Weisheng Information's listing application was approved by the Shanghai Stock Exchange yesterday. We expect the entire listing process to be completed by the end of November 2019.
We still believe that as State Grid has been promoting the development of ubiquitous power Internet of things, grid investment is likely to accelerate in 2019.
Weisheng Group's current orders on hand are about 2 billion yuan, which will support the company's revenue and profit growth in 2019. The opening up of China's power industry will create opportunities for secondary equipment manufacturers such as Weisheng Group.
Weisheng Group currently trades at 7.9 times 2019 earnings, 6.2 times 2020 earnings and a dividend yield of 5.9%, making its valuation attractive. We maintain our "overweight" rating with a target price of HK $5.05, based on 13 times forecast 2019 earnings.
One step closer.
Weisheng Information's listing application was approved by the Shanghai Stock Exchange yesterday (Weisheng Information is a company spun off by Weisheng Holdings). Weisheng Information plans to raise 605 million yuan by issuing no more than 150 million new shares, which account for 10 per cent of the current number of outstanding shares. According to current information, Weisheng Information is valued at about 6.1 billion yuan. At current valuations, Weisheng's shares will be worth HK $3.9 billion, higher than Weisheng's market capitalization of HK $3.2 billion (based on yesterday's closing price of HK $3.19). After the listing application is approved by the Shanghai Stock Exchange, the next step is to register for listing. We expect Weisheng's shares to be listed by the end of November 2019. We believe that the split of Weisheng Information will be one of the catalysts for the revaluation of Weisheng Holdings.
The opening of electricity market is beneficial to equipment manufacturers
The price linkage mechanism of coal and electricity will be abolished from January 1, 2020. The new mechanism will be equal to the sum of the "benchmark price" and the "floating mechanism". The new electricity price mechanism is to promote direct trading of electricity. In the long run, we believe that the opening up of the electricity market will create demand for secondary equipment manufacturers, such as transmission and distribution equipment, which is positive for industry participants such as Weisheng Holdings.
Investment in State Grid may pick up in 2019
We believe that grid investment is expected to accelerate in 2019, given the upgrading of the power grid in rural areas and the development of the ubiquitous Internet of things. The continuous development of the power grid is expected to create a demand for high-end measuring equipment. As an infrastructure investment, power grid construction will promote economic growth. We also believe that under the energy Internet architecture, Weisheng will benefit from the development of the data and operation layer by providing measurement equipment with communication and sensor functions, as well as communication IC and systems. In addition, the upgrading of power transmission standards is expected to promote the next phase of growth in Weisheng. The company's latest order-on-hand is about 2 billion yuan, which will support the company's revenue and net profit growth in 2019. Weisheng Information also benefits from the IoE theme, as the company is involved in three business areas: data collection terminals, water meters, gas meters, heat meters and solution-based Internet of things architecture.
Valuation attraction
Even excluding the spin-off of Weisheng information, Weisheng's current valuation is attractive, with a price-to-earnings ratio of 7.9 times in 2019, 6.2 times earnings in 2020 and a dividend yield of 5.9%. In view of the increased investment in the power grid and the opportunities brought about by the adoption of the Internet of things technology, we expect Weisheng to achieve faster profit growth in 2019-2021 than in 2016-2018. We maintain our "overweight" rating with a target price of HK $5.05, based on 13 times forecast 2019 earnings. Weisheng Holdings has outperformed the market in the past three months, and the spin-off of Weisheng Information is expected to attract market attention to Weisheng Holdings.