1、Asia Pacific Equity Research 23 March 2010 Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Initiation Overweight 1938.HK, 1938 HK Well fueled piper Price: HK$4.60 Price Target: HK$6.00 China Oil Services so PCK can limit its risk by purchasing the steel at the time that a contract with the cu
2、stomer is entered into. Therefore, even if a contract calls for pipe delivery in six months time, the cost of the steel plates has already been locked in and PCK has minimal risk, in our view, from a loss should the cost of steel rises and also little opportunity for a gain if the cost of steel fall
3、s. Almost all of the costs are denominated in Renminbi and management typically factors in anticipated Renminbi appreciation into its tender price. However, there is a risk that an unanticipated rise in the value of Renminbi could pressure the gross margins for exported products sold in US dollars,
4、in our view. PCKs selling and general and administration costs have been falling from 7.8% of sales in 2006 to 5.0% in the first eight months of 2009 to our estimated 5.4% of 2009 sales. The decrease was mainly attributable to the adoption of more stringent cost control on PCKs expenses in relation
5、to their sales and marketing activities and the absorption of transportation cost by a number of our domestic customers. The drop in the ratio of SGA costs over sales is due to the scale benefit of PCK as SGA costs rise less than the rise in sales over this period. The tax rate has been cut from 29.
6、8% in 2006 to 13.4% in 2008 (estimated 14.5% in 2009) due to the qualification of the Panyu, Guangdong facility as a high technology business enterprise which is entitled to a lower 15% tax rate, compared to the standard 25% for companies that do not qualify as a high technology business. Balance sh
7、eet and cash flows We forecast that PCK will be able to lower its net gearing from 2009 as the company pays down its debt. The companys net debt-to-equity ratio to decline from the peak of 286% in 2007, to 87% in 2008. Similarly, the companys liquidity ratio has been rising since 2007. Its current r
8、atio rose from 0.8x in 2007 to 1.1x in 2008 and we expect it to reach 0.9x in 2009. Interest expense is more than 5.5x covered by in 2008 and we estimate more than 10x covered for 2009. We expect a rise in capital expenditures in 2010 relating to the acquisition of a land and construction of the Lia
9、nyungang plant that comprises a JCOE production line to be used for the manufacture of LSAW steel pipes as well as an ancillary steel plate processing line. In addition, PCK is planning for an establishment of one new production line for LSAW steel pipes in relation to the formation of a joint ventu
10、re at a strategic overseas location (no specific conclusion or legally binding conclusion was made); the modification and technical enhancement of an ancillary production line in Panyu into a completed LSAW steel pipes production line; and the potential partnership with and potential acquisition of
11、other steel pipes manufacturers and/or other complementary production facilities (no target had yet been identified). 24 Asia Pacific Equity Research 23 March 2010Leon Chik, CFA (852) 2800-8590 Table 11: PCK P and L statement Rmb in millions, year-end December 2007 2008 2009E 2010E 2011E 2012E Jan
12、to Aug 09 Total Revenues 1,458 2,625 2,769 3,549 4,409 5,176 2,021 YoY change (%) 32.5% 80.0% 5.5% 28.2% 24.2% 17.4% 20.1% Cost of Goods Sold (1,192) (2,088) (2,148) (2,754) (3,466) (4,131) (1,573) YoY change (%) 29.6% 75.2% 2.9% 28.2% 25.9% 19.2% 21.7% Gross Profit 266 537 620 795 943 1,045 448 YoY
13、 change (%) 47.0% 101.7% 15.6% 28.2% 18.6% 10.8% 14.6% Gross Margin 18.2% 20.4% 22.4% 22.4% 21.4% 20.2% 22.2% SGA (115) (151) (149) (172) (204) (239) (101) YoY change (%) 33.2% 31.9% -1.2% 15.5% 18.1% 17.4% 18.2% Other Income/(Expenses) (7) (3) 32 4 15 16 31 Operating profit 144 384 503 627 754 822
14、378 EBITDA 171 419 548 680 836 968 402 EBITDA margin 11.7% 16.0% 19.8% 19.2% 19.0% 18.7% 19.9% Depreciation and Amortization (27) (35) (46) (53) (82) (146) (24) YoY change (%) 9.2% 30.0% 29.8% 15.3% 55.7% 78.1% 0.5% EBIT 144 384 503 627 754 822 378 EBIT margin 9.9% 14.6% 18.2% 17.7% 17.1% 15.9% 18.7
15、% Finance costs (45) (65) (45) (40) (37) (31) (29) Exceptional item 0 0 0 0 0 0 (1) Associates 0 0 0 0 0 0 0 Gains/losses 0 0 0 0 0 0 0 Net Income Before Taxes 99 318 457 587 717 791 349 YoY change (%) 83.3% 221.2% 43.8% 28.3% 22.1% 10.3% 34.6% Tax (28) (43) (66) (85) (104) (115) (48) Effective Tax
16、rate 28.5% 13.4% 14.5% 14.5% 14.5% 14.5% 13.6% Minority Interests 0 0 0 0 0 0 0 Net Income 73 277 391 502 613 676 301 YoY change (%) 87.2% 279.5% 41.2% 28.3% 22.1% 10.3% 40.0% Net margin 5.0% 10.6% 14.1% 14.1% 13.9% 13.1% 14.9% Source: Company data, J.P. Morgan estimates. 25 Asia Pacific Equity Rese
17、arch 23 March 2010Leon Chik, CFA (852) 2800-8590 Table 12: PCKBalance sheet Rmb in millions, year-end December 2007 2008 2009E 2010E 2011E 2012E Aug-09 Cash and Cash Equivalents 159 226 280 1,120 1,183 1,452 253 Inventories 429 711 675 865 1,074 1,261 501 Trade receivable 279 240 380 487 605 710 57
18、8 Prepayments deposits and other receivables 332 168 129 185 221 260 175 Total Current Assets 1,199 1,345 1,463 2,657 3,084 3,684 1,507 Intangible Assets 4 4 4 4 4 4 85 Propert, Plant and Equipment, Net 458 480 724 1,291 1,469 1,523 472 Other Assets 113 150 150 150 150 150 92 Non-Current assets 575
19、634 878 1,446 1,623 1,677 0 Total Assets 1,774 1,979 2,342 4,103 4,707 5,361 2,158 Trade and Bills Payable 83 198 209 268 333 391 269 Other Accrued Expenses 234 401 407 414 421 430 278 Taxes Payable 20 27 50 69 88 99 27 ST and current LT debts 1,085 638 639 557 472 386 638 Total Current Liabilities
20、1,422 1,263 1,305 1,308 1,314 1,306 1,212 Interest Bearing Bank Loans and Government Loans 0 111 90 97 82 67 90 Other Noncurrent Liability 28 4 4 4 4 4 4 Noncurrent liabilities 28 115 94 101 86 71 94 Total Liabilities 1,451 1,378 1,399 1,409 1,400 1,377 1,306 Share capital 0 0 0 0 0 0 0 Reserves and
21、 Surplus 323 601 943 2,694 3,307 3,984 852 Total Shareholders Equity 323 601 943 2,694 3,307 3,984 852 Minority Interest 0 0 0 0 0 0 0 Total Shareholders Equity 323 601 943 2,694 3,307 3,984 852 Total Liabilities and Equity 1,774 1,979 2,342 4,103 4,707 5,361 2,158 Source: Company data, J.P. Morgan
22、estimates. 26 Asia Pacific Equity Research 23 March 2010Leon Chik, CFA (852) 2800-8590 Table 13: PCKCash flow statement Rmb in millions, year-end December 2007 2008 2009E 2010E 2011E 2012E Jan to Aug 09 EBIT 144 384 503 627 754 822 378 Depreciation and Amortization 27 35 46 53 82 146 24 Working Cap
23、ital Changes (385) 31 (7) (263) (291) (264) (175) Interest Paid (46) (65) (45) (40) (37) (31) (29) Tax Paid 15 30 (43) (66) (85) (104) (48) Cash Flow From Operations (226) 415 454 311 423 569 151 Capital expenditures (139) (67) (290) (620) (260) (200) (139) Investments and others 3 (4) 0 0 0 0 116 C
24、ash Flow from Investing (136) (71) (290) (620) (260) (200) (23) Free Cash Flow (362) 344 164 (309) 163 369 128 Dividends 0 0 (25) (25) 0 0 (50) Other financing 0 0 0 1,250 0 0 0 Debt 402 (329) (20) (75) (100) (100) (21) Cash Flow from financing 402 (329) (45) 1,150 (100) 0 (71) Change in cash 39 15
25、119 841 63 269 57 Cash beginning 115 150 160 280 1,120 1,183 160 Foreign exchange changes (5) (5) 0 0 0 0 0 Cash at end 150 160 280 1,120 1,183 1,452 217 Source: Company data, J.P. Morgan estimates27 Asia Pacific Equity Research 23 March 2010Leon Chik, CFA (852) 2800-8590 Chu Kong Petroleum and Nat
26、ural Gas Steel Pipe Holdings: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY07 FY08 FY09E FY10E FY11E Rmb in millions, year end Dec FY07 FY08 FY09E FY10E FY11ERevenues 1,458 2,625 2,769 3,549 4,409 EBIT 144 384 503 627 754% change Y/Y 32.5% 80.0% 5.5% 28.
27、2% 24.2% Depr. and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures Lead or Co-manager: JPMSI or its affiliates acted as lead
28、 or co-manager in a public offering of equity and/or debt securities for Chu Kong Petroleum and Natural Gas Steel Pipe Holdings within the past 12 months. Client of the Firm: Chu Kong Petroleum and Natural Gas Steel Pipe Holdings is or was in the past 12 months a client of JPMSI; during the past 12
29、months, JPMSI provided to the company investment banking services. Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking services from Chu Kong Petroleum and Natural Gas Steel Pipe Holdings. Investment Banking (next 3 months):
30、 JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next three months from Chu Kong Petroleum and Natural Gas Steel Pipe Holdings. 02468Price(HK$)Feb10Feb10Feb10Mar10Mar10Mar10Chu Kong Petroleum and Natural Gas Steel Pipe Holdings (1938.
31、HK) Price ChartSource: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.This chart shows J.P. Morgans continuing coverage of this stock; the current analyst may or may not have covered itover the entire period.J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Under
32、weight.Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage un
33、iverse. Neutral Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe. Underweight Over the next six to twelve months, we expect this stock will underperform the average tota
34、l return of the stocks in the analysts (or the analysts teams) coverage universe. J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stocks expected total return is compared to the expected total return of the FTSE All Share Index, not to
35、 those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teams coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe. Coverage Univers
36、e: Leon Chik, CFA: China Shineway Pharmaceutical Group Limited (2877.HK), Concord Medical Services Holdings Limited (CCM), Kingboard Chemical (0148.HK), Kingboard Laminates (1888.HK), Lee our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating catego
37、ry. Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http:/ , or you can contact the analyst named on the front of this note or your J.P. Morgan represent
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