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4 Sep, 2020 (Friday)

            
Conch Cement(914)
Analysis¡G
For the six months ended 30 June 2020, the revenue of Conch Cement (914) amounted to RMB74 billion, representing an increase of 3.30% from that for the corresponding period of the previous year; the net profit attributable to shareholders amounted to RMB16.06 billion, representing an increase of 5.31%. On a quarterly basis, the revenue for the second quarter increased 119% to RMB50.8 billion as compared to the first quarter and net profit attributable to shareholders increased 127% to RMB11.15 billion. Going forward, the Group will focus on the cement business, seize development opportunities, actively seek suitable merger and acquisition targets, and continuously improve the market layout. At the same time, the Group will accelerate the upstream and downstream industrial chain extension, fully promote the implementation of aggregate projects, steadily expand the concrete business, test-drive its venture into prefabricated construction business, and continuously expand the fields of new commercial activities. (I do not hold the above stock)
Strategy¡G
Buy-in Price: $57.00, Target Price: $62.00, Cut Loss Price: $54.50


CG SERVICES(6098)
Analysis¡G
Country Garden Services is one of the leader in the property management segment. The company has sufficient project reserves and can rely on the resources of its parent company Country Garden (2007.HK) to continue achieve a high growth in the future. The company has achieved an impressive interim result. The revenue of 1H20 was RMB 6.27 billion, up by 78.4%. NP of 1H20 was RMB 1.32 billion, up by 61% yoy. As of end of June, the GFA under management was 746 million sq.m and the revenue-bearing GFA was 320 million sq.m. In terms of the ¡§Urban Co-existence Programme¡¨, the company has won tenders for the project in Shouyang county, Shanxi Province. Looking forward, the company will continue to improve their city service mode 3.0 in order to promote the synergy effect of urban and industrial resources.
Strategy¡G
Buy-in Price: $53.90, Target Price: $59.00, Cut Loss Price: $51.20



Report Review of August. 2020

Sectors:

Air & Automobiles (Zhang Jing),

TMT & Education (Kevin Chiu)

Consumer & Property Management (Timothy Chong)

Automobile & Air (ZhangJing)

This month I released 4 updated reports of FLAT (6865.HK)¡ABYD (1211.HK), CATL (300750.CH) and Fuyao Glass (3606.HK), which got success by their unique Competitive edge. Among them, we highly recommend CATL (300750.CH).

CATL began to supply domestic Tesla from July, and as the domestic pandemic was first brought under control, industry supply and demand will gradually be improved. In November last year, BMW announced an additional order of EUR7.3 billion for the Company. In August this year, Mercedes-Benz announced that it will deepen its cooperation with the Company. CATL will become the head supplier of Mercedes-Benz's passenger vehicles. At present, CATL has the most extensive customer base among the peers, and the investment and construction of overseas factories will further open up overseas markets. With the successive launching of supporting models, the Company will gradually enter the order fulfilment period in the next few years.

In July, the Company completed RMB19.7 billion of private placement, which was mainly used for the expansion of the Huxi Base Project (RMB4 billion), the Phase III of Jiangsu Times Power and Energy Storage Project (RMB5.5 billion), Phase I of Sichuan Base Project (RMB3 billion), R&D projects of electrochemical energy storage frontier technology reserves (RMB2 billion) and supplementary working capital (RMB5.2 billion). At present, the Company's battery production capacity is about 53GWh, and the capacity under construction is 22GWh. It is estimated that the Company's total production capacity will exceed 200GWh in 2023, and its leading position will be further consolidated. In August, the Company issued an announcement stating that it intends to invest in high-quality listed companies in the upstream and downstream industry chain at home and abroad by means of securities investment, with an amount not exceeding RMB19.067 billion. We expect this will further strengthen the Company's collaboration with core equipment vendors, material vendors, and upstream and downstream core companies, ensure the supply of key resources, reduce costs, provide more opportunities for growth, and enhance the Company's global competitiveness.

TMT & Education (Kevin Chiu)

This month, I have released 2 initiation reports, China Kepei (1890.HK) and XD Inc. (2400.HK). Between them, we highly recommend China Kepei (1890.HK).

China Kepei's Self-built Schools are located in Guandong Province and the Guangdong's higher education market has obvious advantages. According to the Guangdong Provincial Bureau of Statistics, Guangdong Province has become China's most populous province in 2019, accounting for 8.23% of China's total population. At the end of 2019, the permanent population of Guangdong was 115 million, a year-on-year increase of 1.75 million, of which the natural growth population was 923,800, and the net inflow population from other places was 826,200. This huge population growth also means that the people of Guangdong Province demand higher education resources. On the other hand, the gross enrollment rate of higher education in Guangdong Province is currently lower than the average of all provinces in China. According to the Guangdong Academy of Education, the gross enrollment rate of higher education in Guangdong Province in 2019 was only 46%, while the average gross enrollment rate of higher education in China in 2019 was about 52%. Given the increasing demand for higher education in Guangdong Province, this gross enrollment rate gap reflects the current shortage of higher education market in Guangdong Province.

Out of the market's recognition of the quality of education provided by the company and the outstanding results of students, the company has won many awards since its establishment. On the other hand, the initial employment rate of the Guangdong Polytechnic College is among the best in Guangdong Province. According to the Guangdong Provincial Department of Education, the average initial employment rate for undergraduate degree graduate in Guangdong Province in 2018 and 2019 was 93.8% and 93.4%, respectively. In the 2017/2018 academic year and the 2018/2019 academic year, Guangdong Polytechnic College had 1,023 and 3,196 undergraduate degree graduates. The initial employment rates were 96.8% and 97.8%, respectively, which were 3.0 ppt and 4.4 ppt higher than the average of Guangdong Province. It highlights the broad market recognition of the undergraduates of the company's colleges.

The company acquired 100% of Harbin Institute of Petroleum in January 2020. The school has a total of 31 undergraduate courses. There are 9,366 undergraduate students in the 2019/2020 academic year, an increase of 5% year-on-year. The school's education quality is high. In 2019, the registration rate and employment rate were 97.1% and 96.2%, ranking first and second among private colleges in Heilongjiang Province. Harbin Institute of Petroleum's 2019 net profit is approximately RMB 68 million, up by 88% yoy. The school's current net profit margin is at a low level comparing to the company's self-built schools, about 44%, and it is expected to be further improved through collaboration with Guangdong Polytechnic College. At present, the company has completed the school takeover, and the net profit of the school can be consolidated. But the assets of Harbin Institute of Petroleum can only be consolidated after the change of the organizer is completed (It is expected to be completed by the end of the year). We believe that the Harbin Institute of Petroleum is definitely a quality asset, and it is expected to create synergy effect with other colleges under the company. Looking forward, we believe the company will continue to acquire high quality schools in the future in order to achieve a high growth.

Consumer & Property Management (Timothy Chong)

I have released one update a report covering Aoyuan Healthy (3662.HK) and an initiation report covering Topsports INTL(6110.HK) this month. Between them, we highly recommend Aoyuan Healthy(3662.HK).

Aoyuan Health Life's revenue grew rapidly in 1H20. It recorded approximately RMB 547 million, an increase of 39.5% from approximately RMB 392 million in the same period last year, of which approximately 75.4% came from revenue from the property management service segment, an increase of 43.4% YoY, and another 24.6% of revenue came from the business management services segment, an increase of 28.8% YoY. The company's current total construction area under management is approximately 16.1 million square meters, an increase of approximately 1 million square meters from the end of last year. In addition to the two acquisitions in the first half of the year, EASY LIFE SMART COMMUNITY SERVICES GROUP CO. (¼Ö¥Í¬¡) and Ningbo Hongjian, the GFA under management is expected to reach 45 million square meters. The data for the 1H shows the company's revenue before consolidation which new acquisitions are not included. Revenue growth reflects the continued good rate of company's organic growth. The company's performance in the first half of the year was in line with our expectations. In the past six months, the company's two acquisitions have effectively expanded the company's residential management services. After Easy Life's consolidation, the company's revenue will rise. 

The company's GPM in 1H further improved compared with the same period last year, and the overall GPM reached 40.1%, an increase of 0.5 percentage points from 39.6% in the same period last year. In terms of segments, the property management service segment and the commercial management property segment accounted for 75.4% and 24.6% of revenue, respectively. Compared with the same period last year, the revenue share of the property management segment increased. Look more detail to the business segment, the GPM of the property management segment improved significantly compared with last year, reaching 39.7%, mainly due to the significant increase in revenue from Major owners value-added services (formerly known as sales assistance services), which increased by approximately 55.27%, accounting for approximately 22.1% of the company's total revenue in 1H. The GPM of this business is higher in the residential property management sector. But on the other hand, the company's commercial management services segment's GPM has declined, from 46.1% in the same period last year, down 4.6% to 41.5%, mainly due to the decrease in revenue from Market positioning and business tenant sourcing services.

In the commercial operation segment, the growth rate slowed down in 1H, with an overall increase of approximately 28.8%. The revenue from commercial operations and management services increased by 44.6% compared with last year, while the revenue from Market positioning and business tenant sourcing services decreased by approximately 12.1%. The epidemic has delayed malls that were originally scheduled to open in the 1H to the end of the year. The company expects that six new malls will open in the 2H. Nearly 80% of the company's malls have resumed, and some of them have returned to pre-epidemic levels.

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