20181011-中国银河国际证券-Strategy__HK_Policy_Address_2018__More_Infrastructure_Projects_in_the_PiPeline_3页_1mb

HK Policy Address 2018 Summary

Core Content

The 2018 Hong Kong Policy Address, delivered by Chief Executive Carrie Lam, outlined a more ambitious infrastructure development plan compared to previous years. The plan includes a significant HK$500bn project for the development of artificial islands, along with other key infrastructure initiatives.

The government aims to develop artificial islands in the central waters of north Lantau, near Kau Yi Chau and Hei Ling Chau, as well as coastal areas of Tuen Mun, including the River Trade Terminal and Lung Kwu Tan. These developments will be supported by new transport networks. The land from these islands could accommodate 260,000 to 400,000 residential units. However, the timeline for the first phase of land reclamation is set for 2025, indicating the project is still in the early stages.

Other infrastructure projects mentioned include the second 10-year hospital development plan (HK$270bn), the HK$5bn expansion and redevelopment of the Air Mail Centre at Hong Kong International Airport, the SKYCITY development project, and the future Phase 2 of AsiaWorld-Expo. These projects will be further detailed in the Annual Budget Speech in March 2019.

Main Points

• Infrastructure Spending Target: The government plans to invest over HK$1 trillion in infrastructure over the next 10 years, with an average annual spending of HK$100 billion, up from the current HK$80 billion.
• Artificial Islands Development: A key component of the plan, but expected to be implemented in phases, with the first phase starting in 2025.
• Impact on Companies: The infrastructure plans are expected to benefit several listed companies, including NWS (0659.HK), CSCI (3311.HK), and FSE Engineering (0331.HK).

Key Information

NWS (0659.HK)

• Construction & Transportation Segment: Accounts for 23.2% of operating profit in FY18.
• Potential Benefits: Expected to benefit from the proposed toll waiver for franchised buses using government tunnels and roads.
• Facilities Management: Contributes 5.5% to total operating profit, which could benefit from the development of exhibition facilities in Hong Kong.
• Stock Valuation: Current price HK$15.3, market cap HK$59,627m, PER 12.60, 2018E PER 10.84, 2019E PER 9.67, PBR 1.19, Historical Dividend Yield 5.10%.

CSCI (3311.HK)

• Hong Kong Cash Construction Business: Contributes 30% of total revenue in 2017, with gross profit contribution below 20%.
• Growth Potential: Could see higher growth if infrastructure spending increases to HK$100 billion annually.
• Stock Valuation: Current price HK$8.18, market cap HK$41,302m, PER 7.50, 2018E PER 6.63, 2019E PER 5.54, PBR 1.06, Historical Dividend Yield 4.30%.

FSE Engineering (0331.HK)

• E&M Engineering Services: A leading provider in Hong Kong, contributing 79% of revenue in FY18.
• Stock Valuation: Current price HK$3.14, market cap HK$1,413m, PER 5.93, PBR 2.22, Historical Dividend Yield 6.72%.

Analysts

• Wong Chi Man – Head of Research
• Mark Lau – Research Analyst

Disclaimer

This report is intended for institutional clients and is not directed at or intended for distribution to any person or entity in jurisdictions where such distribution would be illegal. No guarantees are made regarding the accuracy or completeness of the information. The report does not constitute an offer or solicitation to buy or sell securities.

Disclosure of Interests

China Galaxy International may have financial interests in the companies discussed, potentially equal to or exceeding 1% of their market capitalization. Some of its directors, officers, or employees may hold positions in the mentioned companies, and the firm may be involved in financing transactions or investment banking services with these entities.

Analyst Certification

The analyst certifies that the views expressed in this report reflect personal opinions and that there is no direct or indirect compensation related to the specific views in the report. The analyst and their associates have not traded in the securities covered in the report within 30 days prior to its issue and will not do so within three business days after the issue.

Equity Ratings Explanation

• BUY: Share price is expected to increase by more than 20% within 12 months.
• SELL: Share price is expected to decrease by more than 20% within 12 months.
• HOLD: No clear catalyst, and the rating is downgraded from BUY pending clearer signals.

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