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Investor Notes - Phillip Securities (HK) Ltd
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17 Dec, 2019 (Tuesday)

Changmao Biochemical Engineering (954) is engaged in the production and sale of organic acid products. The Group completed the transformation of the maleic anhydride production lines in the Changzhou headquarter in the first half of 2018. By using butane instead of benzene as a raw material to manufacture maleic anhydride, the Group has reduced production costs from the source and has gained substantial energy efficiency from the by-product, steam, which has resulted in a significant increase in the Group`s economic efficiency in the first half of 2019 compared to the corresponding period in last year. To extend its product chain and enhance added value of the products, the Group carried out the development project of pharmaceutical adjuvant. The product breadth has extended from food additives to pharmaceutical adjuvant. (I do not hold the above stock)
Buy-in Price: $0.74, Target Price: $0.82, Cut Loss Price: $0.69

On October 31, 2019, Frontage Labs, a wholly-owned subsidiary of the company, entered into an equity purchase agreement to acquire RMI. RMI is a Contract Research Organization located in Pennsylvania, USA, principally engaged in providing quantitative and qualitative drug metabolism services for pharmaceutical and biotechnology companies. In completing the acquisition, the company will expand its capacity with additional scientists, equipment, and facilities to be used in the provision of existing and novel services to its customers, effectively expand the current client base that the company currently serves in this specific field, with the potential to increase the company`s revenue generated through this highly specialized service. Dr. Phillip Tiller and Dr. Xiao (Sean) Yu, are renowned drug metabolism scientists and have created a solid client base in the U.S. They will stay with the company after the acquisition and assist in establishing in China the services acquired from RMI. This acquisition will accelerate the creation of ¡§Centers of Excellence in Drug Metabolism¡¨ in the U.S. and China. The combined resources will advance the company`s progress in becoming a global leader in providing metabolism services to its existing and new clients in the pharmaceutical industry.
Buy-in Price: $4.30, Target Price: $5.00, Cut Loss Price: $4.10

CH ENERGY ENG (3996.HK) - Newly signed contracts keep growing

Company update

Since November 2019, the company and its subsidiaries have signed or awarded a number of new projects, including four domestic projects involving an investment of approximately RMB17.2 billion; eight overseas projects mainly focus on power station projects. Major projects include: 1) China Energy Engineering Group Guangdong Power Engineering Co., Ltd., a subsidiary of China Energy Engineering Group Southern Construction & Investment Co., Ltd. has entered into an EPC contract for the Baltic Sea 324.8MW Wind Farm Project in Poland. The project is located in Słupsk, Poland near the Baltic Sea, and includes 5 specific projects, Its main work comprises power station EPC construction, which includes designing services, manufacturing, supervising, testing, equipment supplying, whole factory constructing, installing, debugging, training, spare parts within the warranty period, consumables and services, etc. The contract amount of the project is approximately EUR568 million. 2) The project is located in Umm Al Quwain, United Arab Emirates. Its main work comprises the construction of a seawater desalination plant with a daily production capacity of 150MIG (approximately 682,000 tonnes/day), including the design, procurement, construction, debugging and testing of seawater intake and drainage ancillary facilities and water storage tanks. The total contract amount of the project is approximately USD625 million, of which the contract amount of Gezhouba International Co. is approximately USD369.5 million. The contract term is 33 months, commencing from the date of construction. 3) The project company is jointly established by the government-funded representative and the social investor, and is responsible for the unified operation. The total investment of the project is approximately RMB5.732 billion, and the term of cooperation is 30 years, including 4 years of construction period and 26 years of operation period. 4) a subsidiary and cooperating parties has entered into an EPC contract for the 1000MW Oil and Gas Combined Cycle Power Station Project in Maysan, Iraq.The project is situated in Maysan Governorate, Iraq. Its main works comprise the design, procurement, and construction of the 1000MW Oil and Gas Power Station. The contract amount of the Project is approximately USD1,200 million. The contract term is 36 months. According to the National Bureau of Statistics, the cumulative annual growth rate of China's fixed asset investment was 5.2% in October 2019, maintaining moderate growth. However, the current downward pressure on the economy is increasing, government is expected to continue introducing relevant policies to increase the infrastructure investment to drag the bottom of the economy. In addition, the monetary policy remains stable and loose, which will benefit the development of the infrastructure sector. We expect that the new contract value of the company will continue to grow steadily.

Signed strategic cooperation agreements with SHIG and Sansha city's government to promote business transformation and development

On November 19, 2019, the signing ceremony of the strategic cooperation framework agreement between China Energy Construction Group Co., Ltd. and Sansha City Government was held in Sansha. According to the agreement, the two sides will carry out comprehensive cooperation in the areas of infrastructure construction and ecological protection in Sansha City, and jointly advance the implementation of relevant major projects. On July 26, 2019, the company has entered into a strategic cooperation framework agreement with Shandong Heavy Industry Group Co., Ltd. (SHIG). Both parties unanimously agreed to establish a comprehensive strategic co-operative partnership in various aspects such as engineering construction and equipment procurement, international business, high-end equipment and industrial park construction, new energy, capital cooperation, technological services as well as talent cooperation. The two parties would fully utilize their respective advantages in various aspects such as their technology, capital, talents, management, market and resources, achieving a win-win situation with mutual benefits and joint development. It is understood that SHIG is a Shandong Provincial state-owned enterprise, and is a Chinese leading and internationally renowned automobile and equipment manufacturing group. The company actively explores cooperation opportunities, seeks business transformation and development, and lays the foundation for new performance growth points in the future.

Adjust TP to HKD 1.05, degrade to "ACCUMULATE" rating

We adjusted target price to HKD 1.05, corresponding to FY19/FY20/FY21 6.34x/5.94x/5.62x PE, which was +17.98% higher than the current price (HKD 0.89 as of December 13, 2019), degrading to ¡§ACCUMULATE¡¨ rating.


International business fails expectations;

China infrastructure investment fails expectations;

China electricity investment fails expectations;

Policy risk.


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Recommendation on 17-12-2019
Price on Recommendation Date$ 0.890
Suggested purchase priceN/A
Target Price$ 1.050
Writer Info
Leon Duan
(Research Analyst)
Tel: +852 2277 6515

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