Company Profile

Sino Great Wall Co., Ltd. provides engineering contracting, decoration, and mechanical and electricalinstallation services in China. It is also involved in the curtain wall design and construction, andinvestment and hospital construction activities. The company is based in Beijing, China.(Source: Bloomberg)

Event

Sino Great Wall (the company) announced its fully-owned subsidiary, Sino Great Wall International haswon the bid of ‘Bingcheng Yuechun Hotel’ Project in Malaysia (worth of CNY 279 mn) and the traffichinge project in Macao (worth of CNY 94 mn). The company also announced about forging strategicpartnership with Wuchang Shipbuilding Industry.

Comments

The value of company’s new order has consecutively notched new highs in year 2016. The rich orders inhand lay solid ground for company’s future growth. The latest two new orders company won are bothlocated in oversea market with a total value of CNY 373 mn. Given such, the company has won acumulated CNY 10.64 bn worth of new orders from the year beginning of 2016, among which the valueof oversea market orders has exploded 182.19% YoY to CNY 7.87 bn, accounting for 73.97% ofcompany’s total order value.

Company’s overseas market orders in hand are currently worth of nearly CNY 17 bn. Overseas businesscontributed CNY 1.57 bn revenue for company in 2015, the revenue coverage ratio of overseas businessorder is as high as 10.78x. Thus, we expect the company to turning soaring revenue in 2017 when itsoverseas orders being completed and delivered.

Sino Great Wall, as a civilian enterprise, mainly have local governments as clients. It adopts thepercentage of completion method; the revenue recognition time is closely related to when the contractwas signed. Sino Great Wall reported dense new contracts signed during January 2016, with a total valueof USD 735 mn, or CNY 4.95, accounting for 41.83% of the total value of company’s new contract and29.82% of the value of company’s overseas market orders in hand. Overseas market orders usually willbring company income one year the contract signed. Firming the prospect for booming revenue growthin Q117.

The company has forged strategic partnership with Wuchang Shipbuilding Industry, aiming at fasterexpansion in domestic market.

Wuchang Shipbuilding Industry reported a revenue of CNY 9.1 bn and a pre-tax net profit of CNY 570mn, it belongs to CSIC, who has mass of resources and owns preponderant technical advantages interms of large-scale steelwork manufacture as well as installment. The collaboration with WuchangShipbuilding Industry will accelerate Sino Great Wall’s development in municipal engineeringconstruction, housing construction as well as in high steel-structure building construction.

Company’s position as the leader of China’s ‘One Belt One Road’ strategy further firms prospect forcompany’s future growth. We strongly recommend investors to buy in its stock at spot price.

Company’s business transformation to pharmaceutical industry is progressing steadily, expecting tocreate a new profit pattern of hospital-PPP model. Company currently has CNY 2.73 bn worth ofhospital-PPP orders in hand. This business is estimated to contribute a material size of profit forcompany as it wins more and more such orders and as these hospitals enter operation stage.

Earnings Forecast and Investment Grading:

We maintain “Strong Buy” rating for the company. Leaving out the equity dilutive effect of privateplacement, we estimate the company to register EPS for year 2016/2017/2018 at CNY 0.32/0.46/0.64,implying P/E ratios to be 31.9x/21.1x/15.9x respectively.

Potential Risk: company’s business expansion in overseas market may be weaker than expected,company may fail expectation in obtaining new orders, company’s cash collection may be less thanexpected.