CMB International Securities | Equity Research | Company Update Summary
Core Content
NWS Holdings (659 HK) has announced the disposal of its major assets in the Environment segment for HK$6,533 million. This strategic move aligns with the company's focus on core businesses such as Roads, Insurance, Aviation, and Construction, while exiting non-core segments. The disposal is seen as a positive development for NWS due to several reasons:
- Declining AOP in Environment segment: The AOP for the Environment segment has been declining from FY18 to FY20.
- High exit valuation: The implied FY20A P/E for SUEZ NWS and Derun is 17.9x and 16.0x, respectively, which is significantly higher than the industry average of 11.2x.
- NAV-accretive: The combined FY21E NAV of the two businesses is estimated at HK$4,800 million, indicating that the disposal is beneficial for shareholder value.
- Capital reallocation: The disposal will free up capital, reducing the net debt-to-equity ratio from 30.9% to 11.9% and increasing cash on hand from HK$14.8 billion to HK$22.0 billion.
Key Points
- Strategic Focus: NWS is streamlining its business portfolio to focus on core and higher-growth areas.
- Historical Disposals: The company has previously disposed of non-core businesses such as the bus business in HK and ports in Tianjin.
- Investment Outlook: The freed capital is expected to be redeployed into new investments, such as toll roads.
- Valuation: The current price of HK$8.00 is considered very attractive, with a trailing P/B of 0.67x (pre-pandemic low), a dividend yield of 7.3% (close to pre-pandemic peak), and a 60% discount to FY21E NAV.
Financial Highlights
Earnings Summary (YE 30 Jun)
| Metric |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Revenue (HK$ mn) |
26,834 |
25,921 |
35,335 |
38,051 |
40,926 |
| Attributable Operating Profit (AOP) (HK$ mn) |
4,707 |
3,514 |
5,384 |
6,233 |
6,848 |
| Profit for the year (HK$ mn) |
4,259 |
828 |
4,307 |
4,921 |
5,574 |
| EPS (HK$) |
1.04 |
0.06 |
0.95 |
1.10 |
1.27 |
Key Ratios
| Ratio |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Net debt / equity ratio (%) |
0.0 |
30.9 |
11.9 |
9.3 |
6.0 |
| ROE (%) |
8.2 |
0.5 |
7.9 |
8.9 |
9.9 |
| P/E (x) |
7.7 |
124 |
8.5 |
7.3 |
6.3 |
| P/B (x) |
0.64 |
0.67 |
0.66 |
0.64 |
0.61 |
| Dividend Yield (%) |
7.3 |
7.3 |
7.5 |
7.8 |
8.5 |
Analyst Recommendations
- Ratings: BUY (Maintain)
- Target Price: HK$13.12 (Previously HK$12.78)
- Up/Downside: +64%
- Reasoning: The adjusted FY21E and FY22E EPS forecasts have been revised downward by -6.0% and -9.8% respectively, taking into account the disposal of non-core assets. The target price remains based on a 35% discount to FY21E NAV.
Potential Catalysts
- Further disposal of non-core assets
- Spinoffs (e.g., aviation)
- Acquisitions at attractive valuations (e.g., toll roads)
- China's protective policies for Roads segment
- Reopening of HK-China border and lifting of travel restrictions, which could drive growth in FTLife
Shareholding Structure
- New World Development: 60.86%
Stock Data
| Metric |
Value (HK$ mn) |
| Market Cap |
31,289 |
| Avg 3 mths t/o |
39.45 |
| 52w High/Low (HK$) |
12.00 / 5.77 |
| Total Issued Shares (mn) |
3,911.1 |
Share Performance
| Period |
Absolute (%) |
Relative (%) |
| 1-mth |
8.5 |
2.8 |
| 3-mth |
19.1 |
3.0 |
| 6-mth |
17.5 |
8.4 |
Summary
The company is actively divesting non-core assets to focus on its core segments, which is expected to improve financial health and shareholder value. The disposal of Environment segment assets is particularly favorable due to the high valuation and the NAV-accretive nature. The company's financials show a strong cash position and reduced leverage, which supports its investment strategy. The current valuation is considered attractive, with a low P/B ratio and high dividend yield. The target price remains at HK$13.12, reflecting a 35% discount to FY21E NAV. The analyst recommends maintaining a BUY rating, with the potential for significant returns over the next 12 months.
