\u3000\u3 Guangdong Shaoneng Group Co.Ltd(000601) 800 China Communications Construction Company Limited(601800) )
China Communications Construction Company Limited(601800) is the leader of China’s infrastructure construction: the company is the world’s leading comprehensive service provider of super large infrastructure, the world’s largest design and construction company of ports, roads and bridges, the world’s largest dredging company, China’s largest international engineering contracting company, China’s largest Expressway investor, and has the world’s largest engineering ship fleet. The company’s profitability and value creativity are in a leading position in the industry. It is also the only “16 company a” construction central enterprise at present.
The certainty of revenue growth is high, and offshore wind power is worth looking forward to: by the end of 2020, the guarantee multiple of newly signed orders (newly signed contract amount (excluding value-added tax) / project income) is 1.6 times, which can provide sufficient guarantee for revenue growth. The company has significant advantages in offshore wind power, with the world’s largest dredging fleet and the world’s largest port construction fleet, and the scale of trailing suction dredger and cutter suction dredger ranks first in the world; At the same time, it has entered the field of offshore wind power installation and maintenance earlier, has rich offshore construction experience and excellent operation equipment, and has absolute advantages in this field.
The proportion of franchise assets is high, and the safety of accounts receivable is high: the proportion of intangible assets in the total assets of the company is high, which basically remained between 16% – 20% from 2016 to the end of 2021q3, significantly higher than the range of 7% – 9% of the average value of the eight central construction enterprises; Meanwhile, its intangible assets are mainly franchise assets, accounting for 94% of H1 in 2021. The company’s bad debt provision for accounts receivable accounted for a high proportion of its accounts receivable. From 2016 to 2021, H1 basically remained between 12.6% – 17.2%, significantly higher than the average range of 7.7% – 12.7% of 8 central construction enterprises, the average range of 5.7% – 7.4% of 4 upstream and downstream enterprises in the industrial chain, and the median range of 5.3% – 6.5% of 4 local infrastructure state-owned enterprises.
REITs brings revaluation of the value of transportation and construction assets: China Communications Construction Company Limited(601800) existing highway assets are huge, which will fully benefit from the historic opportunity of REITs and is expected to usher in the revaluation. At the same time, REITs can make the company’s roe and free cash flow improve marginally, and can also provide equity funds for the company to accelerate its expansion. We valued the operating assets business and construction engineering business of CCCC and calculated that the valuations of the two businesses were 68.5-94.3 billion yuan and 123.8 billion yuan respectively. The total value of the company was about 192.3 billion yuan – 218.1 billion yuan, which had 31% – 48% potential growth space compared with the current market value of 147.1 billion yuan (as of March 22, 2022, assuming that the market value of H shares was calculated according to the share price of a shares).
Profit forecast, valuation and rating: China Communications Construction Company Limited(601800) as a leader in China’s infrastructure construction, it has operated steadily for many years and maintained steady growth in business scale; Its strategic layout of urban operation business, relying on the advantages of port and shipping business, cuts into the field of offshore wind power, with high certainty of income growth. The company’s intangible assets with sufficient provision for credit impairment, high asset security and large scale will fully benefit from the historic opportunity of REITs and usher in the opportunity of value revaluation; At the same time, REITs can improve the company’s roe and free cash flow margin, provide equity funds for the company and help it accelerate its expansion, so that the company can obtain the opportunity of comprehensive repair of valuation. We maintain the company’s EPS forecast of 1.25 yuan, 1.48 yuan and 1.68 yuan from 2021 to 2023, and the current price corresponding to the dynamic P / E ratio of a / H shares in 2022 is 6.1x/2.3x respectively, maintaining the “buy” rating of A-Shares and H shares.
Risk tips: the growth rate of infrastructure investment is lower than the expected risk, the application and issuance of REITs projects are lower than the expected risk, the risk of repeated epidemic, and the operation condition of highways in Southwest China such as Guizhou and Chongqing is lower than the expected risk.
