Commerce China-Spon Adr -A 9.13 737 51.1 18.6 10.1 26.0 9.3 4.6 6.8 6.2 -21.8 15.2 2.2 3.2 0.0 0.0
LITB US Lightinthebox Holding-Adr 4.99 241 n.a. n.a. n.a. n.a. 191.0 n.a. 5.6 n.a. n.a. n.a. -26.0 n.a. 0.0 n.a.
JMEI US Jumei International-Adr 22.10 3,163 43.3 26.3 18.8 42.0 20.6 12.7 3.4 5.3 52.1 13.1 14.0 8.6 0.0 0.0
GSOL US Global Sources Ltd 5.52 165 n.a. n.a. n.a. n.a. n.a. n.a. 1.0 n.a. 17.7 n.a. 5.6 n.a. 0.0 n.a.
Average 190.7 45.8 26.8 32.8 71.8 17.6 5.7 7.8 -29.4 15.8 2.0 6.8 0.0 0.0
ROA Div yieldP/B ROE
5
China Longyuan Power Group [0916.HK]
Longyuan’s net profit in Q1 2015 came in at RMB1,029m (+43% YoY). Adjusting
for the change in value of trading securities (Q1 2015: RMB13m gain; Q1 2014
RMB63m loss), core net profit in Q1 was RMB1,016m (+30% YoY), better than
our expectation, thanks to a 46% YoY surge of coal power net profit. We raised
our 2015E/2016E earnings estimates by 9%/12% after revising our coal power
utilization hours, unit fuel cost as well as finance cost. We raised our DCF-based
TP to HK$11.00 from HK$9.70 accordingly. Maintain BUY.
Q1 2015 revenue growth slightly below our expectation. Revenue in-
creased by 12% YoY in Q1. Wind power revenue grew 15.5% YoY, versus a
gross wind power generation growth of 17.5%. Coal power revenue in-
creased by 7% YoY, less than the gross coal power generation growth of
9.4% due to lower tariff.
Strong earnings came from the cost side. EBIT increased by 16% YoY,
higher than the revenue growth due to continuous improvement in cost con-
trol. Besides, net finance cost dropped 11% YoY to RMB717m due to: (1)
higher finance income helped by gain on securities; (2) income of RMB20m
contributed by Guodian Financial Leasing; (3) lower interest rate.
Coal power net profit +46% YoY. According to management, strong profit
growth was driven by (1) increase in utilization in Q1 2015 YoY (maintenance
work in Q1 2014); (2) a 16% YoY decline in coal cost.
Wind power utilization hours on track. Management revealed that wind
utilization in Q1 2015 was 547 hours. Grid curtailment rate slightly dropped to
14.52% in Q1 2015 from 14.74% in Q1 2014. Besides, according to our
check, China’s average wind speed in April increased by 11% YoY, suggest-
ing that Longyuan will likely report a strong set of power generation figures
next month.
Accelerating wind power installation the key growth driver over the
next two years. Longyuan added 84MW of new wind power capacity in Q1.
Management reiterated its target of adding 1GW capacity by middle of the
year. Full year installation remains unchanged at 1.8-2.2GW.
Risks: (1) Potential change in tariff; (2) capacity ramp-up risk; (3) delay in
power transmission line construction.
Wayne Fung, CFA —Analyst
(852) 3698-6319
Wong Chi Man, CFA—Head of Research
(852) 3698-6317
Wind Power Sector
Q1 2015 Core profit growth 30% YoY better than expectation on
cost reduction; Maintain BUY
BUY (Unchanged)
Close: HK$9.93 (Apr 27, 2015)
Target Price: HK$11.00 (+11%)
Share Price Performance
Market Cap US$10,317m
Shares Outstanding 8,036.4m
Auditor KPMG
Free Float 35%
52W range HK$7.12-11.36
3M average daily T/O US$27m
Major Shareholding Guodian Group
(58.4%)
April 28, 2015
Key financials (RMB m) 2012 2013 2014 2015E 2016E
Revenue 17,288 19,123 18,207 20,430 22,386
Change (YoY) 7.0% 10.6% -4.8% 12.2% 9.6%
Other income 1,296 432 437 469 647
Adjusted EBIT 4,749 5,568 6,121 7,836 8,891
Change (YoY) 26.1% 17.2% 9.9% 28.0% 13.5%
Recurring net profit 1,788 2,404 2,633 3,368 4,124
Change (YoY) 5.6% 34.4% 9.5% 27.9% 22.5%
Recurring EPS 0.239 0.299 0.328 0.419 0.513
Change (YoY) 5.4% 25.1% 9.5% 27.9% 22.5%
PER (x) 33.7 26.2 24.1 19.1 15.6
Dividend yield 0.8% 0.6% 0.8% 0.9% 1.2%
PBR (x) 2.0 2.0 1.9 1.8 1.6
EV/EBITDA (x) 13.0 12.2 10.9 9.1 8.0
Net debt/equity 146.9% 144.4% 165.1% 162.0% 157.7%
Recurring ROE 6.5% 8.0% 8.2% 9.8% 10.9%
Sources: Company, CGIHK Research estimates
6
Figure 1: Longyuan quarterly results
Sources: Company, CGIHK Research
Figure 2: DCF valuation Figure 3: Longyuan PER Band
Sources: Company, Bloomberg, CGIHK Research estimates
Quarterly financials (RMB m) 1Q14 1Q15 Chg (YoY)
Revenue by sector (ex. Service concession construction revenue) 4,367 4,888 11.9%
Wind power 2,790 3,221 15.5%
Coal power 1,413 1,510 6.9%
Others (including intersegment revenue) 165 157 -5.0%
Service concession construction revenue 10 7 -25.7%
Total revenue (including non-cash revenue) 4,377 4,895 11.8%
Other net income 117 95 -18.7%
EBIT 1,862 2,153 15.7%
Net finance expenses (805) (715) -11.2%
Share of profit/(loss) of JV and associates 42 88 111.0%
Pretax profit 1,098 1,526 39.0%
Income tax (126) (180) 42.9%
After tax profit 972 1,346 38.5%
Minority interest (254) (318) 25.1%
Net profit 719 1,029 43.2%
Recurring net profit 782 1,016 30.0%
EBIT margin 42.6% 44.1%
Pretax profit margin 25.2% 31.2%
(RMB m)
Enterprise Value 140,939
Net cash / (net debt) (67,443)
Minority interest (7,792)
Equity Value 65,704
Fair value (Rmb/shr) 8.8
Rmb/HK$ 1.25
Fair value (HK$/shr) 11.0
DCF assumptions
Risk free rate 3.5%
Risk premium 10.0%
Beta 0.8
Cost of equity 11.7%
After tax cost of debt 4.9%
Debt/total capital 60.0%
WACC 7.6%
Terminal growth rate 1%
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HKD 33x 28x
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7
Figure 4: Key Assumptions
Sources: Company, CGIHK Research estimates
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Wind power
Capacity installed (MW)
Consolidated 587 1,298 2,503 4,504 6,556 8,598 10,544 11,910 13,543 15,343 17,143
Change YoY - 121.3% 92.8% 79.9% 45.6% 31.1% 22.6% 13.0% 13.7% 13.3% 11.7%
Annual addition 712 1,205 2,001 2,053 2,042 1,945 1,366 1,633 1,800 1,800
Average 254 653 1,553 2,718 4,577 6,592 8,474 10,388 11,661 13,402 15,202
Change YoY - 157.0% 137.7% 75.1% 68.4% 44.0% 28.5% 22.6% 12.2% 14.9% 13.4%
Consolidated power generation (Gwh)
Gross 562 1,514 3,655 6,211 10,094 13,355 16,820 21,929 23,088 27,749 32,153
Change YoY - 169.5% 141.5% 69.9% 62.5% 32.3% 25.9% 30.4% 5.3% 20.2% 15.9%
Net 529 1,419 3,407 5,684 9,442 12,562 16,027 20,565 22,131 26,362 30,545
Change YoY - 168.0% 140.1% 66.8% 66.1% 33.0% 27.6% 28.3% 7.6% 19.1% 15.9%
Average utilization hours 2,211 2,317 2,354 2,268 2,217 2,026 1,985 2,111 1,980 2,071 2,115
Change YoY - 4.8% 1.6% -3.7% -2.2% -8.6% -2.0% 6.3% -6.2% 4.6% 2.1%
Weighted average on-grid tariff (Rmb/kwh, Incl-VAT) 0.672 0.598 0.561 0.567 0.572 0.578 0.582 0.583 0.585 0.586 0.583
Weighted average on-grid tariff (Rmb/kwh, ex-VAT) 0.574 0.511 0.480 0.485 0.489 0.494 0.498 0.498 0.500 0.501 0.498
Change YoY - -11.0% -6.2% 1.1% 0.8% 1.0% 0.8% 0.1% 0.3% 0.2% -0.5%
Coal power
Capacity installed (MW)
Consolidated 2,425 2,425 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875
Change YoY - 0.0% -22.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Average 2,425 2,425 2,103 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875
Change YoY - 0.0% -13.3% -10.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Consolidated power generation (Gwh)
Gross 12,809 12,442 12,670 10,910 11,353 11,749 11,231 11,064 9,641 10,313 10,313
Change YoY - -2.9% 1.8% -13.9% 4.1% 3.5% -4.4% -1.5% -12.9% 7.0% 0.0%
Net 11,980 11,638 11,863 10,207 10,670 10,672 10,497 10,330 8,966 9,591 9,591
Change YoY - -2.9% 1.9% -14.0% 4.5% 0.0% -1.6% -1.6% -13.2% 7.0% 0.0%
Average Utilization hours 5,282 5,131 6,024 5,819 6,055 6,266 5,990 5,901 5,142 5,500 5,500
Change YoY - -2.9% 17.4% -3.4% 4.1% 3.5% -4.4% -1.5% -12.9% 7.0% 0.0%
Weighted average on-grid tariff (Rmb/kwh, Incl-VAT) 0.371 0.369 0.403 0.421 0.423 0.433 0.452 0.448 0.439 0.425 0.410
Weighted average on-grid tariff (Rmb/kwh, ex-VAT) 0.317 0.315 0.345 0.360 0.362 0.370 0.386 0.383 0.375 0.363 0.350
Change YoY - -0.6% 9.3% 4.4% 0.5% 2.4% 4.4% -0.9% -2.0% -3.2% -3.5%
8
Figure 5: Longyuan income statement projection
Note: Adjusted EBITDA and adjusted EBIT exclude "other net income"
Net interest coverage = EBITDA/net finance expenses
Sources: Company, CGIHK Research estimates
Income Statement (RMB m) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Revenue by sector (ex. Service concession construction revenue) 6,354 8,861 12,762 15,366 16,770 18,456 17,980 20,430 22,386
Wind power 1,638 2,754 4,620 6,212 7,981 10,272 11,133 13,205 15,218
Coal power 4,373 5,873 7,714 8,625 8,052 7,525 6,156 6,281 6,158
Others 455 563 695 740 1,007 1,099 1,196 1,464 1,530
Intersegment revenue (112) (329) (267) (210) (270) (441) (505) (520) (520)
Revenue by nature 8,555 9,744 14,213 16,159 17,288 19,123 18,207 20,430 22,386
Sales of electricity 5,752 6,467 8,544 10,270 12,404 14,686 14,913 17,313 19,259
Sales of steam 121 230 311 319 274 252 227 226 218
Service concession construction revenue 2,200 883 1,450 793 519 667 228 0 0
Sales of electricity equipment 264 128 262 289 232 106 130 130 130
Sales of coal 0 1,648 3,276 4,109 3,395 3,010 2,388 2,388 2,388
Others 218 388 369 378 464 402 322 373 390
Other net income 390 574 986 1,271 1,296 432 437 469 647
Government grants
CERs and VERs income 118 210 392 727 742 54 0 0 0
Others 208 327 362 400 402 346 383 459 636
Rental income from investment ppt 25 22 18 15 11 9 9 10 11
Net (loss)/income from investment ppt/disposal of PP&E 21 4 (3) 112 8 6 (4) 0 0
Gain on disposal of associate/subsidary 0 0 187 0 0 5 29 0 0
Others 19 10 29 17 133 12 21 0 0
Operating expenses (6,441) (5,869) (8,882) (9,549) (8,842) (9,163) (7,085) (6,962) (7,161)
Coal consumption (3,128) (2,290) (2,737) (2,877) (2,627) (2,226) (1,741) (1,608) (1,518)
Coal sales costs 0 (1,553) (3,046) (3,897) (3,197) (2,860) (2,247) (2,269) (2,269)
Service concession construction costs (2,200) (883) (1,450) (793) (519) (667) (228) 0 0
Personnel costs (384) (540) (662) (769) (925) (1,115) (1,225) (1,282) (1,457)
Material costs (295) (150) (278) (328) (479) (398) (344) (486) (446)
Repairs & maintenance (87) (108) (184) (254) (305) (521) (450) (507) (589)
Administrative expenses (107) (148) (219) (294) (402) (396) (378) (358) (390)
Others (240) (197) (305) (338) (390) (980) (474) (453) (493)
EBITDA 2,504 4,449 6,317 7,882 9,742 10,391 11,559 13,937 15,872
Adjusted EBITDA 2,113 3,875 5,331 6,610 8,446 9,959 11,122 13,468 15,225
D&A (1,083) (1,590) (2,236) (2,845) (3,697) (4,391) (5,001) (5,632) (6,334)
EBIT 1,421 2,858 4,081 5,036 6,045 6,000 6,559 8,305 9,538
Adjusted EBIT 1,031 2,285 3,095 3,765 4,749 5,568 6,121 7,836 8,891
Net finance expenses (857) (1,020) (1,098) (1,487) (2,518) (2,531) (2,951) (3,861) (4,176)
Finance income 146 51 79 400 143 540 198 119 52
Finance expenses (1,003) (1,071) (1,177) (1,887) (2,660) (3,071) (3,149) (3,980) (4,228)
Share of profit/(loss) of JV and associates 53 105 228 60 140 60 454 612 632
Pretax profit 616 1,944 3,211 3,609 3,667 3,529 4,062 5,056 5,994
Income tax (2) (296) (441) (305) (342) (561) (510) (683) (839)
After tax profit 614 1,647 2,770 3,304 3,325 2,968 3,551 4,374 5,155
Minority interest (276) (753) (751) (667) (732) (919) (993) (1,006) (1,031)
Net profit 337 894 2,019 2,638 2,593 2,049 2,558 3,368 4,124
Recurring net profit 199 679 1,461 1,693 1,788 2,404 2,633 3,368 4,124
Exceptional gain/(loss) 139 215 558 945 805 (354) (75) 0 0
Recurring EPS (RMB) 0.04 0.13 0.20 0.23 0.24 0.30 0.33 0.42 0.51
EPS (RMB) 0.07 0.17 0.27 0.35 0.35 0.26 0.32 0.42 0.51
DPS (RMB) 0.00 0.00 0.05 0.07 0.07 0.05 0.06 0.08 0.09
9
Figure 6: Longyuan growth rate and margins
Sources: Company, CGIHK Research estimates
Growth rates (YoY) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Revenue by sector (ex. Service concession construction revenue) 30.0% 39.5% 44.0% 20.4% 9.1% 10.1% -2.6% 13.6% 9.6%
Wind power 125.4% 68.1% 67.8% 34.4% 28.5% 28.7% 8.4% 18.6% 15.2%
Coal power 8.8% 34.3% 31.3% 11.8% -6.6% -6.5% -18.2% 2.0% -2.0%
Others 92.7% 23.7% 23.4% 6.5% 36.0% 9.2% 8.9% 22.4% 4.5%
Intersegment revenue 22.7% 193.0% -19.0% -21.2% 28.4% 63.3% 14.6% 3.0% 0.0%
Revenue by nature 22.9% 13.9% 45.9% 13.7% 7.0% 10.6% -4.8% 12.2% 9.6%
Sales of electricity 30.4% 12.4% 32.1% 20.2% 20.8% 18.4% 1.5% 16.1% 11.2%
Sales of steam 33.3% 91.1% 35.0% 2.6% -14.3% -7.7% -10.2% -0.1% -3.5%
Service concession construction revenue 6.1% -59.9% 64.3% -45.3% n/a n/a n/a n/a n/a
Sales of electricity equipment 162.0% -51.5% 104.5% 10.5% -19.8% -54.5% 23.1% 0.0% 0.0%
Sales of coal n/a n/a 98.8% 25.4% -17.4% -11.4% -20.7% 0.0% 0.0%
Others -23.8% 78.1% -4.8% 2.4% 22.8% -13.4% -20.0% 15.8% 4.8%
EBITDA 32.0% 77.7% 42.0% 24.8% 23.6% 6.7% 11.2% 20.6% 13.9%
Adjusted EBITDA 22.3% 83.3% 37.6% 24.0% 27.8% 17.9% 11.7% 21.1% 13.0%
EBIT 47.0% 155.6% 187.3% 76.2% 48.1% 19.1% 8.5% 38.4% 45.4%
Adjusted EBIT 8.5% 121.7% 35.5% 21.6% 26.1% 17.2% 9.9% 28.0% 13.5%
Pretax profit -20.3% 215.5% 65.2% 12.4% 1.6% -3.8% 15.1% 24.5% 18.5%
After tax profit -13.8% 168.3% 68.2% 19.3% 0.6% -10.7% 19.7% 23.1% 17.9%
Net profit 56.9% 165.0% 125.8% 30.7% -1.7% -21.0% 24.8% 31.7% 22.5%
Recurring net profit -7.7% 242.1% 115.1% 15.9% 5.6% 34.4% 9.5% 27.9% 22.5%
EPS n/a 157.9% 55.4% 30.7% -1.9% -26.4% 24.8% 31.7% 22.5%
Recurring EPS n/a 232.9% 48.0% 15.9% 5.4% 25.1% 9.5% 27.9% 22.5%
Margins 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
EBITDA margin 39.4% 50.2% 49.5% 51.3% 58.1% 56.3% 64.3% 68.2% 70.9%
Adjusted EBITDA margin 33.3% 43.7% 41.8% 43.0% 50.4% 54.0% 61.9% 65.9% 68.0%
EBIT margin 22.4% 32.3% 32.0% 32.8% 36.0% 32.5% 36.5% 40.7% 42.6%
Adjusted EBIT margin 16.2% 25.8% 24.3% 24.5% 28.3% 30.2% 34.0% 38.4% 39.7%
Pretax profit margin 9.7% 21.9% 25.2% 23.5% 21.9% 19.1% 22.6% 24.7% 26.8%
After tax profit margin 9.7% 18.6% 21.7% 21.5% 19.8% 16.1% 19.8% 21.4% 23.0%
Net margin 5.3% 10.1% 15.8% 17.2% 15.5% 11.1% 14.2% 16.5% 18.4%
Recurring net margin 3.1% 7.7% 11.4% 11.0% 10.7% 13.0% 14.6% 16.5% 18.4%
Net Interest coverage 2.9 4.4 5.8 5.3 3.9 4.1 3.9 3.6 3.8
10
Figure 7: Longyuan balance sheet projection
Sources: Company, CGIHK Research estimates
Balance Sheet (RMB m) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Non current assets
PP&E 24,290 37,305 50,642 64,967 73,352 79,594 88,307 97,132 105,685
Investment properties 172 133 101 98 76 20 5 5 5
Lease prepayments payments 557 741 876 1,215 1,417 1,657 1,873 1,873 1,873
Intangible assets 5,083 6,086 7,661 8,163 8,322 8,684 8,530 8,101 7,673
Goodwill 0 0 12 12 12 12 12 12 12
Investment in associates and JV 527 799 1,315 1,554 2,127 2,297 3,602 4,215 4,847
Other assets 350 2,319 3,459 4,962 4,553 4,482 6,282 6,507 6,408
Deferred tax assets 190 205 206 181 194 162 155 155 155
31,169 47,587 64,271 81,151 90,054 96,908 108,765 117,999 126,657
Current assets
Inventories 279 333 632 926 816 753 1,017 700 1,066
Trade and bill receivables 1,241 2,181 3,474 5,430 7,998 6,708 6,411 6,463 7,030
Prepayments and other current assets 1,805 853 1,502 2,899 3,155 2,365 4,072 4,072 4,072
Restricted deposits 500 492 245 32 232 725 440 440 440
Cash 1,055 16,503 4,089 3,708 5,138 2,715 2,389 2,365 1,110
Others 1 5 419 478 448 500 425 425 425
4,880 20,367 10,362 13,473 17,786 13,766 14,753 14,463 14,142
Total assets 36,049 67,954 74,634 94,624 107,840 110,674 123,518 132,463 140,800
Current liabilities
Borrowings 4,686 17,087 17,200 19,078 26,170 24,680 36,070 37,670 40,270
Trade and bill payable 2,729 1,943 1,515 1,597 1,261 2,142 1,021 1,535 1,133
Obligations under finance lease 0 0 0 0 0 0 0 0 0
Other payables 1,918 4,521 6,004 9,004 8,525 9,753 9,039 8,703 9,021
Others 80 140 196 158 119 101 118 118 118
9,413 23,692 24,915 29,836 36,075 36,676 46,248 48,027 50,542
Non current liabilities
Borrowings 17,345 16,219 19,975 31,828 32,482 32,961 33,762 37,162 38,562
Deferred income 2,145 2,268 2,225 1,993 1,903 1,876 1,790 1,662 1,535
Others 73 95 104 642 958 1,120 868 868 868
19,564 18,582 22,304 34,462 35,343 35,957 36,421 39,693 40,965
Equity
Paid in capital 3,163 7,464 7,464 7,464 8,036 8,036 8,036 8,036 8,036
Reserves 712 14,436 15,810 18,444 21,393 22,872 25,021 27,909 31,426
Attributable to equity owner 3,875 21,900 23,275 25,909 29,429 30,908 33,057 35,945 39,463
Minority interests 3,198 3,780 4,139 4,417 6,992 7,132 7,792 8,798 9,829
7,073 25,680 27,414 30,325 36,422 38,040 40,849 44,743 49,292
Total equity and liabilities 36,049 67,954 74,634 94,624 107,840 110,674 123,518 132,463 140,800
BVPS (RMB) - 2.93 3.12 3.47 3.94 3.85 4.11 4.47 4.91
11
Figure 8: Longyuan cash flow projection and key ratios
Sources: Company, CGIHK Research estimates
Cash Flow Statement (RMB m) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
Pretax profit 616 1,944 3,211 3,609 3,667 3,529 4,062 5,056 5,994
Income tax (45) (236) (340) (371) (471) (566) (522) (683) (839)
D&A 1,083 1,590 2,236 2,845 3,697 4,391 5,001 5,632 6,334
Interest expense 932 1,024 1,088 1,677 2,551 2,810 2,971 3,980 4,228
Interest income (37) (33) (58) (110) (60) (60) (84) (119) (52)
Share of profit / (loss) of JV and associates (53) (105) (228) (60) (140) (60) (454) (612) (632)
Dividend income (47) (16) (1) (62) (46) (56) (55) 0 0
Change in working capital 360 (83) (1,813) (1,633) (2,370) 3,085 1,976 316 (1,046)
Others 30 1 (74) (272) 169 538 (26) 0 0
Operating cash flow 2,840 4,085 4,021 5,624 6,998 13,611 12,868 13,570 13,986
Purchase/(disposal) of PP&E and intangible assets (11,578) (16,121) (17,770) (13,048) (13,392) (10,275) (18,206) (13,860) (14,040)
Acquisition of subsidiaries/disposal of subsidiaries 0 8 (65) (493) (847) (197) (24) 0 0
Investment in/(disposal of) financial assets, JV & associates (253) (340) (138) (578) (912) (175) (867) 0 0
Dividend received 96 30 45 161 91 218 67 0 0
Interest received 48 32 58 124 87 86 105 119 52
Others 602 1,235 170 (199) 855 45 (1,921) 0 0
Investing cash flow (11,086) (15,156) (17,700) (14,034) (14,117) (10,299) (20,848) (13,741) (13,988)
Net proceeds from issuance of shares 0 17,022 0 0 2,295 0 0 0 0
Capital contribution - equity owner 1,500 492 126 72 30 41 186 0 0
Capital contribution - minority interest 451 0 0 0 0 0 0 0 0
Proceeds from /(repayment of) borrowings 7,922 10,952 3,677 10,506 8,067 (1,272) 12,028 5,000 4,000
Proceeds from senior perpetual securities 0 0 0 0 2,476 0 0 0 0
Interest paid (1,119) (1,567) (1,319) (2,094) (3,025) (3,251) (3,376) (4,374) (4,647)
Dividend paid to equity owner 0 0 (632) (403) (515) (512) (382) (480) (606)
Others (310) (325) (539) (444) (472) (668) (801) 0 0
Financing cash flow 8,444 26,575 1,313 7,637 8,856 (5,662) 7,655 146 (1,253)
Net change in cash 198 15,505 (12,365) (773) 1,736 (2,350) (326) (24) (1,255)
Valuation
PER (recurring) (x) 221.3 66.2 43.9 36.2 33.7 26.2 24.1 19.1 15.6
Dividend yield 0.0% 0.0% 0.6% 0.8% 0.8% 0.6% 0.8% 0.9% 1.2%
PBR (x) - 3.0 2.8 2.4 2.0 2.0 1.9 1.8 1.6
EV/EBITDA (x) 50.5 28.4 20.0 16.0 13.0 12.2 10.9 9.1 8.0
Ratios
Net margin 5.3% 10.1% 15.8% 17.2% 15.5% 11.1% 14.2% 16.5% 18.4%
ROE 5.9% 5.3% 6.5% 6.9% 6.5% 8.0% 8.2% 9.8% 10.9%
ROA 0.7% 1.3% 2.0% 2.0% 1.8% 2.2% 2.2% 2.6% 3.0%
Net debt / Equity 297% 65% 121% 156% 147% 144% 165% 162% 158%
Current ratio 0.52 0.86 0.42 0.45 0.49 0.38 0.32 0.30 0.28
12
ZCSR [3898.HK]
Steve Wong
(852) 3698-6391
Wong Chi Man - Head of Research
(852) 3698-6317
Capital Goods Q1 Takeaways: Full-year KPI Target Unchanged. Reiterate
BUY
BUY (Unchanged)
Close: HK$ 64.35 (Apr 27, 2015)
Target Price: HK$76.31 (18.6%)
Share Price Performance
Market Cap US$9,698m
Shares Outstanding 1,176m
Auditor Ernst & Young
Free Float 48.06%
52W range HK$75.00-22.30
3M average daily T/O US$35m
Major Shareholding CSR [1766 HK]
(51.94%)
April 28, 2015
0
200
400
600
800
1,000
1,200
1,400
0
10
20
30
40
50
60
70
80
Apr-2014 Jul-2014 Oct-2014 Jan-2015 Apr-2015
(HK$m)(HK$)
Turnover (RHS) Price (LHS)
Y/E Dec 31 2012 2013 2014 2015E 2016E
Revenue (RMBm) 7,186 8,781 12,576 15,694 18,710
Net Income (RMBm) 1,224 1,467 2,395 2,642 3,120
EPS (RMB) 1.129 1.332 2.038 2.248 2.655
Growth (% YoY) 18.03 52.98 10.30 18.09
PER (x) 38.79 25.36 22.99 19.47
BVPS (RMB) 5.705 7.673 9.354 11.202 13.408
PBR (x) 6.74 5.53 4.61 3.86
DPS(RMB) 0.350 0.373 0.400 0.450 0.531
Yield (%) 0.72 0.77 0.87 1.03
ROAE (%) 21.29 19.30 23.94 21.87 21.58
Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash
Sources: Company, CGIHK Research estimates
ZCSR [3898.HK]
Steve Wong
(852) 3698-6391
Wong Chi Man - Head of Research
(852) 3698-6317
Capital Goods Q1 Takeaways: Full-year KPI Target Unchanged. Reiterate
BUY
BUY (Unchanged)
Close: HK$ 64.35 (Apr 27, 2015)
Target Price: HK$76.31 (18.6%)
Share Price Performance
Market Cap US$9,698m
Shares Outstanding 1,176m
Auditor Ernst & Young
Free Float 48.06%
52W range HK$75.00-22.30
3M average daily T/O US$35m
Major Shareholding CSR [1766 HK]
(51.94%)
April 28, 2015
Operating revenue stayed flat at RMB2bn, while net income up 26% YoY to
RMB400m, thanks to the GPM improvement. According to management, revenue
booking in Q1 2015 is in line with expectation and they reiterate the KPI on 2015
booking. We push our valuation forward from FY15E to FY15/16E, and raise our tar-
get valuation from 23x to 25x FY15/16E PER for stronger contract flow expected from
OBOR development scheme as well as increase in visibility on merger of CSR &
CNR. Our new target price is HK$ 76.31, reiterate BUY. Short term catalyst will be
the first batch of tender opening from CRC for locomotive and MUs procurement ex-
pected in Q2.
Q1 Order delivery in line with expectation. According to management, the Q1
results are in line with their expectations. They reiterate the KPI for 2015: 1) Sale
of MUs product up 20% YoY; 2) For locomotive sector, growth in overseas mar-
ket to offset the expected decline in domestic market, such that the overall seg-
ment revenue to staying flat; 3) sales growth of subway product remaining fast
and up 40% YoY. In all, we expect revenue to grow by 25% YoY in FY15E.
GPM improved thanks to change of product-mix. GPM increased by 3ppt YoY
to 38% due to change of product-mix with more contribution of high-margin MUs
products and benefit from economies of scale. However, according to manage-
ment, price cut pressure from customers will hinder the company to grow GPM
further from current level. Looking forward, we expect increase in contribution of
subway products in coming quarter will drive its GPM back to an estimated GPM
of 35% in FY15E.
Merger going smooth, restructuring will start by 2015. According to manage-
ment, merger of CSR and CNR is going smooth and expected to start the restruc-
turing process by end-2015. As mentioned in our previous report, some rolling
stock manufacturing subsidiaries of CNR have already started to study the tech-
nical feasibility on procuring ZCSR products to embed on their rolling stock. We
expect order for electrical products from CNR will come as early as 2016.
(more on next page)
0
200
400
600
800
1,000
1,200
1,400
0
10
20
30
40
50
60
70
80
Apr-2014 Jul-2014 Oct-2014 Jan-2015 Apr-2015
(HK$m)(HK$)
Turnover (RHS) Price (LHS)
Y/E Dec 31 2012 2013 2014 2015E 2016E
Revenue (RMBm) 7,186 8,781 12,576 15,694 18,710
Net Income (RMBm) 1,224 1,467 2,395 2,642 3,120
EPS (RMB) 1.129 1.332 2.038 2.248 2.655
Growth (% YoY) 18.03 52.98 10.30 18.09
PER (x) 38.79 25.36 22.99 19.47
BVPS (RMB) 5.705 7.673 9.354 11.202 13.408
PBR (x) 6.74 5.53 4.61 3.86
DPS(RMB) 0.350 0.373 0.400 0.450 0.531
Yield (%) 0.72 0.77 0.87 1.03
ROAE (%) 21.29 19.30 23.94 21.87 21.58
Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash
Sources: Company, CGIHK Research estimates
13
Reiterate BUY. The Q1 results are in line with our expectation. We expect con-
tract flow from overseas market to stay strong under the OBOR development
scheme, which will be a mid-to-long term growth driver for the company. We made
a minor adjustment on earnings projection based on the Q1 results and push our
valuation forward from FY15E to FY15/16E and raise our target valuation from 23x
to 25x PER (the upper ceiling of trading PER range for ZCSR since 2010), our
new target price is HK$76.31 (up from HK$63.97). The counter is trading at 20x
FY16E PER, or a 20% discount to CSR (1766.HK). Reiterate BUY.
Figure 1: Quarter financial data breakdown
Sources: Company data, CGIHK Research
Figure 2: Major changes of our forecast
Sources: CGIHK Research estimates
Finanancial summary Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 (% YoY)
Operating revenue (RMBm) 962 1,662 2,210 4,022 2,015 3,165 3,641 3,855 2,007 (0.40)
Business taxes & surcharges (RMBm) 2 19 10 44 2 28 31 39 1 (50.00)
Revenue (RMBm) 960 1,643 2,200 3,978 2,013 3,137 3,610 3,816 2,006 (0.35)
Less: Operating cost (RMBm) 644 984 1,380 2,687 1,308 2,016 2,000 2,552 1,242 (5.05)
Gross Profit (RMBm) 316 659 820 1,291 705 1,121 1,610 1,264 764 8.37
GPM (%) 32.92 40.11 37.27 32.45 35.02 35.73 44.60 33.12 38.09 3.06ppt
Selling cost (RMBm) 60 71 97 270 82 193 219 387 92 12.20
Administrative cost (RMBm) 163 203 225 414 255 239 378 477 274 7.45
SG&A (RMB mn) 223 274 322 684 337 432 597 864 366 8.61
SG&A-to-revenue (%) 23.23 16.68 14.64 17.19 16.74 13.77 16.54 22.64 18.25 1.50ppt
Net profit (RMBm) 81 319 449 618 317 540 891 647 400 26.18
Net profit margin (%) 8.44 19.42 20.41 15.54 15.75 17.21 24.68 16.95 19.94 4.19ppt
Total debt (RMBm) 24 66 62 83 86 60 52 42 44 (48.84)
Total cash and equivalents (RMBm) 2,024 1,583 801 3,136 2,914 2,729 2,885 2,680 5,140 76.39
Net debt (cash) (RMBm) (2,000) (1,517) (739) (3,053) (2,828) (2,669) (2,833) (2,638) (5,096)
Total equity (RMBm) 6,374 6,307 6,638 9,150 9,457 9,656 10,526 11,171 11,566 22.30
Net gearing (%) (31.38) (24.05) (11.13) (33.37) (29.90) (27.64) (26.91) (23.61) (44.06)
(RMBm) FY15E FY16E
Old New Change (%) Old New Change (%)
Operating revenue 15,840 15,826 (0.09) 19,392 18,867 (2.71)
Train-borne electrical systems 11,021 11,251 2.09 13,666 13,409 (1.88)
Other rolling stock components 1,922 1,679 (12.66) 2,213 1,944 (12.15)
Others 2,896 2,896 0.00 3,513 3,513 0.01
Less: business tax 131 131 0.27 139 157 12.66
Revenue 15,708 15,694 (0.09) 19,232 18,710 (2.71)
Gross profit 5,476 5,495 0.35 6,675 6,491 (2.75)
GPM (%) 34.57 34.72 0.15ppt 34.42 34.41 -0.02ppt
Net income 2,625 2,642 0.64 3,214 3,120 (2.94)
Net margin (%) 16.57 16.69 0.12ppt 16.57 16.53 -0.04ppt
EPS 2.234 2.248 0.64 2.736 2.655 (2.94)
14
Figure 3: Financial statements
Sources: CGIHK Research estimates
Consolidated income statement Consolidated balance sheet
FY Ended Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E As of Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E
Operating revenue 7,249 8,856 12,676 15,826 18,867 Current assets 7,203 10,813 14,166 15,410 18,905
Train-borne electrical systems 4,741 6,177 9,671 11,251 13,409 Cash and equivalent 2,319 3,136 2,680 3,581 4,564
Other rolling stock components 1,589 1,674 1,723 1,679 1,944 Trade and bill receivables 3,628 4,908 5,998 7,273 8,539
Others 919 1,005 1,282 2,896 3,513 Inventories 1,110 1,428 2,207 2,264 3,093
Other current assets 146 1,341 3,281 2,292 2,709
Less: business tax 63 75 100 131 157
Revenue 7,186 8,781 12,576 15,694 18,710 Non-current assets 2,454 2,586 2,759 4,753 4,932
PP&E 1,701 1,830 1,883 2,950 3,025
Less: COGS 4,803 5,695 7,876 10,199 12,219 Land use right 160 173 201 203 205
Gross profit 2,383 3,086 4,700 5,495 6,491 Total intangible assets 111 74 81 543 546
Long term investments 255 233 237 261 287
Less: SG&A 1,197 1,503 2,230 2,770 3,277 Other non-current assets 227 276 357 795 869
Add: Other income (loss) 131 81 191 238 285
Operating profit 1,317 1,664 2,661 2,963 3,499 Total assets 9,657 13,399 16,925 20,163 23,837
Add: Net fin income (cost) 9 27 43 26 34 Current liabilities 3,033 3,821 4,987 5,980 7,006
Add: JV, associate & others 78 13 51 50 55 Trade and bill payables 1,988 2,679 3,431 4,393 4,981
Pre-tax profit 1,404 1,704 2,755 3,039 3,588 Receipts in advance 292 388 588 530 905
Short term borrowings 41 31 4 38 41
Less: Income tax 179 238 363 395 466 Other current liabilities 712 723 964 1,020 1,079
Total net profit 1,225 1,466 2,392 2,644 3,122
Non-current liabilities 305 428 767 830 876
Less: Minority interests 1 (1) (3) 2 2 Long-term borrowings 28 52 37 63 69
Net income 1,224 1,467 2,395 2,642 3,120 Other non-current liabilities 277 376 730 767 806
EPS (RMB) 1.129 1.332 2.038 2.248 2.655
DPS (RMB) 0.350 0.373 0.400 0.450 0.531 Total liabilities 3,338 4,249 5,754 6,810 7,881
EBIT 1,395 1,677 2,712 3,013 3,554 Minority interests 135 134 180 190 201
EBITDA 1,542 1,837 2,980 3,325 3,864 Shareholders' equity 6,184 9,016 10,991 13,163 15,754
BVPS (RMB) 5.705 7.673 9.354 11.202 13.408
Consolidated cash flow statement Key ratios
FY ended Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E FY ended Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E
Profit before tax 1,404 1,704 2,755 3,039 3,588 Sales mixed (%)
Depreciation and amortization 147 160 271 313 310 Train-borne electrical systems 65.40 69.75 76.29 71.09 71.07
Changes in working capital (21) (867) (957) (482) (1,165) Other rolling stock components 21.92 18.90 13.59 10.61 10.30
Financial cost 16 3 3 6 6 Others 12.68 11.35 10.11 18.30 18.62
Income tax paid (129) (513) (502) (409) (482)
Others (170) 239 487 28 30 Profit & loss ratios (%)
CF Operating 1,247 726 2,057 2,494 2,288 Gross margin 33.16 35.14 37.37 35.01 34.69
Net profit margin 17.03 16.71 19.04 16.83 16.67
Increase in PP&E (382) (293) (335) (2,086) (390) Effective tax rate 12.75 13.97 13.18 13.00 13.00
Increase in investment (807) (1,101) (4,500) (24) (26)
Others 1,205 67 2,707 1,000 - Growth (%)
CF Investing 16 (1,327) (2,128) (1,110) (416) Revenue 1.51 22.20 43.22 24.80 19.22
Gross profit (3.91) 29.50 52.30 16.92 18.12
Capital injection 10 1,776 52 - - EBIT (0.92) 20.22 61.72 11.10 17.94
Net debt financing (632) 28 (38) 59 10 EBITDA (0.06) 19.13 62.22 11.59 16.19
Dividend & interest paid (397) (382) (412) (467) (530) Net profit 3.38 19.85 63.26 10.30 18.09
Others - - - (75) (370)
CF Financing (1,019) 1,422 (398) (482) (890) Balance sheet ratios
Current ratio (x) 2.37 2.83 2.84 2.58 2.70
Net change in cash 244 821 (469) 901 983 Quick ratio (x) 2.01 2.46 2.40 2.20 2.26
Cash ratio (x) 0.76 0.82 0.54 0.60 0.65
Trade & bill receivables days 147 178 159 155 155
Trade & bill payables days 127 150 142 140 140
Inventory turnover days 106 81 84 80 80
Total debt / equity ratio (%) 1.09 0.91 0.37 0.75 0.69
Net debt / equity ratio (%) Net Cash Net Cash Net Cash Net Cash Net Cash
Returns (%)
ROAE 21.29 19.30 23.94 21.87 21.58
ROAA 13.38 12.72 15.78 14.26 14.19
Payout ratio 31.05 28.02 19.62 20.00 20.00
15
Figure 4: PER band of ZCSR in 1M10-4M15
Sources: Bloomberg, CGIHK Research
Figure 5: PBR band of ZCSR in 1M10-4M15
Sources: Bloomberg, CGIHK Research
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16
Figure 6: Peer valuation table
Sources: Bloomberg, CGIHK Research estimates
Figure 7: Recent overseas railway development projects China getting involved
Sources: media, CGIHK Research
Date Event
2015-AprilPresident Xi Jinping met with Indonesian President in Jakarta Djoko on 22nd, April. And the two countries signed a bilateral cooperation documents on HSR
projects with total consideration of US$ 6bn
2015-AprilCSR plans to go head-to-head with European rivals such as Alstom SA in bidding for a range of contracts including rolling stock for Britain’s GBP 50bn High
Speed 2 rail line
2015-April Egypt signed a US$ 600m framework agreement with CRCC to renovate railway tracks along the the national railway network
2015-April China plans to construct railway to connect China and Nepal by way of Mount Everest. Total cost is estimated at US$ 1.6bn
2015-Mar India to construct high-speed rail network construction projects. Four Chinese enterprises join the tendering
2015-Mar China and Thailand signed contract on railway development project
2015-Mar China is interested in Russia's first HSR line connecting Moscow and Kazan, investing about US$5.2 bn in the construction of the project
2015-Mar Laos and China close to HSR deal in 2015, and would form part of link all the way to Singapore
2015-Mar China bids for high-speed rail between Malaysia and Singapore
Mkt cap 3M ADT 52W H 52W L 1M Chg 3M Chg 6M Chg YTD
Company Ticker US$m CRY Price (US$m) (%) (%) (%) (%) FY15E FY16E FY15E FY16E FY15E FY16E
Domestic Rolling Stock Maker
CSR-H 1766 HK 68,881 HKD 16.20 110.46 20.65 5.51 58.20 64.13 105.32 55.17 29.63 25.15 3.86 3.46 1.01 1.19
CSR CORP LTD -A 601766 CH 68,881 CNY 34.36 684.91 39.47 4.15 102.24 144.73 492.41 438.56 71.43 60.92 9.84 8.64 0.36 0.45
CHINA CNR CORP-H 6199 CH 62,484 HKD 16.82 77.78 21.95 4.99 50.99 62.04 119.58 51.26 30.20 26.28 3.69 3.35 0.97 1.08
CHINA CNR CORP-A 601299 CH 62,484 CNY 35.77 546.76 42.31 4.26 94.30 146.86 454.57 403.80 63.53 52.37 7.86 7.13 0.43 0.46
ZHUZHOU CSR-H 3898 HK 9,698 HKD 64.35 35.33 75.00 22.30 28.70 44.77 92.95 42.21 22.99 19.47 4.61 3.86 0.87 1.03
ZHUZHOU TIMES -A 600458 CH 2,279 CNY 21.56 53.17 24.45 8.25 29.26 41.66 77.01 77.01 77.00 69.55 3.63 3.51 0.28 0.43
CHANGCHUN EURA-A600697 CH 855 CNY 33.62 14.55 34.80 17.15 18.42 17.59 68.61 30.56 15.21 12.54 2.86 2.40 1.01 0.98
JINXI AXLE -A 600495 CH 2,806 CNY 26.16 112.48 28.45 7.41 7.52 22.99 37.39 9.46 109.00 N/A N/A N/A N/A N/A
Mean 48.70 68.10 180.98 138.50 52.37 38.04 5.19 4.62 0.70 0.80
International Rolling Stock Maker
ALSTOM ALO FP 9,697 EUR 29.10 4.35 30.95 24.72 0.48 1.75 8.22 8.32 24.19 17.99 1.57 1.39 0.93 1.23
BOMBARDIER INC-A BBD/A CN 4,654 CAD 2.56 0.05 4.44 2.43 (3.40) (14.67) (35.35) (38.01) 9.29 11.11 4.50 3.37
CAF CAF SM 1,154 EUR 313.00 0.31 371.00 230.10 3.51 4.58 20.62 3.52 13.42 10.73 1.35 1.23 2.68 3.15
VOSSLOH AG VOS GR 817 EUR 57.00 0.29 73.90 41.88 (0.82) (0.42) 15.40 6.54 38.49 19.81 2.07 1.87 0.84 1.75
FAIVELEY TRANSPO LEY FP 882 EUR 56.10 0.04 61.50 40.04 2.37 4.08 19.51 17.12 14.14 12.86 1.34 1.24 1.71 1.87
NIPPON SHARYO 7102 JP 436 JPY 357.00 15.80 426.00 325.00 2.88 (1.65) 6.25 0.56 34.33 23.49 1.03 0.99 0.84 0.98
KINKI SHARYO 7122 JP 221 JPY 384.00 8.44 426.00 280.00 (1.03) 15.32 31.51 17.07 -8.85 44.14
Mean 0.57 1.28 9.45 2.16 17.86 20.02 1.98 1.68 1.40 1.79
Aircraft Maker
BOEING CO/THE BA US FP 101,965 USD 148.40 88.43 158.83 116.32 (0.30) 12.02 21.52 14.17 17.44 16.03 12.87 14.19 2.45 2.61
AIRBUS GROUP NV AIR FP CN 54,309 EUR 64.11 21.45 66.10 39.64 6.12 30.65 43.23 55.04 18.88 17.95 5.28 4.43 2.10 2.31
Mean 2.91 21.33 32.38 34.61 18.16 16.99 9.07 9.31 2.28 2.46
27-April-2015 PE (x) PB (x) Yield (%)
17
China Resources Cement [1313.HK]
HOLD
Close: HK$5.03 (April 27, 2015)
Target Price: HK$5.20 (3.4%)
Price Performance
Market Cap US$4,316m
Shares Outstanding 6,532.9m
Auditor Deloitte
Free Float 26.6%
52W range HK$4.2-6.0
3M average daily T/O US$8.00m
Major Shareholder China Resources
Holdings (73.0%)
Sources: Company, Bloomberg
Wong Chi Man—Head of Research
(852) 3698-6317
Nevin Ning—Analyst
(852) 3698-6321
China Cement Sector
Sources: Company, CGIHK Research
During the company’s post-results telephone conference yesterday, management has
seen some recent signs of gradual demand recovery and average selling price (ASP)
stabilization. Meanwhile, management estimated the full-year effective tax rate to stay at
28%-30% this year despite a tax reversal in Q1, as losses in some provinces could not
offset the profit in others. Overall, management is relatively conservative about the out-
look in Q2 due to seasonality and market competition but maintains a better outlook in
2H15. We maintain our HOLD rating with a target price of HK$5.20, based on 1.1x
2015E PBR (unchanged).
Investment Highlights
Full year effective tax rate probably to fall in range of 28%~30%. Q1 2015
has recorded HK$265m over-provision reversal of enterprise income tax for the
year ended 31 December 2013, while management expected over-provision
reversal of enterprise income tax for 2014 to be recorded later this year, roughly
amounting to around HK$200m. However, after considering potential losses in
Shanxi Yunnan, which could not be offset by other profitable provinces, man-
agement expected full-year effective tax rate probably to fall in range of
28%~30% (28% in FY2015).
Full year sales volume target of 80m tonnes unchanged. The 7.5% YoY
sales volume (cement & clinker) growth in Q1 was largely due to the new capac-
ity addition in late 2014, while after normalization, management maintained
2015 sales volume (cement & clinker) guidance of around 80m tonnes, implying
a ~2.6% YoY growth.
Gradual demand recovery with more meaningful price hike after Q2. Sales
volume in March reached 5.6m tonnes, while management has already wit-
nessed gradual demand recovery and estimated a roughly 7m tonnes for April
sales volume. On the other hand, management expected ASP to stabilize at
range of HK$295~HK$310/tonnes for April and May. Since rainy weather in Q2
would usually affect cement business, management viewed that more meaning-
ful price hike would come after Q2, with an expected bottoming out probably in
late August, the peak season.
Q1 Takeaways: Key Markets Stabilized but Recovery Remains Shaky
April 28, 2015
Y/E Dec 31 2012 2013 2014 2015E 2016E
Turnover (HK$m) 25,345 29,341 32,669 32,733 34,359
Recurring net profit (HK$m) 2,329 3,265 4,297 3,761 3,640
Net margin (%) 9 11 13 11 11
Recurring EPS (HK$) 0.36 0.50 0.66 0.58 0.56
% Change (39) 40 31 (12) -3
PER (x) 14.3 10.2 7.8 8.9 9.2
PBR (x) 1.6 1.3 1.2 1.1 1.0
EV/EBITDA 9.8 7.8 6.2 6.9 6.7
0
100
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400
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4
6
8
Apr14 Jun14 Aug14 Oct14 Dec14 Feb15 Apr15
(HK$ million)(HK$)
Turnover (RHS) Price (LHS)
18
Key financials
CR Cement (01313.HK)
Income Statement
(HK$'000, except for per share amount)
Year ended 31 Dec 1H 2H 1H 2H 1H 2H 2012 2013 2014 2015E 2016E
Cement 9,116,962 12,454,705 11,110,857 13,248,646 10,635,909 13,773,378 18,126,000 21,571,667 24,359,503 24,409,286 25,339,898
Clinker 1,143,767 782,043 968,830 611,625 643,625 683,719 2,246,901 1,925,810 1,580,455 1,327,344 1,461,219
Concrete and others 2,597,427 3,245,715 3,081,335 3,647,617 3,174,281 3,822,000 4,972,427 5,843,142 6,728,952 6,996,281 7,557,506
Revenue 12,858,156 16,482,463 15,161,022 17,507,888 14,453,815 18,279,096 25,345,328 29,340,619 32,668,910 32,732,911 34,358,623
COGS (9,891,880) (11,088,987) (10,329,772) (12,113,997) (10,567,585) (12,903,297) (19,245,807) (20,980,867) (22,443,769) (23,470,882) (25,062,207)
Gross profit 2,966,276 5,393,476 4,831,250 5,393,891 3,886,230 5,375,799 6,099,521 8,359,752 10,225,141 9,262,029 9,296,415
Operating expenses (1,556,470) (2,450,930) (1,722,174) (2,573,792) (1,806,727) (2,650,469) (3,016,817) (4,007,400) (4,295,966) (4,457,196) (4,555,304)
Operating profit 1,409,806 2,942,546 3,109,076 2,820,099 2,079,504 2,725,330 3,082,704 4,352,352 5,929,175 4,804,833 4,741,111
Other gains and losses 110,638 219,555 151,309 225,936 187,900 255,907 353,201 330,193 377,245 443,807 465,796
EBIT 1,520,444 3,162,101 3,260,385 3,046,035 2,267,403 2,981,237 3,435,905 4,682,545 6,306,420 5,248,640 5,206,908
Net f inance costs (351,559) (287,527) (331,824) (264,649) (295,707) (267,834) (775,777) (639,086) (596,473) (563,542) (511,470)
Profits from associates/JCEs 5,586 192,413 5,155 110,716 (9,496) 74,729 218,476 197,999 115,871 65,233 150,209
Non-recurrent items 223,775 (150,756) (145,575) 73,853 (57,992) - (5,117) 73,019 (71,722) (57,992) -
Income before tax 1,398,246 2,916,231 2,788,141 2,965,955 1,904,208 2,788,132 2,873,487 4,314,477 5,754,096 4,692,340 4,845,646
Income tax expense (248,016) (787,792) (753,725) (877,052) (304,673) (724,914) (528,310) (1,035,808) (1,630,777) (1,029,588) (1,259,868)
Minority interests (4,591) 64,295 21,551 61,523 23,993 30,948 (20,807) 59,704 83,074 54,941 53,787
Net income 1,145,639 2,192,734 2,055,967 2,150,426 1,623,528 2,094,166 2,324,370 3,338,373 4,206,393 3,717,694 3,639,565
Recurring net income 921,864 2,343,490 2,201,542 2,095,036 1,667,022 2,094,166 2,329,487 3,265,354 4,296,578 3,761,188 3,639,565
EPS (HK$) 0.176 0.336 0.315 0.329 0.249 0.321 0.357 0.512 0.644 0.569 0.557
Recurring EPS (HK$) 0.141 0.359 0.337 0.321 0.255 0.321 0.357 0.501 0.658 0.576 0.557
DPS (HK$) 0.035 0.070 0.070 0.100 0.062 0.080 0.070 0.105 0.170 0.142 0.139
Depreciation and amortization 859,802 900,427 899,538 939,699 1,021,331 1,151,714 1,635,497 1,760,229 1,839,237 2,173,045 2,338,782
EBITDA 2,385,832 4,254,941 4,165,078 4,096,450 3,279,239 4,207,680 5,289,878 6,640,773 8,261,528 7,486,919 7,695,899
Blended cement and clinker ASP (HK$) 291 333 348 321 305 312 315 314 333 309 309
Cement and clinker vol. ('000 tonnes) 35,218 39,699 34,704 43,235 37,018 46,287 64,640 74,917 77,939 83,305 86,784
Cement and clinker gross profit (HK$/tonne) 66 117 119 103 83 96 74 93 110 90 86
Concrete ASP (HK$/tonne) 377 391 418 427 438 438 371 384 423 438 444
Concrete vol. ('000 m3) 6,898 8,307 7,372 8,548 7,256 8,736 13,407 15,205 15,920 15,992 17,031
Concrete gross profit (HK$/m3) 95 89 94 110 112 108 97 92 102 110 105
Growth Rates:
Revenue 17% 15% 18% 6% -5% 4% 9% 16% 11% 0% 5%
EBIT 34% 37% 114% -4% -30% -2% -30% 36% 35% -17% -1%
EBITDA 20% 29% 75% -4% -21% 3% -18% 26% 24% -9% 3%
Core net income 34% 43% 139% -11% -24% 0% -39% 40% 32% -12% -3%
Recurring EPS 34% 43% 138% -11% -24% 0% -39% 40% 31% -12% -3%
Margins and Ratios:
Gross margin 23.1% 32.7% 31.9% 30.8% 26.9% 29.4% 24.1% 28.5% 31.3% 28.3% 27.1%
Net margin 7.2% 13.8% 14.4% 11.6% 11.4% 11.3% 9.3% 10.9% 12.9% 11.3% 10.4%
EBIT margin 11.8% 19.2% 21.5% 17.4% 15.7% 16.3% 13.6% 16.0% 19.3% 16.0% 15.2%
EBITDA margin 18.6% 25.8% 27.5% 23.4% 22.7% 23.0% 20.9% 22.6% 25.3% 22.9% 22.4%
Effective tax rate 21.1% 25.7% 25.7% 30.3% 28.0% 15.5% 18.4% 24.4% 28.0% 21.7% 26.0%
Sources: Company data, CGIHK Research estimates
2015E20142013
19
Key financials
Figure 1: Cement Prices in Guangdong (RMB/tonne)
Sources: Digital Cement, CGIHK Research
Figure 2: Cement Prices in Guangxi (RMB/tonne)
Sources: Digital Cement, CGIHK Research
250
300
350
400
450
500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Guangzhou, Guangdong
2011 2012 2013 2014 2015
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300
350
400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nanning, Guangxi
2011 2012 2013 2014 2015
CR Cement (01313.HK)
Balance Sheet Statement of Cash Flow
(HK$'000, except for per share amount)
As at 31 Dec 2012 2013 2014 2015E 2016E Year ended 31 Dec 2012 2013 2014 2015E 2016E
Inventories 2,322,153 2,131,961 2,162,359 2,200,000 2,300,000 Profit before tax 2,873,487 4,314,477 5,754,096 4,692,340 4,845,646
Trade and other receivables 2,492,210 3,191,885 2,837,619 3,000,000 3,200,000 Depreciation & Amortization 1,646,183 1,827,176 2,020,732 2,173,045 2,338,782
Others 2,329,112 1,952,331 2,779,059 2,840,907 2,890,907 Others / adjustments 864,666 (606,791) (1,235,464) (457,290) (1,271,860)
Bank balances and cash 3,561,863 2,821,782 4,147,804 3,251,391 4,324,536 Net operating cash f low 4,304,718 5,121,087 6,858,842 6,175,398 5,862,569
Total current assets 10,705,338 10,097,959 11,926,841 11,292,298 12,715,443
Capex (3,218,917) (2,900,435) (3,206,491) (4,600,000) (2,200,000)
PPE, net 31,552,919 32,526,564 33,271,505 34,744,866 34,616,084 Others (1,280,630) (416,484) (1,350,709) (180,000) (160,000)
Prepaid lease payments 2,510,484 2,752,320 2,787,164 2,887,164 2,987,164 Net investing cash f low (4,499,547) (3,316,919) (4,557,200) (4,780,000) (2,360,000)
Others 7,390,390 8,802,827 9,551,577 9,696,810 9,907,019
Total non-current assets 41,453,793 44,081,711 45,610,246 47,328,840 47,510,267 Change in debt (2,267,134) (1,766,881) (159,960) (1,181,212) (1,500,000)
Dividends (717,118) (456,348) (684,522) (1,110,599) (929,423)
Total assets 52,159,131 54,179,670 57,537,087 58,621,138 60,225,710 Others 3,004,417 (419,272) (127,163) - -
Net f inancing cash f low 20,165 (2,642,501) (971,645) (2,291,811) (2,429,423)
Trade payables 3,386,392 3,246,173 2,800,119 3,000,000 3,200,000
Other payables 4,211,572 4,365,452 4,670,708 4,500,000 4,600,000 Increase / Decrease in cash (175,976) (740,081) 1,326,022 (896,413) 1,073,145
Bank and other borrow ings 7,607,433 6,171,482 4,728,905 4,000,000 3,500,000 Net cash/(debt) (18,646,886) (17,621,230) (16,136,072) (15,851,273) (13,278,128)
Others 1,572,925 614,997 930,763 569,750 684,890
Total current liabilities 16,778,322 14,398,104 13,130,495 12,069,750 11,984,890
Finance Ratios
Bank and other borrow ings 10,169,739 11,169,690 12,452,307 12,000,000 11,000,000
Others 3,252,870 3,250,125 3,239,137 3,232,664 3,232,664 2012 2013 2014 2015E 2016E
Total non-current liabilities 13,422,609 14,419,815 15,691,444 15,232,664 14,232,664 Valuation
PE(x) 14.3 10.2 7.8 8.9 9.2
Total liabilities 30,200,931 28,817,919 28,821,939 27,302,414 26,217,554 EPS grow th (%) (39.4) 40.2 31.3 (12.5) (3.2)
Yield (%) 1.4 2.1 3.3 2.8 2.7
Shareholders' equity 21,375,665 24,820,854 28,179,873 30,838,391 33,581,609 PEG (x) -0.36 0.25 0.25 -0.71 -2.84
Minority interests 582,535 540,897 535,275 480,334 426,547 EV/EBITDA (x) 9.8 7.8 6.2 6.9 6.7
PB(x) 1.6 1.3 1.2 1.1 1.0
Operational
Revenue grow th (%) 9 16 11 0 5
Gross margin (%) 24.1 28.5 31.3 28.3 27.1
Net profit margin (%) 9.3 10.9 12.9 11.3 10.4
Days receivables 32 35 34 33 33
Days payables 65 58 49 45 45
Days inventories 44 39 35 34 33
Current ratio (x) 0.6 0.7 0.9 0.9 1.1
Quick ratio (x) 0.4 0.4 0.5 0.5 0.6
Asset/Equity (x) 2.4 2.1 2.0 1.9 1.8
Net debt/equity (%) 85 69 56 51 39
EBITDA interest coverage (x) 6.8 10.4 13.9 13.3 15.0
Core ROE (%) 11.5 14.1 16.2 12.7 11.3
Sources: Company data, CGIHK Research estimates
20
Figure 3: CR Cement Rolling Forward PER Range
Sources: Bloomberg, CGIHK Research
Figure 4: CR Cement Rolling Forward PBR Range
Sources: Bloomberg, CGIHK Research
Figure 5: CR Cement EV/EBITDA Range
Sources: Bloomberg, CGIHK Research
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Rolling forward PER (x) Average (x)
+1 Standard deviation -1 Standard deviation
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P/B trend (x) 1 Standard deviation
-1 Standard deviation Average
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EV/EBITDA (x) Average (x)
+1 Standard deviation -1 Standard deviation
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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 :