20130916-新鸿基金融集团-Research_Idea__Opening_the_Trophy_Cabinet_18页_1mb

Summary of Shenzhen International (152.HK) Infrastructure Sector Analysis

Core Content

Shenzhen International (152.HK) is a local government-owned investment company that holds a diverse portfolio of infrastructure and real estate assets. The report outlines the company's potential for value creation through the monetization of its land assets, particularly in Qianhai and South China Logistic Park, and the anticipated improvement in its toll road business.

Main Points

• Company Overview: Shenzhen International is 48% owned by SASAC. It operates primarily in toll roads and logistic parks, with the toll roads business being the main cash generator.
• Valuation: Based on a sum-of-the-parts (SOTP) valuation, the company's assets are valued at HK$29,624m, while the current market cap is HK$16,010m. This represents a 46% discount, which the report considers excessive.
• Target Price: The report recommends buying the shares with a target price of HK$1.45, which is a 20% discount to the SOTP value.
• Investment Thesis: The report outlines three potential outcomes for the Qianhai land development and highlights the potential for significant value creation if the company successfully redevelops its land.

Key Information

Three Reasons to Buy

1. Real Estate Optionality: If the company successfully rezones its land in Qianhai and South China Logistic Park, there will be a material upside to its asset value. Qianhai land is estimated to be worth HK$11,815m under current assumptions.
2. Toll Road FCF Inflection Point: The toll road business is expected to transition from an investment phase to a cash flow generation phase in 2014, with free cash flow yields increasing from 3.75% to 10.5%.
3. New Logistic Business Model: The company is using cash flow from the toll road business to fund the development of integrated logistic parks in strategic cities, which is expected to become a more important business in the future.

Valuation Inputs

• Current Market Cap: HK$16,010m
• SOTP Value: HK$29,624m
• Discount to SOTP: 46%
• Target Price: HK$1.45 (48% of SOTP value)
• Bull Case: HK$2.00 (104% upside)
• Bear Case: HK$0.78 (-21% downside)

Scenario Analysis

• Qianhai Land Value Sensitivity: The value of the Qianhai land is highly sensitive to plot ratio and ASP (average selling price). At a plot ratio of 4X and ASP of RMB35,000 per sq m, the value is HK$11,815m.
• South China Logistic Park: The company owns 611,000 sq m of land, with a potential value of HK$6,651m under current assumptions.
• Toll Road Business: The company's toll road assets are valued at HK$5,003m based on NPV, with the expectation that the business will improve as the investment cycle transitions to a cash flow phase.

Risks

• The company may not be allowed to develop its own assets, which could lead to a significant impairment in value.
• Policy changes on toll roads could impact cash flows.

Key Data

Investment Recommendations

• Buy Rating: The report initiates coverage with a Buy rating and a target price of HK$1.45.
• Upside Potential: The report highlights the potential for significant upside if the company successfully redevelops its land and the toll road business improves.

Conclusion

The report believes that Shenzhen International is undervalued and has significant potential for value creation through the monetization of its land assets and the improvement of its toll road business. The company is recommended for purchase with a target price of HK$1.45, which is a 20% discount to the SOTP value. The report highlights the importance of the company's real estate optionality and new logistic business model in driving long-term growth.