• RE-ITERATE BUY Entry 2.15 – Target – 2.50 Stop Loss – 2.00
  • Metallurgical Corporation of China Ltd. is a China-based company principally engaged in the engineering construction related businesses. The Company’s businesses mainly include the engineering contracting, real estate development, resources development and equipment manufacturing. The Company’s engineering contracting businesses mainly include the metallurgical engineering, municipal engineering, transportation facilities and urban infrastructure construction, among others. Its real estate development businesses mainly include the development and construction of commercial and residential real estates. Its resource development businesses mainly include the mining and processing of iron, copper, nickel, lead and zinc, among others. Its equipment manufacturing businesses mainly include the manufacturing of metallurgical equipments and steel structures. 
  • Infrastructure expansion to bail out the weak economy.  China’s Caixin general manufacturing PMI dropped to a 25-month low of 48.1 in March, and the Caixin general services PMI also plunged to a 25-month low of 42.0. The surge in covid cases and ensuing lockdowns of cities resulted in the economic contraction. Meanwhile, domestic consumption hardly recovers in the near term given the weak consumer confidence. The growth of international trade is expected to slow down as well, as Southeast Aisa countries gradually reopen, regaining some market shares of low-end manufacturing from China. Therefore, to revive the growth in the economy in the near term, the authority will probably resort to the old measure, infrastructure expansion. According to Bloomberg, the central government requested local government to draw up lists of projects. The planned investment in 2022 is expected to amount to at least RMB14.8tn. 
  • FY21 annual results review. Operating revenue grew by 25.1% YoY to RMB500.6bn. Net profit attributable to shareholders of the company grew by 6.5% YoY to RMB8.4bn. The value of newly signed contracts reached another record high of RMB1.2tn, up 18.2% YoY. 
  • The updated market consensus of the EPS growth in FY22/23 is 32.9%/10.8% YoY, respectively, translating to 3.8×/3.5x forward PE. The current PER is 4.9x. FY22F/23F dividend yield is 5.3%/5.6%. Bloomberg consensus average 12-month target price is HK$2.94.

Metallurgical Corporation of China Ltd. (1618 HK) (Source: Bloomberg)