Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) the asset replacement scheme was implemented and the stripping of real estate business entered the countdown

\u3000\u3000 Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) (601669)

The company's announcement and the group's asset replacement and related party transaction plan, It is proposed to use non-public agreement transfer to replace the group's power grid auxiliary assets (equity of 18 subsidiaries of the group, with an estimated value of owner's equity after deducting perpetual bonds of about 24.65 billion) and the company's real estate assets (equity of 3 subsidiaries of the company, with an estimated value of owner's equity after deducting perpetual bonds of about 24.72 billion), with a difference of about 65 million. The group pays the company in cash. The plan has been considered and approved by the board of directors / board of supervisors.

The company also announced the change of the controlling shareholder's commitment to avoid horizontal competition in the early stage (inject Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) into the qualified power grid auxiliary enterprises within 8 years from August 30, 14, and dispose of other power grid auxiliary assets in the same period). The three subsidiaries of the group that did not participate in the asset replacement do not meet the conditions for injecting the asset replacement transaction into the listed company for the time being, It promises to take measures to make it meet the injection conditions and solve the horizontal competition through asset injection within the next three years.

Promote the essence of the scheme and reassure the market

There are many assets involved in this transaction scheme (3 entities and 18 entities), and some assets have some historical problems in the early stage, which need to be cleaned up and standardized. There are some challenges in scheme design, process promotion and asset sorting. Some investors have some doubts about the landing probability and promotion rhythm of the transaction scheme. The replacement plan is released to reassure the market.

Divestiture of real estate business, expansion of financing channels and acceleration of development are supported

An important significance of the implementation of the scheme is to completely divest the company's real estate development business, and the company's subsequent refinancing restrictions may be greatly alleviated. Under the controllable balance sheet space, it provides support for the acceleration of pumping and storage construction and high-intensity investment layout of wind and solar power assets in response to the large demand for follow-up funds.

Asset replacement or improving the company's profitability

The total net profits of 20fy and 21m1-8 of the 18 Group subsidiaries placed were RMB 1.80/0.20 billion respectively (calculated according to the shareholding ratio), vs the total net profits of 20fy and 21m1-8 of the three company subsidiaries placed were RMB 100 / - 1.77 billion respectively. The profitability of invested assets may be significantly better than that of invested assets. After the completion of the scheme, the overall profitability of the company may be improved to a certain extent.

Most of the horizontal competition has been solved, and the corporate governance has been further improved

The transaction plan solves most of the related party transactions between the power construction group and the company in the early stage, and makes better arrangements for the three Group subsidiaries that still compete with the company. After the implementation of the scheme, the horizontal competition between the company and the group is expected to be greatly reduced, which is of great significance to improve corporate governance.

Benefiting from the accelerated construction of pumped storage, we are optimistic about the effectiveness of the layout of new energy and maintain the "buy" rating

Maintaining the previous performance forecast, it is expected that the company's net profit attributable to the parent company in 21-23 years will be 8.8/101/11.8 billion respectively, and yoy will be 11% / 15% / 17% respectively. The company has a solid leading position in the field of water conservancy and hydropower construction, benefiting from the acceleration and diversified expansion of pumped storage construction; The quality of power operation assets is relatively good, and the pace of scale improvement and structure optimization in the 14th five year plan may be accelerated, so we are optimistic about the transformation effect and growth potential of the company. The transaction price on January 7, 2022 corresponds to the company's 22-year PE 13X. We continue to recommend the company and maintain the "buy" rating.

Risk warning: strategy execution is weaker than expected, power and infrastructure investment is lower than expected, impairment risk, asset integration plan is still in the planning stage, and there is uncertainty

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