Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) (601669)
Event: the company announced that it plans to replace the assets of the real estate sector held by the company with the assets related to high-quality power grid auxiliary industry held by the controlling shareholder China Power Construction Group Co., Ltd. in order to successfully implement the asset replacement transaction, The company plans to convert debt into equity for its wholly-owned subsidiary Tianjin Haifu Real Estate Development Co., Ltd. (hereinafter referred to as the “target company” or “Tianjin Haifu”).
comment:
Substantial progress has been made in asset replacement, and the transaction scheme has been preliminarily determined. The company implemented debt to equity swap for the target company, and the amount of debt to equity swap was RMB 16.3 billion. As of June 30, 2021, the amount of other creditor’s rights receivable from Tianjin Haifu of the company was RMB 22.573 billion. The company and the subject company agreed through consultation that the amount of creditor’s rights for this share conversion was RMB 16.3 billion. After the debt to equity swap is completed, the target company is still a wholly-owned subsidiary of the company. As of the announcement disclosure date (December 22, 2021), matters related to the asset replacement transaction are advancing in an orderly manner. After full demonstration by the company, counterparties and intermediaries, the scope and transaction scheme of the underlying assets of the asset replacement transaction have been preliminarily determined, the audit and evaluation of the underlying assets have been basically completed, and the state-owned assets filing procedure of the asset evaluation report is being performed. At present, the relevant parties of the transaction are The negotiation on the core terms of the agreement has not yet signed a formal agreement. The asset replacement transaction needs to perform the necessary decision-making and approval procedures in accordance with relevant laws, regulations, normative documents and the company’s internal system.
Asset replacement is expected to thicken the company’s net profit, and stripping the real estate business is conducive to broadening financing channels. 21h1, the company’s real estate business income was 5.22 billion, an increase of – 32.1%, accounting for 2.6% of the company’s total revenue, and the gross profit margin was 11.39%, lower than the company’s comprehensive gross profit margin of 12.98%, becoming a drag on the comprehensive gross profit margin; In 21h1, the company’s real estate business mainly relies on its subsidiary Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) real estate group to achieve a net profit of – 490 million yuan, with a net profit of 24 million yuan in the same period of last year. The net profit of 21h1 power construction real estate group decreased significantly. After stripping the real estate business, the drag of the real estate business on the company’s gross profit margin and net profit may be eliminated; On the other hand, due to the tight financing environment of real estate enterprises and the restrictions on equity financing of Central real estate enterprises to a certain extent, stripping the real estate business will help the company broaden financing channels or provide an important source of funds for the company’s business development during the 14th Five Year Plan period.
Profit forecast, valuation and rating: Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) substantial progress in asset replacement is conducive to the company’s subsequent expansion of financing channels. The company has competitive advantages in power construction, operation and investment. We are optimistic about the value revaluation brought by the growth of the scale of the company’s new energy power generation assets, as well as the company’s project experience and reserves in photovoltaic roof, energy storage and other fields, It is expected to continue to make efforts in these two areas in the future. Maintain the company’s EPS forecast of 0.58 yuan, 0.65 yuan and 0.72 yuan from 2021 to 2023, and the current price corresponds to the company’s 21-year dynamic P / E ratio of 14x, maintaining the “buy” rating.
Risk tip: the demand for contracted construction of new energy power generation projects is lower than expected, the growth rate of newly signed orders slows down, the project payment collection is lower than expected, and the profitability of real estate business is lower than expected.
