1H13 Results Summary: China State Construction International (CSCI)
Core Content
China State Construction International (CSCI) reported its 1H13 results, showing a year-over-year (YoY) increase in earnings per share (EPS) by 20%, which was in line with expectations. The company's net profit after tax (NPAT) reached HKD1.17 billion, up 32% YoY. Revenue increased by 22% YoY to HKD30.6 billion, slightly below the analysts' estimates primarily due to lower-than-expected revenue from BT (Build-Transfer) projects during the construction low season.
Key Financial Highlights
- EPS: Up 20% YoY to HKD0.684, in line with expectations.
- Net gearing: Rose from 24% to 28.5%, 3.6ppt below the estimate, due to lower-than-expected receivables from BT projects.
- New Order Target: Revised upward from HKD40 billion to HKD43 billion for FY13E, reflecting confidence in continued growth.
- New Orders (1H13A): HKD30.6 billion, up 18% YoY.
- Revenue (1H13A): HKD30.6 billion, up 22% YoY.
Earnings and Revenue Forecasts
| Metric |
2013E (HK$) |
2014E (HK$) |
2015E (HK$) |
| Net Income (Adjusted) |
2,658 mn |
3,420 mn |
3,870 mn |
| EPS |
0.684 |
0.847 |
0.947 |
| Revenue |
26,781 mn |
33,912 mn |
36,657 mn |
Key Drivers of Growth
- HK Construction Orders: Expected to remain strong in FY13-15E.
- Macau Casino Projects: CSCI is likely to secure additional projects beyond the MGM project.
- Social Housing BT Projects in PRC: Expected to grow due to continued government investment in relocation housing.
- HK "10 Mega Projects": Will support high construction orders in FY14-15.
Key Risks
- Local PRC Government's B/S: Potential impact on project execution.
- HK Project Progress: Delays could affect revenue realization.
- Competition: Intensifying in the construction sector.
Net Debt and Gearing Projections
- Net gearing (YE13E): Lowered to 39% from 44%.
- Shares Issue in FY14: Assumed to be 200 million shares to keep net gearing below 40%.
- Net gearing (YE14E): Projected at 27%.
- Net gearing (YE15E): Projected at 35%.
Valuation and Metrics
- P/E Ratio (2013E): 18.35x.
- Dividend Yield (2013E): 1.67%.
- EV/EBITDA (2013E): 17.31x.
- Free Cash Flow Yield (2013E): -4.31%.
- ROE (2013E): 18.3%.
- Net Debt-to-Equity Ratio (2013E): 38.4%.
- Interest Cover (2013E): 6.6x.
- Return On Capital Employed (2013E): 8.2%.
Investment Opinion
- Rating: Maintain Buy.
- Reasons:
- Strong orders and earnings growth in FY13-14E.
- CSCI's leadership and centrally-controlled SOE status.
- Asset injection potential, though not factored into current estimates due to lack of details and uncertainty in timing.
Stock Data
- Price: HK$12.54.
- Price Objective: HK$13.80.
- Market Value (mn): HK$48,749.
- Average Daily Volume: 4,768,409.
- Volatility Risk: HIGH.
- 52-Week Range: HK$8.01 - HK$12.90.
- Price to Book Value: 3.1x.
Company Description
CSCI is a leading construction contractor in Hong Kong and Macau, involved in building construction, civil engineering, and other peripheral operations. It has been involved in BT projects in PRC since 2009. The company is majority-owned by China State Construction Engineering Corporation (CSCEC), a centrally controlled SOE, with a 57% stake through CSCECL (601668 CH).
Key Projects and Revenue Breakdown
| Project |
1H13A (HKD mn) |
2H13E (HKD mn) |
FY13E (HKD mn) |
| Construction |
6,642.2 |
14,046.2 |
26,781.3 |
| HK |
5,264.9 |
11,942.9 |
16,379.0 |
| Macau |
437.8 |
1,018.8 |
26,781.3 |
| PRC |
925.6 |
1,070.6 |
26,781.3 |
| Infrastructure Investment |
4,429.9 |
13,901.8 |
26,781.3 |
Gross Profit and Margins
| Metric |
1H13A (%) |
2H13E (%) |
FY13E (%) |
| Gross Profit |
1,373.5 |
3,328.7 |
4,010.5 |
| Gross Margin |
12.6% |
12.4% |
13.6% |
| Gross Margin (Excl JCEs) |
12.6% |
12.4% |
12.4% |
EBIT and EBITDA
| Metric |
1H13A (HKD mn) |
2H13E (HKD mn) |
FY13E (HKD mn) |
| EBIT |
968.0 |
2,321.4 |
3,256.0 |
| EBITDA (2013E) |
2,610.8 |
3,388.8 |
3,599.2 |
Analysts and Contact
Disclaimer
- The report is prepared by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under FINRA rules.
- Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities.
- Investors should be aware of potential conflicts of interest.
- Important disclosures are available on pages 16 to 18.