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秦港股份(601326/03369.HK)观点聚焦:长期前景存在更多不确定性;下调至中性

Qin Gang Co., Ltd. (601326/03369.HK) focuses on opinions: there is more uncertainty about the long-term outlook; downgraded to neutral

中金公司 ·  Dec 28, 2018 00:00  · Researches

Investment suggestion

We downgraded Qingang shares to neutral, with a target price of HK $1.75, corresponding to 7.6 times forecast earnings and 0.6 times forecast price-to-book ratio in 2019, which has 5% room to rise compared with the current share price. The reasons are as follows:

Coal throughput may be under pressure. Under the influence of the supply-side reform of the coal mining industry, the proportion of Shanxi, Shaanxi and Inner Mongolia in China's coal output has increased, thus driving the coal transport volume based on railway, port and water transport. However, future demand is likely to come under pressure due to a more macroeconomic downturn (coal consumption at the six major power plants turned negative year-on-year since August 2018). In the long run, the Da-Qin Railway may face diversion from the Menghua Railway. In addition, Hebei Province plans to transfer coal business from Qinhuangdao Port to Caofeidian, which requires continuous attention.

Coal accounts for 64% of the company's cargo throughput and 76% of the company's overall revenue. Since the company's main costs are fixed costs (labor costs, depreciation and amortization account for 66% of the company's total costs), a decline in throughput may lead to a greater decline in net profit. For 2019, our benchmark situation is that the coal throughput is the same as that in 2018, and the handling fee is reduced by 0.5% due to the increase in the throughput of Caofeidian Coal Port. We estimate that a 5% drop in coal throughput may lead to a 10% reduction in the company's net profit.

Trading liquidity is low: the average daily turnover of Qingang shares has been just HK $600000 over the past 30 days.

What is the biggest difference between us and the market? There is more uncertainty about the long-term outlook.

Potential catalyst: decline in cargo throughput.

Profit forecast and valuation

In the first three quarters of 2018, the company made a net profit of 941 million yuan (up 10% from the same period last year). In December, the company set aside 358 million yuan for employee retirement costs. Therefore, we set the profit forecasts for 2018 and 2019 at 795 million yuan (excluding provision expenses, 1.153 billion yuan) and 1.168 billion yuan respectively, and the growth rate of operating net profit is expected to be 20% and 1% respectively. The company's current share price corresponds to 2018 and 2019 forecast price-to-earnings ratios of 7.2x and 7.3x (based on operating net profit), and corresponding price-to-book ratios of 0.6x and 0.6x, respectively. Assuming a dividend yield of 30 per cent, we expect dividend yields of 2.9 per cent in 2018 and 4.1 per cent in 2019.

Risk

Under the influence of low demand or diversion, the cargo throughput is lower than expected; the liquidity is poor.

The translation is provided by third-party software.


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