Hsin Chong Construction Group Ltd Stock quote 0404

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Hsin Chong Construction Group Ltd. Stock quote: 0404. hk Current Price: 1. 09 Target

Hsin Chong Construction Group Ltd. Stock quote: 0404. hk Current Price: 1. 09 Target price: 1. 99 PE: 3. 76 Emperor Securities Ltd. (30/8/2012)

AGENDA p COMPANY PROFILE p BUSINESS OVERVIEW p SWOT ANALYSIS p FINANCIAL ANALYSIS

AGENDA p COMPANY PROFILE p BUSINESS OVERVIEW p SWOT ANALYSIS p FINANCIAL ANALYSIS

Company Profile Hsin Chong Construction Group Ltd. (0404. HK) • Founded in 1939 and

Company Profile Hsin Chong Construction Group Ltd. (0404. HK) • Founded in 1939 and listed on HKEX in 1991 • 8, 674 Employees • Mainly operating in Hong Kong, Macau, and PRC • Turning attention to property development in China --acquiring land for $1. 83 bn in Tieling in 2011

Vision, Mission and Values Vision: The leader in Construction and Property- related Services Mission:

Vision, Mission and Values Vision: The leader in Construction and Property- related Services Mission: We are committed to • Creating value for our customers and delivering quality services at world-class standard • Delivering value to our shareholders through maximizing market share and returns

Vision, Mission and Values Integrity Service Teamwork Quality Social Responsibility Innovation

Vision, Mission and Values Integrity Service Teamwork Quality Social Responsibility Innovation

Business Description Hsin Chong Construction Group Ltd. is an investment holding company which covers

Business Description Hsin Chong Construction Group Ltd. is an investment holding company which covers a wide range of businesses including: 1. Building construction, 2. Civil engineering construction, 3. Electrical and mechanical installation, 4. Renovation and fitting-out, 5. Property development and investment, 6. Provision of construction, 7. Management consultancy services, 8. Property management and facility management services. The company enjoyed a history of over 70 years and sound track record. source: annual report

Business description and Industry Overview 1. Second biggest of the “big 4” in its

Business description and Industry Overview 1. Second biggest of the “big 4” in its local industry (along with Tysan Holding Ltd (0687), Chun Wo Development Ltd (0711) and Yau Lee Holding Ltd (0406)); with the largest competitor China State Construction International Holdings Ltd (3311) from Mainland China. 2. Industry characteristics: Aperiodic (related to projects available, rather than property price), low gross margin, high gearing ratio to finance projects and long payback period; 3. Key gauging parameter: New Contracts Received, which represents the additional revenue stream in the future, and Outstanding Workload that brings revenues that were pre-set in previous contracts.

Hsin Chong possesses a stable clientele with long history of cooperation with various government

Hsin Chong possesses a stable clientele with long history of cooperation with various government departments, education institutes and MTRC. source: Interim report

Landmark Projects • Ocean Park in Aberdeen (1976) • New Housing Authority Headquarters Building

Landmark Projects • Ocean Park in Aberdeen (1976) • New Housing Authority Headquarters Building (1980) • KCRC Station Redevelopment (1998) • Venetian Group project in the Cotai Strip of Parcels 5/6 (2013 E)

Company Outlook 1. New Contracts On 18 July, 2012, HC announced two newly-awarded contracts(HK$12.

Company Outlook 1. New Contracts On 18 July, 2012, HC announced two newly-awarded contracts(HK$12. 6 bn): • Galaxy Resort & Casino Phase 2 in Cotai City, Macau. • MTR Station Shatin to Central Link Contract No. 1109, Two Railway Stations and 1, 600 metres Railway Tunnels. Source: Hsin Chong website

Company Outlook 2. Hsin Chong is riding on the HK construction boom Figure: Business

Company Outlook 2. Hsin Chong is riding on the HK construction boom Figure: Business Segment of Hsin Chong in 2010 - 2011 Source: Hsin Chong 2011 Annual Report

Company Outlook 3. Outstanding Workload till 31 Jul 2012 Source: Hsin Chong 2012 Interim

Company Outlook 3. Outstanding Workload till 31 Jul 2012 Source: Hsin Chong 2012 Interim Report

HSIN CHONG Strategic Transformation Outlook Industry Diversification. Expanding into higher profit margin property development

HSIN CHONG Strategic Transformation Outlook Industry Diversification. Expanding into higher profit margin property development as a longterm commitment. Transforming top construction co. into fullyintegrated property group. Establishing a competitive advantage over the peers HC will benefit from its large exposure in the building construction segment. The Tieling project in China would become a new earning growth driver in the future, with the support from stable traditional construction business.

Company Overview: Strategic transformation Property development: 1. Hsin Chong has acquired 1. 8 million

Company Overview: Strategic transformation Property development: 1. Hsin Chong has acquired 1. 8 million squared meters of land in Tieling, Liaoning valued at 2. 5 billion HKD, and it is planning for the next 6 -8 years to develop a new township comprised of both residential and commercial properties with total planned gross floor area of 3 million square meters. The Tieling project in China would become a new earning growth driver in the future:

Industry highlights 1. Since 2006, construction activities in Hong Kong have bounced back: private

Industry highlights 1. Since 2006, construction activities in Hong Kong have bounced back: private sector increased from $24. 86 bn in 2006 to $35. 28 in 2011 and public sector increased from $17. 14 bn in 2006 to $42. 07 bn in 2011. Figure: Private and Public Sector Construction Spending in HK Source: HKSAR Census and Statistics Department

Industry highlights 2) Structures & facilities work in HK registered significant growth since 2009.

Industry highlights 2) Structures & facilities work in HK registered significant growth since 2009. Figure: Building and Structures & Facilities Work in HK Source: HKSAR Census and Statistics Department

SWOT Analysis--Strengths 1) Long History and goodwill; HC has gained a good reputation during

SWOT Analysis--Strengths 1) Long History and goodwill; HC has gained a good reputation during the past decades. The group has demonstrated its construction expertise in many landmark private and government projects. It was awarded contracts from Hong Kong Housing Authority, MTR, Venetian Orient, Swire, Huawei, HSBC, etc. These positive track records help HC’s future development.

SWOT Analysis--Strengths 2) Being a full-fledged one-stop construction and property related services provider; By

SWOT Analysis--Strengths 2) Being a full-fledged one-stop construction and property related services provider; By achieving the strict standard with a full scope of services, transforming from a local construction company into a fullyintegrated property group.

SWOT Analysis--Strengths 3) Experienced management team; HC also has a group of experienced management

SWOT Analysis--Strengths 3) Experienced management team; HC also has a group of experienced management teams which is capable of meeting the strict standard in the industry. Wilfred Wong, Chairman of HC, has over 20 years of experience in property development and construction and is currently a Deputy to the NPC of the PRC. This is useful in PRC business development

SWOT Analysis--Strengths Summarize • Long History and a good reputation; • Being a full-fledged

SWOT Analysis--Strengths Summarize • Long History and a good reputation; • Being a full-fledged one-stop construction and property related services provider; • Experienced management team; • Being one of the contenders awarded the grade C contractor; • Strong technical team; • Quality; • Site safety assurance.

SWOT Analysis--Weaknesses • Capacity limitation • Diversified in property development • Failing to get

SWOT Analysis--Weaknesses • Capacity limitation • Diversified in property development • Failing to get orders beyond the company’s capacity Aspects beyond the company’s capacity includes: 1) The equipment and technology limit make the group unable to bid some large contracts. 2) Firm’s capacity may limit for future expansion.

SWOT Analysis--opportunities 1) Increasing land supply to meet underlying housing demand The new government

SWOT Analysis--opportunities 1) Increasing land supply to meet underlying housing demand The new government led by Mr. CY Leung has committed to ease the shortage in housing, implying that future land supply should be enough to meet local housing need. The increase in land supply would eventually bring about a significant increase in construction work in future.

SWOT Analysis--opportunities 2) Increasing public housing supply for lowincome class According to the 2011

SWOT Analysis--opportunities 2) Increasing public housing supply for lowincome class According to the 2011 -12 Policy Address, the government pledged to complete construction of about 75, 000 units of public housing units in the next 5 years to reduce the average waiting period to 3 years. The significant increase in public housing supply in the next few years would benefit the local construction sector.

SWOT Analysis--opportunities 3) Significant increase in the public sector’s spending— 10 mega infrastructure projects

SWOT Analysis--opportunities 3) Significant increase in the public sector’s spending— 10 mega infrastructure projects in the pipeline According to the previous Policy Address, the government has committed for the 10 mega infrastructure projects. The significant increase in public sector spending in the next few years would benefit the local construction sector.

SWOT Analysis--opportunities 4) Limited Qualified Players in the Industry Based on the four major

SWOT Analysis--opportunities 4) Limited Qualified Players in the Industry Based on the four major types of public works (excluding port works) only 16 out of 256 contenders (See Chart ) were awarded the grade C contractor license as of July 2012. Between 1998 to 2006, the relatively low business volume and fierce competition within the industry has forced some weaker players out the market in the last decade. (See Figure)

SWOT Analysis--opportunities 4 a) Limited Qualified Players in the Industry Approved contractors for public

SWOT Analysis--opportunities 4 a) Limited Qualified Players in the Industry Approved contractors for public works: 1) buildings Class A • up to $30 million 2)port works 5)Waterworks Types of Construction licenses Class B • up to $75 million Class C 3) roads and drainage 4)Site formation • any values exceeding $75 million (no ceiling)

SWOT Analysis--opportunities Figure: List of Approved Contractors for Public Works in HK in 08/2012

SWOT Analysis--opportunities Figure: List of Approved Contractors for Public Works in HK in 08/2012 Source: Development Bureau of HKSAR Government

SWOT Analysis--opportunities In Hong Kong, the approved contractors for public works can be categorized

SWOT Analysis--opportunities In Hong Kong, the approved contractors for public works can be categorized into three classes: Grades of the class Maximum Contract Value A 30 million B 75 million C No ceiling Hsin Chong is one of the few C license holders in Hong Kong and only 16 out of 256 contenders were awarded the grade C contractor license as of July, 2012. (See figure) Among the “Big Four”, only Chun Wo and Hsin Chong has 4 C grades. After the 10 mega infrastructure projects rolls out, these two companies would massively benefit from the grade since there is less competition. However, in the smaller scale contracts, this advantage will not be as obvious. The competition might be more fierce.

SWOT Analysis--opportunities 5) Tieling--building a dream city in China Tieling City, a dream city

SWOT Analysis--opportunities 5) Tieling--building a dream city in China Tieling City, a dream city concept exhibited in the Shanghai World Expo that might become the long-term development model of the Chinese government.

SWOT Analysis--Opportunities Summarize • Increasing land supply to meet underlying housing demand; • Increasing

SWOT Analysis--Opportunities Summarize • Increasing land supply to meet underlying housing demand; • Increasing public housing supply for low-income class; • Significant increase in the public sector’s spending on infrastructure projects; • Limited qualified players in the industry; • Tieling--building a dream city in China;

SWOT Analysis--opportunities The future for the industry is quite promising: a) 40, 000 residential

SWOT Analysis--opportunities The future for the industry is quite promising: a) 40, 000 residential houses will be provided every year and the new Chief Executive of Hong Kong has promised more. b) The government has asserted 62. 3 billion HKD in expenditure in infrastructure, rising from 30 billion two years ago. c) The Mega 10 infrastructure projects will be initiated on schedule.

SWOT Analysis- Threats For the whole industry: • Increasing material cost • Increasing staff

SWOT Analysis- Threats For the whole industry: • Increasing material cost • Increasing staff compensation • Shortage of professional workers

Labour costs are rising steadily source: Census and statistics dpt.

Labour costs are rising steadily source: Census and statistics dpt.

Risk factors • Failure to win orders • Cost hikes • Strong-than-expected competition hurting

Risk factors • Failure to win orders • Cost hikes • Strong-than-expected competition hurting margin • Management diverting resources to property development • Refinancing risk • Project quality problems • Miscalculation of project financials resulting in losses

Financial Highlights Key selected items(in HK $million) 2011 2010 20092011 vs 2010 6381 4258

Financial Highlights Key selected items(in HK $million) 2011 2010 20092011 vs 2010 6381 4258 3482 50% 83% Gross profit 540 445 369 21% 46% Net profit after taxation 190 157 119 21% 60% Profit attributable to equity holders 172 136 109 26% 58% Basic earning per share (in HK cents) 24. 8 20. 3 16. 3 22% 52% Revenue Gross margin 8. 50% 10. 60% Net margin 3. 00% 3. 70% 3. 40% Source: Hsin Chong Construction Group Ltd. Annual Report 2011 2010 vs 2009

Financial Analysis— Peer Comparison Company Code Closing Price Mtk. Cap (10/10/2012) (HKD) HSIN CHONG

Financial Analysis— Peer Comparison Company Code Closing Price Mtk. Cap (10/10/2012) (HKD) HSIN CHONG EPS HKD(bn) 2011 2009 2011 2010 2009 Financial Ratio Analysis 1. 10 0. 248 0. 203 0. 163 4. 76 6. 11 5. 03 20. 26 21. 65 33. 03 -0. 06 0. 0362 9. 38 N/A 9. 39 0. 0812 0. 1642 0. 1286 16. 87 6. 09 8. 94 404 1. 18 3311 8. 96 35. 65 CHUN WO 711 0. 57 0. 55 YAO LEE 406 1. 37 0. 6 CSCI Source: AASTOCKS. com PE(x) 2010 0. 4422 0. 3362 0. 2492 0. 0576

Du. Pont Analysis • The investors value a company by decomposing ROE into four

Du. Pont Analysis • The investors value a company by decomposing ROE into four parts: • ROE = (Net Income/Equity) = (Net Income/EBIT)*(EBIT/Sales)*(Sales/Assets)*(Assets/Equity) Tax & Interest Burden Profit margin Profitability Asset turnover Operating efficiency Equity multiplier Financial leverage

Du. Pont Analysis—Peers comparison Tax&Interest burden Company 404 2011 2010 2011 0. 88 0.

Du. Pont Analysis—Peers comparison Tax&Interest burden Company 404 2011 2010 2011 0. 88 0. 85 Favorable 3311 711 577 406 Profit margin 0. 74 0. 83 0. 38 -10. 51 0. 16 0. 44 0. 17 0. 76 2010 0. 03 0. 04 0. 05 0. 02 2011 1. 06 2010 1. 63 Favorable Fair 0. 12 Assets turnover Equity multiplier 2011 2010 3. 08 Fair 3. 21 ROE 2011 9. 71 market cap(current) 2010 19. 33 1090000000 Favorable 0. 11 4. 0. 61 0. 64 2. 81 04 15. 90 24. 23 34020000000 0. 00 2. 0. 78 0. 77 2. 82 95 3. 66 (4. 15) 548040000 0. 05 4. 1. 29 1. 64 5. 19 36 5. 15 5. 59 437010000 0. 03 2. 1. 22 1. 18 2. 70 17 2. 58 5. 14 578230000 Source: Financial Statement of 404, 3311, 711, 577, 406 & HKBU RESEARCH

Hsin Chong Stock Report Details Issue Type Common Stock Market Cap 1. 09 B

Hsin Chong Stock Report Details Issue Type Common Stock Market Cap 1. 09 B 52 Weeks High 1. 43 52 Weeks Low 0. 75 PE 4. 96 Yield 5. 08 NAV 1. 9286 EPS 0. 2480 DPS 0. 06 Price/PNAV 0. 6118 Source: AASTOCKS. com

Dividend History announcem Year-End Event Particular Payable Date 24/8/2012/12 Interim 0. 0250 5/10/2012 23/3/2012

Dividend History announcem Year-End Event Particular Payable Date 24/8/2012/12 Interim 0. 0250 5/10/2012 23/3/2012 2011/12 Final 0. 0250 25/6/2012 31/8/2011/12 Interim 0. 0350 7/10/2011 28/3/2011 2010/12 Final 0. 0300 15/6/2011 20/8/2010/12 Interim 0. 0300 30/9/2010 13/4/2010 2009/12 Final 0. 0550 7/7/2010 11/9/2009/12 Interim 0. 0250 20/10/2009 1/4/2009 2008/12 Final 0. 0200 9/6/2009 5/12/2008/12 Interim 0. 0200 6/1/2009 Source: AASTOCKS. com

Historical stock prices Figure: 0404. HK 8 year basic chart Source: AA STOCK. com

Historical stock prices Figure: 0404. HK 8 year basic chart Source: AA STOCK. com

Historical stock prices Figure: 0404. HK 3 year basic chart Source: AA STOCK. com

Historical stock prices Figure: 0404. HK 3 year basic chart Source: AA STOCK. com

Historical stock prices higher high Figure: 0404. HK 1 year basic technical analysis lower

Historical stock prices higher high Figure: 0404. HK 1 year basic technical analysis lower low bearish divergence bullish divergence 26 day EMA longer and slower. Source: AASTOCKS. com

Peer Comparison—vs. Chun Woo 俊和發展集團(711) Compare % 3 year daily Hsin Chong vs. Chun

Peer Comparison—vs. Chun Woo 俊和發展集團(711) Compare % 3 year daily Hsin Chong vs. Chun Wo(711) Source: AASTOCKS. com

Peer Comparison—vs. Yao Lee 有利集團 (406) Compare % 3 year daily Hsin Chong vs.

Peer Comparison—vs. Yao Lee 有利集團 (406) Compare % 3 year daily Hsin Chong vs. Yau Lee(406) Source: AASTOCKS. com

Peer Comparison—vs. Paul Y 保華建業 (577) Compare % 3 year daily Hsin Chong vs.

Peer Comparison—vs. Paul Y 保華建業 (577) Compare % 3 year daily Hsin Chong vs. PAUL Y(577) Source: AASTOCKS. com

Industry highlights Source: HKET 22/10/2012

Industry highlights Source: HKET 22/10/2012

Industry highlights Source: HKET 22/10/2012

Industry highlights Source: HKET 22/10/2012

Thank You!

Thank You!