HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Communications Construction / Equity Bottom-Up

We believe the valuations of <a href="https://www.smartkarma.com/entities/china-communications-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:265:1" rel="noopener">China Communications Construction (1800 HK)</a> - 0.27x P/B and 3.9x PE (on a 12-month forward basis) - have well factored in concerns including tight cash flow, high gearing, heavy investments and risk of overseas projects. In fact, such valuation multiples are almost at 2 SD below the average in the last five years, and we see further downside limited.In our view, there are a number of drivers that can support a re-rating of the stock over the next 12 months: 1.) infrastructure spending and new project momentum, 2.) beneficiary of government's infrastructure REIT program, 3.) resumption of toll road collection and profit recovery in 2H20, and 4.) share buyback.

We believe the valuations of China Communications Construction (1800 HK) - 0.27x P/B and 3.9x PE (on a 12-month forward basis) - have well factored in concerns including tight cash flow, high gearing, heavy investments and risk of overseas projects. In fact, such valuation multiples are almost at 2 SD below the average in the last five years, and we see further downside limited.In our view, there are a number of drivers that can support a re-rating of the stock over the next 12 months: 1.) infrastructure spending and new project momentum, 2.) beneficiary of government's infrastructure REIT program, 3.) resumption of toll road collection and profit recovery in 2H20, and 4.) share buyback.

China Comm Const (1800 HK): Every Dog Has Its Day

Equity Research in HK and Mainland China

Li Tang

Thematic (Sector/Industry)

As most provinces have seen daily new infection cases of Covid-19 falling to zero in mainland China, therefore, will increasingly resume construction. We expect infrastructure investment to pick up in H2, supported by approving new special bond funding for this year and new funding channels such as REITs as we highlighted in our  <a href="https://www.smartkarma.com/insights/china-real-estate-china-might-finally-be-getting-its-own-reits" target="_blank" rel="noopener">China Might Finally Be Getting Its Own REITs</a>.
China cumulatively invested around 150trn yuan in urban infrastructure in 1995-2019, according to estimates based on NBS data. Assuming a 10% securitisation rate, infrastructure investment could generate 15trn yuan in REITs.As to the industry, the publicly traded infrastructure REITs could trigger revaluation of some listed companies while changing the industry landscape.
Construction machinery industry likely benefits directly from greater infrastructure investment driven by REITs and government policy support. We believe <a href="https://www.smartkarma.com/entities/sany-heavy-industry-co-ltd" target="_blank" data-smartkarma-citation="entities:20183:1" rel="noopener">Sany Heavy Industry Co., (600031 CH)</a> and <a href="https://www.smartkarma.com/entities/zoomlion-heavy-industry-s-a" target="_blank" data-smartkarma-citation="entities:425:1" rel="noopener">Zoomlion Heavy Industry S A (000157 CH) </a>are likely to benefit under government's infrastructure spending.
Existing assets of China's public utility sector are enormous .Companies that have assets in utilities are likely to benefit from the rollout of the scheme, and we favour <a href="https://www.smartkarma.com/entities/china-communications-const-a" target="_blank" data-smartkarma-citation="entities:28676:1" rel="noopener">China Communications Const-A (601800 CH)</a>, <a href="https://www.smartkarma.com/entities/china-state-construction-a" target="_blank" data-smartkarma-citation="entities:16365:1" rel="noopener">China State Construction A (601668 CH)</a>.

As most provinces have seen daily new infection cases of Covid-19 falling to zero in mainland China, therefore, will increasingly resume construction. We expect infrastructure investment to pick up in H2, supported by approving new special bond funding for this year and new funding channels such as REITs as we highlighted in our  China Might Finally Be Getting Its Own REITs.
China cumulatively invested around 150trn yuan in urban infrastructure in 1995-2019, according to estimates based on NBS data. Assuming a 10% securitisation rate, infrastructure investment could generate 15trn yuan in REITs.As to the industry, the publicly traded infrastructure REITs could trigger revaluation of some listed companies while changing the industry landscape.
Construction machinery industry likely benefits directly from greater infrastructure investment driven by REITs and government policy support. We believe Sany Heavy Industry Co., (600031 CH) and Zoomlion Heavy Industry S A (000157 CH) are likely to benefit under government's infrastructure spending.
Existing assets of China's public utility sector are enormous .Companies that have assets in utilities are likely to benefit from the rollout of the scheme, and we favour China Communications Const-A (601800 CH), China State Construction A (601668 CH).

Which Sectors Should Benefit from the Launch of China REITs?

China

China Communications Construction Company Limited offers transportation infrastructure construction services. The Company constructs ports, waterways, highways, bridges, and other infrastructures. China Communications Construction also operates real estate development.

China Communications Construct (601800 CH)

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China Communications Construct (601800 CH)

China Comm Const (1800 HK): Every Dog Has Its Day

We believe the valuations of China Communications Construction (1800 HK) - 0.27x P/B and 3.9x PE (on a 12-month forward basis) - have well factored...

Osbert Tang, CFA

Which Sectors Should Benefit from the Launch of China REITs?

As most provinces have seen daily new infection cases of Covid-19 falling to zero in mainland China, therefore, will increasingly resume...

Li Tang

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52-week Range

Market Cap (USDm)

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