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In its drive to stimulate economic activity after the negative effects of COVID 19 in 2020, China has announced plans to accelerate infrastructure investments to counteract the economic impact of the coronavirus pandemic.
As of 20 March 2020, 25 major cities and provinces have released investment plans and major infrastructure projects with a total value of CNY49.6 trillion, out of which approximately CNY7.6 trillion is likely to be realized in 2020, equivalent to around 60% of infrastructure fixed-asset investment in 2019.
The emphasis is on new infrastructure projects, drawing attention to high-tech sectors such as 5G networks, big data centers, electric-vehicle charging stations, and industrial internet, modern transportation such as urban subways, and inter-city high-speed rail, as well as ultra-high voltage (UHV) power-transmission projects.
The new infrastructure projects require more technological know-how than traditional projects, and will mainly be funded by corporates and local-government financing vehicles.
The combined investment value of the new projects will account for around 14% of the announced infrastructure investments for 2020 with 6.6% to be spent on urban subways and inter-city high-speed rail, most of which is likely to be funded by local-government-owned transportation companies.
As a result, traditional infrastructure projects will remain significantly larger in investment value as the main driver of China’s infrastructure investment growth.
We expect their growth to be supported by further fiscal loosening measures in 2020. The Chinese government will step up the issuance of special bonds, which have been used to fund infrastructure projects, from CNY2.15 trillion in 2019 to about CNY3 trillion in 2020. A bigger share of the new issuance has also been assigned to infrastructure projects, from 25% in 1Q19 to 85% in 1Q20.
One of the main beneficiaries of this renewed investment push is one of China’s largest state-owned infrastructure company actively engaged in domestic as well as international projects through the Belt and Road initiative.
Despite the stable revenues and profit flows of the company, its stock price experienced a major bear market since 2017 that we see ending now, leaving it a extremely compelling valuations
China Communications Construction Company Limited CCCC 1800 HK
BUY @ HKD 4.75 Target price HKD 8.-
China Communications Construction Company Limited (“CCCC” or the “Company”), initiated and founded by China Communications Construction Group (“CCCG”), was incorporated on 8 October 2006. Its H shares were listed on the Main Board of Hong Kong Stock Exchange with stock code of 1800.HK on 15 December 2006.
The Company is the ﬁrst large state-owned transportation infrastructure group entering the overseas capital market.
As at 31 December 2019, CCCC had 124,000 employees, revenues of US$ 80 Billion, Net profits of 2.7 Billion and net equity of US$ 42 Billion
Among 127 central enterprises owned by the Chinese Government, CCCC ranked No.12 in revenue and No.14 in profit for the year.
The Company and its subsidiaries are principally engaged in the design and construction of transportation infrastructure, dredging and heavy machinery manufacturing business.
It covers construction work on ports, terminals, roads, bridges, railways, tunnels, civil work design and construction, capital dredging and reclamation dredging, container cranes, heavy marine machinery, large steel structures, road machinery manufacturing, and international project contracting.
It is the largest port construction and design company in China, a leading company in road and bridge construction and design, a leading railway construction company, the largest dredging company in China and the second-largest dredging company in the world.
The Company is also the world’s largest container crane manufacturer.
The Company has 34 wholly-owned or controlled subsidiaries.
Through participation in state level engineering construction projects, the Company has made signiﬁcant contribution to the transportation infrastructure in the PRC, and has set many records recognised as the “first”, the “best” and the “most“ in the history of port and bridge construction not only in the PRC but also the rest of Asia and around the world.
The Company has been involved in the design and construction of a signiﬁcant number of large and medium-sized ports and navigation channels along China’s coast and inland rivers, and infrastructure construction projects such as major ﬁrst-class expressways, as well as large and mega bridges, tunnels in China.
Sutong Yangtze River Bridge, Hangzhou Bay Bridge, Yangshan Deepwater Port, all reflect the technological edge of the company not only in China, but also globally.
The Company owns the largest fleet of dredgers in the PRC, and ranked No.2 globally in terms of both total capacity of trailing suction hopper dredger and total cutter suction dredger.
The Company’s container crane business accounted for more than 78% of the global market share in terms of units ordered in 2008, with products spreading across 73 countries and regions.
The Company entered the railway market in 2005 and participated in design and construction of several national key railway projects successively, including Wuhan-Hefei Railway, Taiyuan-Zhongwei-Yinchuan Raiway, Harbin-Dalian PDL, Beijing-Shanghai PDL, Shijiazhuang-Wuhan PDL, Guiyang-Guangzhou Railway, Lanzhou-Chongqing Railway, Hunan-Guangxi Railway, etc.
The Company has actively participated in and competed for projects under external assistance and the international contracting projects. It has established a presence in Asia, Africa, Middle East and South America for the past 20 years.
It has been included in the Engineering News Records’ (“ENR”) list of the world’s top 225 international contractors since 1992 consecutively and remains ranked the ﬁrst among the Chinese enterprises since 2008 in terms of revenue from overseas projects.
The Company has focused on brand development strategy and technology innovation.
It is known for its policy to successfully attract talents. The Company possesses advanced technologies, research, and development capabilities and equipment as well as 10 national-level design institutes, two national-level science and research centres and seven key laboratories holding various scientific achievements and self-developed intellectual property rights with international standards. In the past 10 years, the Company has won more than 160 awards including “National Award for Scientiﬁc and Technical Progress”, “China Civil Engineering Zhantianyou Award”, “China Construction Project Luban Award” and “National High Quality Prize”.
The Company owns a diverse range of specialised equipment, including modern dredging vessels, dedicated transportation ﬂeet for port machinery, various equipment for marine and onshore engineering, as well as various state-of-the-art machinery and equipment for investigation, design and research, which enables the Company to win and perform contracts for challenging large-scale complex projects.
THE INVESTMENT CASE
CCCC is one of the main beneficiaries of the current push by the Chinese Government to stimulate economic activity through large scale infrastructure projects, but what makes it extremely attractive is the compelling valuation metrics the stock trades at.
WE EXPECT A SIGNIFICANT RE-RATING OF THE COMPANY IN THE FUTURE
CCCC trades on an estimated P/E ratio of 3.39 x and a Price to Book ratio of 0.34x with a gross dividend yield of 5.40 %.
With 22 Billion of profits expected in 2021 for a market capitalisation of 116. 7 Billion, the earnings yield of the company stands at 19 %, giving it a very comfortable cushion to the downside.
Revenues are expected to grow at 8.9 % and 8.6 % per annum in 2020 and 2021 with its Earnings per shares growing back to 1.25 and 1.35, their peak levels of 2018.
Then, the stock was trading at HKD 11, against 4.75 today, a 57 % decrease almost entirely due to valuation compression.
As the following chart shows, the valuation metrics have never been so low and they are about to turn.
The short term chart shows that a double bottom has now been made and that selling pressure is probably exhausted.
The long term chart shows that the stock is currently trading on a very solid long-term support that held from 2008 to 2014
As always, analysts have been revising down their target prices as the stock was declining in the past three years but they are now becoming more bullish on the stock with an average target price of 5.99 – 27 % appreciation from current level – with CREDIT SUISSE analysts – ranked no. 1- putting a target price at 9. 24, expecting, as we do a re-rating of the company and a return of it price to book to its long term average of 1, against the current 0.34.
We see CCCC as a core holding in any Chinese equity portfolio and even any global equity portfolio. The characteristics of the Company, its State ownership, its almost guaranteed access to giant infrastructure projects, its exposure to China’s spending and expansion abroad, all make it an infrastructure company of choice for any long- term global investor.
Its high dividend yield makes it a privileged investment for pension funds and its current valuations offer a unique opportunity to position oneself in terms of investment timing.
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