DBS Vickers: Improving confidence in China – Picks are Yangzijiang, Capitaland and China Merchant Hldgs (Pacific)


HK and China equity markets have been a bright spot in recent weeks amid latest global uncertainties. Investors’ sentiment in these markets have been aided by factors such as improving PMI data, RMB stabilization, de-regulations in the property sector and stimulus aimed at targeted sectors.

The expected launch of the mutual access between Hong Kong and Shanghai in October is also a sentiment booster. The move enables investors of both regions to trade shares in both markets.

For Singapore, stocks with China exposure should ride upon the recovery in these overseas markets. Our picks are Yangzijiang, Capitaland and China Merchant Hldgs (Pacific).

Yangzijiang is poised to grow from organic expansion and potential M&As. Its valuation is undemanding at near book value and <7x PE despite its attractive 16% ROE and 5% dividend yield.

China Merchant Hldgs (Pacific) raised its interim DPS to 3.5Scts from 2.75Scts a year ago as the Group continues to generate firm cash flow. The completion of Jiurui Expressway acquisition by year end should help further drive long-term earnings growth.

In China, CapitaLand is expected to complete a further 1,990 residential units. Apart from its growing operations in Singapore and China’s residential market, we see the privatisation of CMA as a key driver towards lifting profits and ROEs for the group.  

YZJ_yardYangzijiang's valuation is undemanding at near book value and <7x PE. Photo: Company 

avic_metrics8.14AFTER a loss of RMB4.7 million in 1Q2014, AVIC International Maritime Holdings returned to the black in 2Q with a net profit of RMB6.2 million despite a 69% fall in revenue to RMB43.8 million.

A member of the AVIC Group, one of the largest industrial groups owned by the PRC Central Government, AVIC International provides an extensive range of services including shipbuilding project management and consultancy (“M&C Services”), design and engineering, shipbuilding (outsourced), and ship trading related businesses.  

Income from the M&C business segment increased 40.1% year-on-year to RMB8.5 million. Additional income of RMB5.6 million flowed in from its management service via the provision of marketing, administration and management services.

Its ship-design business remained relatively steady with a slight 3.0% decrease to RMB75.0 million.
Due to the delay in completion of a shipbuilding agreement with an Iraqi shipowner for some service vessels, the contracting parties agreed to exclude a certain contract sum and to reduce the Group’s contract price upon delivery of the vessels.

Accordingly, the relevant amount was recomputed and adjustment made to the shipbuilding revenue and cost of sales in the current financial period ended 30 June 2014.
Other operating income grew 620.1%, while other operating expenses declined significantly by RMB10.2 million due to a foreign exchange gain arising from a long term loan denominated in euro.

diaoweicheng8.14Dr Diao Weicheng, executive chairman of AVIC International.
Photo: Company
Commenting on AVIC Maritime's outlook and strategies, Dr Diao Weicheng, Executive chairman of the Group, said, "Amidst the tepid industry environment, we see signs of recovery as we witness a steady increase in our ship design order book and higher volume of M&C service enquiries. For the first half of this year, we have secured new ship design contracts amounting to over RMB100 million.

"We are seeing a healthy inflow of agency services business. We took part in the Chinese government's overseas visit to Greece in June and successfully clinched a shipbuilding deal, which is worth more than USD200 million, with a third-party shipbuilding partner, TaizouKouan Shipbuilding ("TaizouKouan"). We will be providing M&C services for this project while TaizouKouan will be undertaking the shipbuilding.

"In addition, the Group has won an order from Chemical Transportation Group, Inc. to build 5 units of 25,000 DWT stainless steel chemical tankers worth approximately USD200 million. Similarly, the Group will provide services for this project while the shipbuilding will be undertaken by AVIC Dingheng shipbuilding Co., Ltd., a shipyard related to the Group.

"Furthermore, we are witnessing an increasing demand for environmentally-friendly and fuel-efficient vessels. With the acquisition of Deltamarin, which has a proven track record in innovating and producing sustainable ship designs, we are well-positioned to capture the market as the industry slowly recovers and moves towards eco-ships."


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