标题：Power Construction Corporation of ChinaEarnings missed; lack of short-term appeal
发布日期：2016-02-02 13:53:01
内容： Action The company preannounced its 2015 net profit down 15~25% YoY (after restatement), below our expectation (+7%)and market consensus (+3%). Considering its higher-than-peer valuation and limited short-term catalysts, wedowngrade the stock to HOLD. Reasoning Earnings mainly dragged by project contract losses. For a few projects in the late stage or completed forsettlement, home owners refuse to accept the changed claim amount, which will likely lead to a settlement below costs.Based on the conservative principles, the company recognized the contract losses. Considering the completion ofmanagement reshuffle in end-2014, the one-off recognition of multiple project losses might be a move to clear historicalissues and pave the way for future growth. To regain mild growth in 2016. New orders in 2015 climbed 16% YoY to Rmb327.8bn; ample backlog (3x revenue)will secure revenue growth. However, gross margin still faces downside pressure considering the slowdown ofhigh-gross-margin businesses like design, hydropower and real estate. On the whole, earnings in 2016 will likely regainmild growth after recognizing the one-off project losses in 2015. Beneficiary of strong growth of water conservancy and policy tailwinds. As an initiative to boost growth andimprove people’s livelihood, water conservancy is supported by fiscal/financial/PPP policies. Among the 172 major waterconservancy projects, 85 have started construction. Investments in major projects under construction are expected tobe >Rmb800bn in 2016. However, benefit to the company is limited due to sector dispersion. Limited short-term boost from SOE reform and “One Belt, One Road” (OBOR). With the injection of qualityassets completed, possible future injections will focus on auxiliary grid assets. However, the injections are unlikely tooccur in the medium term given the complexity of restructuring and weak profitability. Other potential reforms includethe consolidation of central SOEs and equity incentives. As a pioneer to pursue the OBOR strategy, the company has ahigh portion of overseas business. However, the short-term boost from this long-term initiative should be limited. Earnings forecast and valuation Trim 2015/16e net profit by 28%/26% to Rmb5.2bn/6.0bn, implying a YoY growth of -23% (afterrestatement) and +15%, or EPS of Rmb0.37/0.42 (excluding the perpetual bond interests and preferred stockdividends; the same hereinafter); set 2017e net profit at Rmb6.6bn (+10% YoY), or EPS of Rmb0.46. Given theunexciting earnings and limited S-T catalysts, we cut our TP by 45% to Rmb6.3 (15x 2016e P/E). Considering thecurrent valuation is above the sector median (not very attractive), we downgrade the stock to HOLD. Risks:continued decline in domestic investment; uncertainties in overseas business.
发布日期：2016-02-02 13:53:01
内容： Action The company preannounced its 2015 net profit down 15~25% YoY (after restatement), below our expectation (+7%)and market consensus (+3%). Considering its higher-than-peer valuation and limited short-term catalysts, wedowngrade the stock to HOLD. Reasoning Earnings mainly dragged by project contract losses. For a few projects in the late stage or completed forsettlement, home owners refuse to accept the changed claim amount, which will likely lead to a settlement below costs.Based on the conservative principles, the company recognized the contract losses. Considering the completion ofmanagement reshuffle in end-2014, the one-off recognition of multiple project losses might be a move to clear historicalissues and pave the way for future growth. To regain mild growth in 2016. New orders in 2015 climbed 16% YoY to Rmb327.8bn; ample backlog (3x revenue)will secure revenue growth. However, gross margin still faces downside pressure considering the slowdown ofhigh-gross-margin businesses like design, hydropower and real estate. On the whole, earnings in 2016 will likely regainmild growth after recognizing the one-off project losses in 2015. Beneficiary of strong growth of water conservancy and policy tailwinds. As an initiative to boost growth andimprove people’s livelihood, water conservancy is supported by fiscal/financial/PPP policies. Among the 172 major waterconservancy projects, 85 have started construction. Investments in major projects under construction are expected tobe >Rmb800bn in 2016. However, benefit to the company is limited due to sector dispersion. Limited short-term boost from SOE reform and “One Belt, One Road” (OBOR). With the injection of qualityassets completed, possible future injections will focus on auxiliary grid assets. However, the injections are unlikely tooccur in the medium term given the complexity of restructuring and weak profitability. Other potential reforms includethe consolidation of central SOEs and equity incentives. As a pioneer to pursue the OBOR strategy, the company has ahigh portion of overseas business. However, the short-term boost from this long-term initiative should be limited. Earnings forecast and valuation Trim 2015/16e net profit by 28%/26% to Rmb5.2bn/6.0bn, implying a YoY growth of -23% (afterrestatement) and +15%, or EPS of Rmb0.37/0.42 (excluding the perpetual bond interests and preferred stockdividends; the same hereinafter); set 2017e net profit at Rmb6.6bn (+10% YoY), or EPS of Rmb0.46. Given theunexciting earnings and limited S-T catalysts, we cut our TP by 45% to Rmb6.3 (15x 2016e P/E). Considering thecurrent valuation is above the sector median (not very attractive), we downgrade the stock to HOLD. Risks:continued decline in domestic investment; uncertainties in overseas business.
