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Asset disposals in progress

A turnaround story is unfolding Three major risks remain Joe Zhang 张化桥 COO & Executive Director Presentation at the UBS Property Conference 7 September 2006 Disclaimers on final page. Asset disposals in progress. City Govt. Public. 55.9%. 44%. SHENZHEN INVESTMENT ( 0604 ). 80%. 24.3%.

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Asset disposals in progress

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  1. A turnaround story is unfoldingThree major risks remainJoe Zhang 张化桥COO & Executive DirectorPresentation at the UBS Property Conference7 September 2006Disclaimers on final page

  2. Asset disposals in progress City Govt Public 55.9% 44% SHENZHEN INVESTMENT (0604) 80% 24.3% 19% 91% 31.1% Mawan Power Property development Transport Road King Jingdong Expressway • Industrial • Color Display • PJLD, metal Cable TV Property investment (HK$2bn) For sale Sold SHENZHEN INVESTMENT

  3. Financial guidance • Net gearing to rise from today’s 30% to about 60-70% by year-end and will stay around that level • Net profit growth: >20% in each of the next 3 years (CAGR), and much higher in 2008 • Dividend payout: > 50% (excl. special dividend) • ROE to rise from today’s 13% to 20% by 2008 • Land bank acquisition: 1.5m sqm (GFA) in 2006, and 1m in each of 2007 and 2008 • One more acquisition of an operating road SHENZHEN INVESTMENT

  4. Recent events • Acquired a 91% stake in Jingdong Expressway, • Sold Mawan Power’s 19% stake for an exceptional profit of HK$371m, and declared a special dividend on the entire amount, • Our 25% associate, Road King, acquired 55% of Sunco, one of the largest Chinese property developers, • We will take a 35% stake in Suzhou Phoenix property project, with attributable GFA 430k sqm • Decided to accelerate property development and non-core business disposals • Negotiating a syndicated bank loan of US$470m (mainly for refinancing) SHENZHEN INVESTMENT

  5. Three major challenges for us • We are an SOE, and are much more rigidly regulated than those in the private sector, and therefore, we are much less efficient, • Our incentives system does not work nearly as effectively as in the private sector, • Our property business can be extremely volatile and cyclical and subject to policy risks. Some of our associates are entirely beyond our control and we are in the process of selling them. SHENZHEN INVESTMENT

  6. 35% of Suzhou Sunco’s Phases 2 & 3 • Suzhou Sunco acquired a large block of land in Suzhou Industrial Zone and Phase 1 has been developed, • Now Road King and Shenzhen Investment have secured the option to acquire all of Phases 2 and 3 (65%:35%, respectively), • Located 3km east of New Administration Centre of Suzhou Industrial Zone, and 10km from Suzhou’s Yangcheng District, • Phases 2 & 3 land area: 672k sqm, GFA: 1,143k sqm, • Land premium: Rmb2,060m (average Rmb1,667/sqm) to be paid by buyers over two years, • Phase 1 (about 20% of total size) has been completed by Sunco. Road King & Shenzhen Investment will benefit from the common infrastructure already built at Phase 1 (commercial space and amenities), • IRR for Road King’s investment: at least 21.7% SHENZHEN INVESTMENT

  7. Road King’s acquisition of Sunco • The deal took two months of due diligence and negotiations • An option to acquire a 55% stake in Sunco A, • An option to acquire a 55% stake in Sunco B, • Total attributable landbank: over 10 million sqm in 16 Chinese cities • Seller provides a guarantee of 20% of ROI (return on investment) for Sunco A (2006-08) and Sunco B (2007-09) SHENZHEN INVESTMENT

  8. What is good for Road King is good for ….. • The Sunco acquisition is a once-in-a-life-time opportunity to rapidly expand in China’s property sector • Acquisition at a 45% discount to our conservatively estimated NAV of Sunco A & B • Three options are very attractive yet defensive • Tremendous synergies between Road King’s stable cash flows plus old-fashioned conservative management and Sunco’s young, dynamic and experienced team plus vast land reserves SHENZHEN INVESTMENT

  9. Major benefits for Road King and us • Sunco is one of the largest and fastest-growing property developers in China • Sunco has built many successful as well as less successful projects and has a solid brand in parts of China (Tianjin and north China) • Most land reserves were acquired in the past 3-4 years and considerable value appreciation has taken place in the land reserves • Well-trained and highly motivated team • Recent setback offers the team an invaluable lesson on corporate governance SHENZHEN INVESTMENT

  10. Our property development schedule (1) SHENZHEN INVESTMENT

  11. Our property development schedule (2) SHENZHEN INVESTMENT

  12. Our land bank (incl. Suzhou) SHENZHEN INVESTMENT

  13. Our NAV estimate (un-audited)(Jingdong Expressway will add HK$0.35-0.50 per share to the figure below)Refer to disclaimers on final page SHENZHEN INVESTMENT

  14. China’s property sector • Official concerns over rising property prices and thus affordability understandable • We expect ever more rigorous policies on land supply, building standards, pre-sale and taxes – leading to higher costs and potentially lower profit margins • The property development sector will remain one of the most lucrative sectors in decades to come, in our view • The sector’s consolidation is unfolding • The case for our acquisition of Sunco will strengthen in the next few years with growing land scarcity SHENZHEN INVESTMENT

  15. Rising property price: a monetary phenomenonM2 in Rmb bn: 1985-2005 CAGR 22.5% SHENZHEN INVESTMENT

  16. Property price: cost push and diminishing land supply • In the past decade, China’s arable land has shrank by 11%, thanks to industrialization, and urbanization • Rising incomes per head will continue to lead to rising demand for better and more spacious housing, pushing up the prices of land, and property • Much of today’s higher property price is a reflection of higher costs of land, labor, and materials • This trend will continue, irrespective of official policies • Property developers’ profit margins will shrink but from the very high level of today SHENZHEN INVESTMENT

  17. Jingdong Expressway荆东: 湖北荆州- 湖南东岳庙 • 63 kilometers, two-way, 4 lanes • Part of the Erlianhaote to Guangzhou National Trunk Line (from Inner Mongolia to Shanxi, Henan, Hubei, Hunan, and Guangdong) • At the intersection of # 207 and the # 318 Hu-Rong (沪蓉 Shanghai to Chengdu) National Trunk Lines • Much of road is on elevated structure (+ 9 bridges). Therefore, the government allows higher toll charges, and we expect much lower maintenance costs in the road’s life • It links Jingzhou Bridge, the only bridge on Yangtze in central Hubei. Next bridge to the west is in Yichang (宜昌 about 110km), and that to the east is in Wuhan (武汉 about 240km) • Concession: 31 years from Aug-06 (early completion) • Expected IRR for our investment: 10.6% (internal: Worst-case scenario) or 14.7% (Sallmanns) • Will add HK$0.35-0.50 to our market-based NAV, and strengthen our infrastructure division, and add to long-term earnings stability SHENZHEN INVESTMENT

  18. Part of a national trunk line Erlianhaote (Inner Mongolia) Beijing Taiyuan Zhengzhou Luoyang Yangtze River Huangshi Yichang Wuhan Jingzhou Dongyuemiao Changde Guangzhou Hong Kong SHENZHEN INVESTMENT Zhuhai

  19. Linking the West with the EastZhang Jiajie Resort 张家界is to the southwest Erlianhaote (Inner Mongolia) Taiyuan Luoyang Shanghai Nanjing Hefei Chengdu Yichang Wuhan Jingzhou Zhang Jiajie Resort Dongyuemiao Changde Guangzhou SHENZHEN INVESTMENT

  20. Question 1: Why toll roads?Toll roads vs. investment property • Toll roads, like ports/airports, are best geared to China’s growth • Toll roads business is our second pillar • Property development is very profitable and fast-growing, but will always be cyclical and volatile (plus macro policy risks) • To us, toll roads are similar to (and better than) investment property (stable cash flows, lower cyclicality, potential for asset appreciation and thus high re-sale value) • Compared to elsewhere, Chinese property tends to have a short economic life due to construction quality & poor maintenance • We have accumulated expertise in the roads sector via our partnership with Road King, and at the parent company level • We have built a pool of expertise with significant recent hires SHENZHEN INVESTMENT

  21. 15 expressways’ revenue: average 7-yr CAGR 22.95% SHENZHEN INVESTMENT

  22. Question 3: Why this road? • Strategic location (intersection of two national trunk lines) • Low costs of construction (about Rmb40m/km) due to effective management • Construction phase was cut by from 4 to <3 years • Central China’s economy is about to take off, and land and resettlement costs are still much lower than in coastal China • Hubei-focused partner (Huayin 华银) has extensive experience in property & infrastructure, has an enviable reputation, and will retain a 9% stake in the road SHENZHEN INVESTMENT

  23. A major road to transport coal & other commodities • Inner Mongolia, Shanxi, Shaanxi, and Henan Provinces are major producers of coal, alumina, iron ore and soft commodities (wheat) • Hubei, Hunan and Henan are major wheat/grain producers • Labour migration is significant between central and southern China • Coastal China’s OEM economy faces mounting challenges from exchange rates, anti-dumping, rising raw materials prices, and a saturated world of low-end manufactures • Central China is based on domestic consumption and production of commodities (hard and soft) • A key passage from Wuhan武汉and east Hubei to Zhang Jiajie Resort 张家界(in northwest Hunan) SHENZHEN INVESTMENT

  24. Jingdong Expressway: financial arrangement • We pay Rmb1.05bn to Huayin (road developer) for a 91% stake in Jingdong Expressway, plus • If the road achieves a revenue target of Rmb140m in year 1, we will pay another Rmb201m (we will make the payment by April-07, collateralized by Huayin’s 9% stake and general guarantee) • We will meet all payments with internal cash (our net gearing was 14% as of end-2005) • Our cash flows from non-core asset disposals (total book value about Rmb1.2bn) will be used to increase land bank and/or investments in toll roads & bridges • Unlikely to issue new shares in next 12 months • Dividend payout ratio to stay above 50% SHENZHEN INVESTMENT

  25. Consultants: 15% IRR for our investment and 12% at road level • We engaged Parsons Brinckerhoff (Asia), Sallmanns, BOCI, and Zhongqihua for traffic & financial analysis • They forecast 15% IRR for our investment and 12% IRR at road level • Our internal forecast on worst-case scenario: 10.6% IRR for our investment, assuming a much lower starting traffic and a flatter growth trajectory • Internal analysisin a 5-month period plus 4 months of cooling-off • More leverage at operating level to enhance ROE & IRR • Expected lower maintenance costs due to the road’s elevated structure SHENZHEN INVESTMENT

  26. IRR to our investment: sensitivityInternal analysis: Worst-case scenario SHENZHEN INVESTMENT

  27. Asset re-sale as fall-back • We are very bullish on Jingdong Expressway, and believe it will prove to be rewarding to our shareholders • However, we do not reject asset trades if/when necessary • We consider the rising re-sale value of toll roads in general as extra comfort for our investment: secondary-market liquidity • Value of toll roads across China has appreciated in the past decade along with urbanisation & globalisation • We expect this trend to continue, particularly in central China • The focus of China’s economy is shifting to central from the coast due to pressure on the OEM economy SHENZHEN INVESTMENT

  28. Forecasts by Sallmanns and us (Rmb m)We will use traffic-adjusted depreciation * Adjusted for lower interest payment on the basis of Sallmanns’s forecasts SHENZHEN INVESTMENT

  29. Internal forecast of worst-case scenario is on a lower 2007 revenue, and lower CAGR in the 30 years SHENZHEN INVESTMENT

  30. Both internal forecast of worst-case scenario & consultants’ forecast assume a Rmb0.40/km per base vehicle in 2007 but we have secured Rmb0.70/km SHENZHEN INVESTMENT

  31. Cross-check on our toll revenue forecasts31 expressways’ toll revenues (Part 1) SHENZHEN INVESTMENT

  32. 31 expressways’ toll revenues (Part 2) SHENZHEN INVESTMENT

  33. Disclaimers • This presentation is prepared in good faith, based on audited financial data, publicly available information, and management’s outlook as of today. Macroeconomic parameters could change unexpectedly. The company’s operating environment and thus strategies could change as a result and without notice. • This presentation does not constitute an invitation to trade this or any other stock. Stocks can go down as well as up. Historical performance is no guarantee for the future. • The company has announced that it is in the process of selling some non-core assets. However, the NAV estimates in this document are for reference only, and have nothing to do with our views of potential realizable values. SHENZHEN INVESTMENT

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