We visited Hu An Cable’s factories in Yixing City, Jiangsu Province. Hu An Cable is one of the top 10 integrated cable and wire manufacturers in China. It is a proxy to China’s RMB5.3t investment in the power sector for 2011-2015. The group is building a factory to boost its capacity in mid- and high-end products. In addition, penetration into the high-end cables market will help to increase the group’s profitability. We DO NOT have a rating on Hu An Cable. Bloomberg’s consensus target price is S$0.26.
Infrastructure expansion in China.
Hu An Cable (Hu An) is one of the top 10 largest integrated cable manufacturers in China. Under the 12th Five Year Plan for China (2011-2015), RMB5.3t will be spent on capital expenditure in the power industry. This represents a 67.7% increase from the RMB3.16t that was earmarked for 2006-2010 under the 11th Five Year Plan. For 2011-2015, China will spend approximately RMB610b on power cables (+103% from the 11th plan), RMB500b on ultra-high voltage power cables (+2400%) and RMB521.6b on rural grid power cables (+38.5%). Urbanization in the form of 400m migrant workers becoming city-dwellers within the next 20 years will greatly boost electricity demand.
New factory for mid- & high-end cables manufacturing.
The company group to enter the high-end cables market to boost its profitability. It is building a factory with the capacity to manufacture mid- and high-end cables at a location close to its current factory in Yixing City, Jiangsu Province. The capital expenditure of RMB430m will be funded by internal cash, bank borrowings and IPO proceeds from the SGX listing. Two production lines for mid-voltage power cables and one production line for high-voltage power cables were installed as of Oct 2011. We believe that production will start sometime during the middle of this year.
Undervalued compared to peers.
Hu An appears inexpensive compared to its peers which are listed in China and Taiwan. It is trading at a P/E of 3.6x, P/B of 0.6x and offering a dividend yield of ~4.6%. In contrast, the overall medians for its peer group are as follows: P/E of 22.8x, P/B of 1.4x and dividend yield at 1.0%. We note that Hu An is also trading at an attractive estimated FY12 P/E of 3.1x.
Not Rated.
We DO NOT have a rating on Hu An Cable. Bloomberg’s consensus target price is S$0.26.
Hu An Cable (Hu An) is one of the top 10 largest integrated cable manufacturers in China. Under the 12th Five Year Plan for China (2011-2015), RMB5.3t will be spent on capital expenditure in the power industry. This represents a 67.7% increase from the RMB3.16t that was earmarked for 2006-2010 under the 11th Five Year Plan. For 2011-2015, China will spend approximately RMB610b on power cables (+103% from the 11th plan), RMB500b on ultra-high voltage power cables (+2400%) and RMB521.6b on rural grid power cables (+38.5%). Urbanization in the form of 400m migrant workers becoming city-dwellers within the next 20 years will greatly boost electricity demand.
New factory for mid- & high-end cables manufacturing.
The company group to enter the high-end cables market to boost its profitability. It is building a factory with the capacity to manufacture mid- and high-end cables at a location close to its current factory in Yixing City, Jiangsu Province. The capital expenditure of RMB430m will be funded by internal cash, bank borrowings and IPO proceeds from the SGX listing. Two production lines for mid-voltage power cables and one production line for high-voltage power cables were installed as of Oct 2011. We believe that production will start sometime during the middle of this year.
Undervalued compared to peers.
Hu An appears inexpensive compared to its peers which are listed in China and Taiwan. It is trading at a P/E of 3.6x, P/B of 0.6x and offering a dividend yield of ~4.6%. In contrast, the overall medians for its peer group are as follows: P/E of 22.8x, P/B of 1.4x and dividend yield at 1.0%. We note that Hu An is also trading at an attractive estimated FY12 P/E of 3.1x.
Not Rated.
We DO NOT have a rating on Hu An Cable. Bloomberg’s consensus target price is S$0.26.
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