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1、Asia Pacific Equity Research 02 September 2010 CITIC Pacific Initiation Neutral 0267.HK, 267 HK Waiting for the inflexion point Price: HK$15.90 Price Target: HK$17.00 China Conglomerates and (2) gearing peaks out at the group level (mid-11E). Historically, CITICs shares could be re-rated to almost a
2、t par to NAV when investors turn more upbeat on its outlook. Valuations and risks: Our Dec-11 PT is based on a historical average discount of 20% to Dec-11E NAV of HK$21.2. Value has started to emerge with 2010E valuations at 13x P/E and 0.9x P/B, but a stock re-rating looks unlikely until visibilit
3、y improves in 2011E. Upside risks to our PT are earlier-than-expected completion of its iron ore project, and stronger-than- expected steel prices. The reverse holds true for downside risks. Reuters: 0267.HK; Bloomberg: 267 HK HK$ in millions, year-end December FY08 FY09 FY10EFY11EFY12E Revenue 46,4
4、20 46,409 57,263 62,267 67,742 52-week range (HK$) 12.5 - 23.1 Recurring net profit 342 4,314 4,538 6,986 6,581 Market cap (HK$MM) 58,014 EPS (HK$) (5.68) 1.63 1.94 1.91 1.80 Market cap (US$MM) 7,458 Recurring EPS (HK$) 0.15 1.18 1.24 1.91 1.80 Shares outstanding (MM) 3,649 DPS (HK$) 0.30 0.40 0.40
5、0.50 0.60 Average daily value (HK$MM) 80.3 Recurring EPS growth (%) (93) 670 5 54 (6) Average daily value (US$MM) 10.3 P/E (x) nm 9.7 8.2 8.3 8.8 Average daily volume (MM shares) 5.2 Recurring P/E (x) 103.5 13.4 12.8 8.3 8.8 Exchange rate 7.78 Div yield (%) 1.9 2.5 2.5 3.1 3.8 Index (HSI) 20,536.49
6、P/B (x) 1.2 1.0 0.9 0.8 0.8 Recurring ROE (%) 0.6 7.8 7.2 10.2 8.9 Source: Bloomberg, J.P. Morgan estimates. Pricing is as of 31 August 2010. 2 Asia Pacific Equity Research 02 September 2010 Benjamin Lo, CFA (852) 2800-8598 Company description EPS sensitivity metrics 2010E EPS 1% change in steel pr
7、ice assumption 2% 1% change in raw material cost 1.7% 10% change in property price assumption 2% 25bps change in WACC assumptions (to NAV) 1% Source: Bloomberg, J.P. Morgan estimates. Price target and valuation analysis CITIC Pacific (CP) was formed in 1991. Since then, CP has continued to grow thro
8、ugh acquisitions, including interests in Cathay Pacific, Dah Chong Hong, property in Hong Kong/China, civil infrastructure projects in Hong Kong/Shanghai, power plants in China, and various telecommunication businesses. The past few years have seen the company beginning to refocus resources on its c
9、ore divisions, namely China special steel, iron ore and China property, while gradually divesting some of its non-core assets such as communications and aviation. Dec-2011E NAV breakdown (HK$) Property 39% Communications 7% Trading (2) balance sheet burden (we estimate net gearing rising to 96%/94%
10、in 2011E/12E); and (3) low cash-flow/earnings visibility during the projects initial operation. Such a burden on the balance sheet and cash flow at the group level is likely to overshadow the strengths and underlying value of CPs other assets, in our view. Figure 1: CITIC PacificNet gearing 0% 20% 4
11、0% 60% 80% 100% 120% 2001A2002A2003A2004A2005A2006A2007A2008A2009A2010E2011E2012E Source: Company data, J.P. Morgan estimates. Figure 2: CITIC PacificFree cash flow (20,000) (15,000) (10,000) (5,000) 0 5,000 2006A2007A2008A2009A2010E2011E2012E (HK$ m) Source: Company data, J.P. Morgan estimates. Chi
12、na steel outlook less than certain After the steel futures prices reached YTD bottom in early July, Chinas steel market has seen a nice rebound since then, rising for six straight weeks. However, spot steel prices took a breather last week, with China steel future prices down 0.6% w/w to Rmb4,130/to
13、n, the first decline in six weeks. J.P. Morgans China Metals C: 5.25%; I: 7.25%; R: 4.5%; China: 8%) 12,976 3.6 11% Owner-occupied properties Book value 7,775 2.1 6% Development properties DCF WACC of 8.5% (HK) and 10.6% (China) 27,573 7.6 22% Special steel never made full-year losses) might warrant
14、 a valuation premium over the sector average. For CPs iron ore project, we use discount cash flow (DCF) at a WACC of 8.5%. Table 4: China Steel sector valuation comparisons CompaniesTickermkt cap Price (HK$)RatingPrice Upside/EPS gth (%)P/E (x)EV/EBITDA (x)ROE (%)P/B (x) (US$m)30-Aug-10Target (HK$)
15、(downside (%)2010E2011E2012E2010E2011E2012E2010E2011E2012E2010E2011E2012E2010E2011E2012E Angang Steel347 HK9,02911.20N12.07.1378.081.011.119.610.99.86.85.45.16.811.712.31.31.21.2 Baoshan Iron capex cycle should peak in 2011E It is not surprising that CP should remain in negative FCF (free cash flow)
16、 during 2010E-2011E given its capex requirements. With capex expected to come down following the completion of the iron ore project and steel capacity upgrade, CP should turn almost FCF-breakeven in 2012E. Figure 7: CITIC PacificFree cash flow (20,000) (15,000) (10,000) (5,000) 0 5,000 2006A2007A200
17、8A2009A2010E2011E2012E (HK$ m) Source: Company data, J.P. Morgan estimates. 12 Asia Pacific Equity Research 02 September 2010 Benjamin Lo, CFA (852) 2800-8598 Company overview Overall, we expect CPs recurring earnings growth to be stable at best, at 15% CARR during 2009-12E. A summary of its divisi
18、onal earnings is shown below. Table 9: CITIC PacificEarnings breakdown Y/E Dec (HK$MM) 2008A 2009A 2010E 2011E 2012E Special steel 1,617 1,415 2,025 2,277 2,661 Iron Ore (123) 376 (142) 380 1,082 Property 1,013 921 966 2,980 1,521 Aviation (1,407) 211 45 0 0 Civil infrastructure 443 437 480 503 511
19、Power (1,198) 886 1,041 1,112 1,187 Marketing and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures Client of the Firm: CITIC
20、Pacific is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service and non-securities-related services. Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for product
21、s or services other than investment banking from CITIC Pacific. An affiliate of JPMS has received compensation in the past 12 months for products or services other than investment banking from CITIC Pacific. 0 18 36 54 72 90 Price(HK$) Sep 05 Jun 06 Mar 07 Dec 07 Sep 08 Jun 09 Mar 10 CITIC Pacific (
22、0267.HK) Price Chart UW HK$10N HK$25.5 OW HK$36N HK$15N OW HK$37UW HK$6UW HK$8.3N HK$27.1N HK$20.1 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage May 12, 2010 - Sep 01, 2010. This chart shows J.P. Morgans continuing coverage of this stock; th
23、e current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight. Date Rating Share Price (HK$) Price Target (HK$) 09-Jul-08 OW 29.10 37.00 29-Aug-08 OW 27.10 36.00 21-Oct-08 UW 14.52 10.00 13-Nov-08 UW 6.06 6.00 26-Mar-09 U
24、W 8.96 8.30 19-May-09 N 14.20 15.00 18-Aug-09 N 22.85 25.50 27-Aug-09 N 23.70 27.10 07-Mar-10 N 17.88 20.10 12-May-10 N 14.98 - Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight Over the next six to twelve months, we exp
25、ect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe. Neutral Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) c
26、overage universe. Underweight Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe. J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated research analysts use the same rating categories
27、; however, each stocks expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teams coverage universe is the sector and/or country shown on the cove
28、r of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe. Coverage Universe: Benjamin Lo, CFA: Hutchison Whampoa (0013.HK), Jardine Matheson (JARD.SI), Jardine Strategic (JSH.SI), MTR (0066.HK), Shanghai Industrial (0363.HK), Swire Pacific (0019.HK) 28
29、Asia Pacific Equity Research 02 September 2010 Benjamin Lo, CFA (852) 2800-8598 J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2010 Overweight (buy) Neutral (hold) Underweight (sell) J.P. Morgan Global Equity Research Coverage 46% 42% 12% IB clients* 49% 46% 31% JPMS Equity Resear
30、ch Coverage 44% 48% 9% IB clients* 68% 61% 53% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underwei
31、ght rating falls into a sell rating category. Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http:/ , or you can contact the analyst named on the front
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49、urisdiction unless governing law permits otherwise. “Other Disclosures” last revised September 1, 2010. Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan.#$J&098$#*P 30 Asia Pacific Equity Research 02 September 2010 Benjamin Lo, CFA (852) 2800-8598