The company's board of directors announced the related party transaction on October 11, 2023 (after the trading session). The company (as the purchaser), the non-wholly-owned subsidiary of China Construction International and the wholly-owned subsidiary of China Construction Corporation (as the seller) entered into the agreement with China Construction Corporation (as the seller's guarantor) under which the seller conditionally agreed to sell and the company conditionally agreed to purchase the unsold shares (being the only issued shares of the target company) for a consideration not exceeding HK $950 million. The target company is the sole shareholder of China Shipping Communications, while China Shipping Telecom is the sole shareholder of China Shipping Supervision. China Shipping Communications is mainly engaged in providing communications engineering consulting services in China, while China Shipping Supervision is mainly engaged in providing engineering supervision and construction consulting services in China.
The traditional business is actively transformed and the profitability shows an advantage. The operation and management of China Construction Industry includes the company's urban development management and consulting services, engineering consulting services, thermal power business and the provision of funds for infrastructure projects.
China Shipping Supervision, a subsidiary of China Construction Industry, is actively transforming to project management and consulting business while consolidating and optimizing the traditional supervision business. In the first half of 2023, the operation and management business of China Construction Industry accounted for 11.74% of the revenue, corresponding to HK $554 million in operating income. In the first half of 2023, the overall gross profit margin of China Construction Industrial was 14.32%, and the gross profit margin of operation and management was 21.38%.
Give full play to the synergistic effect and complete the positioning of comprehensive ability. Haibo Engineering is a sub-brand of engineering value-added services under the company, with nearly 40 years of engineering experience, is the creator of building life cycle engineering services. In the first half of 2023, the company's non-owner value-added services realized revenue of HK $1.206 billion, an increase of 39.3% over the same period last year, and a gross profit of HK $163 million, an increase of 22% over the same period last year.
We believe that, 1) China Shipping Supervision Company, a subsidiary of China Shipping Construction Industry, has comprehensive professional qualifications, the supervision business is actively transformed to seek development, and the light asset business is in line with the company's development trend; the performance is remarkable and the resources on hand remain abundant. The high profit level of the target company contributes to the performance of the company. As the supervision and technical consultancy business of the target company can complement and integrate with the company's entire property consulting and management services, thereby strengthening the company's main business, it is expected that the proposed acquisition will bring synergy benefits. Through the acquisition company to engage in and expand the field of urban operation services, including supervision business, to further implement the strategic positioning of the focus company as an integrated operator of urban space.
2) however, from the valuation point of view, the valuation of the acquisition target is unimaginative, especially for the acquisition proposal within the group, and we believe that attention should be paid to the continued contribution of the acquisition to the company's subsequent performance.
Investment advice: "better than the market" rating. We expect the company's EPS to be HK $0.49 per share in 2023.
The acquisition has a certain impact on the company's short-term estimates, but it does not affect the company's long-term growth space and state-owned assets background. We maintain the previous valuation level and give the company a 21-24 times dynamic PE valuation in 2023, corresponding to a reasonable value range of HK $10.29-11.76 per share. We believe that the current decline in the share price will bring follow-up value space and give the company an "better than the market" rating. Risk hint. The valuation of the target is controversial, and the degree of transformation of supervision business remains to be verified.