Company profile:
Pujiang International is the largest supplier of bridge cables used to build extra-large bridges in China and the third largest manufacturer of prestressed materials. According to Frost Sullivan, from 1991 to 2017, the company supplied cables for bridges in China, accounting for 35.1% of the market. The company ranks second in terms of sales revenue of bridge cables in 2017.
Sino-Thai point of view:
The company's bridge cable business is stable, and the prestress business is subject to fluctuations in raw material prices: according to Frost Sullivan, the average number of newly built bridges in China is expected to be about 23 per year between 2018 and 2022. The company has built 27 bridges and ranks first with 35.1% market share. At the same time, the bridge and cable industry has a high threshold, good track record, capital and production capacity, so that the company continues to maintain a stable market share of related business. In terms of prestressed material manufacturing, the Chinese market is highly fragmented, with the company ranking third with a market share of 3.8%. The company mainly produces three kinds of prestressed products: glossy, galvanized and rare earth coated. The pricing of related products in the future largely depends on the price fluctuation of raw material high-carbon wire rod. According to the data of the National Bureau of Statistics and Frost Sullivan, it will be as low as 2700 yuan per ton in 2015, while the production of high-carbon wire rod in China will increase and is expected to reach 4800 yuan per ton in 2022.
In terms of operating performance: in the fiscal year from 2016 to 2018, Pujiang International realized operating income of 1.082 billion yuan, 1.318 billion yuan and 1.383 billion yuan respectively, of which the business income of prestressed materials accounted for nearly 67%. The average selling price of prestressed material products increased at an annual rate of 32% to 4922 yuan per ton in 2018. The gross profit margin was 19.8%, 18.7% and 23.6% respectively, and there was a significant increase in 2018 due to the increase in the average selling price of prestressed material products and the decrease in the cost of sales and the increase in sales of higher-value products in cable projects; the net profit margin was 6.92%, 6.73% and 10.74% respectively, and the increase in 2018 was due to the increase in gross profit margin. In addition, the company recorded net cash flows of 170 million yuan and 137 million yuan in operating activities in 2017 and 2018. As the company is of a working capital-intensive nature, it uses a large amount of working capital to purchase products and raw materials to advance payments to suppliers and to provide performance guarantee for the cable business.
Valuation: based on 800m shares after the global public offering, the company's market capitalization is HK $2.048-2.84 billion, which is lower than that of its Hong Kong counterparts. The company's price-to-earnings ratio is about 12.2-17.0 times, which is higher than the industry average; the price-to-book ratio is about 1.11-1.39 times, slightly higher than the industry average. In terms of profitability, the 18-year ROE and ROA were 11.9% and 5.9% respectively, higher than the industry average. Taking into account the company's industry status, performance and valuation, we give it a score of 60, with a rating of "neutral".
Risk hints: (1) market competition risk (2) there is a large gap between the cycle of accounts payable and accounts receivable, and large guarantees and advances increase operational risks (3) over-reliance on inherent suppliers and customers