Gezhouba: Focus on Tibet's Xinjiang Hydropower Construction

The leading hydropower construction Gezhouba [12.17-0.33% shares] (600068) announced the 2010 annual report on April 1. The company's operating income last year was 36.584 billion yuan, an increase of 37.53% year-on-year, and net profit was 1.377 billion yuan, a year-on-year increase of 4.05%. The weighted average return on net assets was 14.07%, a decrease of nearly 10 percentage points. Although the company's performance was slightly lower than expected, many brokers still did not change their outlook for the company's future, and have maintained a positive rating.

Reorganization attracts imagination

Observing the company's performance data shows that although its main business has achieved good results, its net profit is not satisfactory. After reviewing the company’s annual report, the financial weekly reporter found that the gross profit rate of construction projects, which accounted for the largest proportion of the company's revenue, decreased by 1.22% year-on-year. Although other project revenues increased, the overall gross profit margin was dragged down by 0.64% to 5.21%. .

After reading the consolidated income statement carefully, we can see that in other projects, the company has generally maintained the same growth rate as the gross profit margin, or the relative change is relatively large, but the change value is insignificant compared with the operating income. However, investment returns are not included here. The company’s investment income in 2010 was 143 million yuan, compared with 416 million yuan in 2009. In addition, the income tax is relatively high. In 2010, the company's total profit increased by about 25% year-on-year, while value-added tax was nearly doubled in 2009. Li Pan, an analyst at Bank of China International, believes that this may be related to the reduction of tax-exempt overseas projects during the current period.

However, these have not changed the rumors of reorganization that have been circulating for a long time. On March 28th, Caijing Magazine disclosed that Gezhouba will merge with China Power [1.660.61%] Engineering Consultants Group Corporation (hereinafter referred to as CEC Engineering), and they will form a new group, China Power Construction Engineering Corporation. The restructuring plan was approved by the State Council before the Spring Festival. The new group is expected to be listed in mid-May. The strong combination of the design agency and the engineering construction company, plus the abundant cash flow in the hands of the CLP project, will bring benefits to Gezhouba. Guo Bo Securities analyst Qiu Bo also speculated in the research report that the merger and reorganization during the two years is a high probability event.

Wang Yawei, known for his reorganization of Shan Bo, has brought many funds from China’s Huaxia Holdings Co., Ltd. to tap into Gezhouba since the middle of last year. Among the top ten shareholders in the first quarter of last year, there were no China-based funds. However, by the end of last year, the fourth, fifth, and eighth of the top ten shareholders with unlimited sales conditions were China National Bank Bonanza [1.970. 61%] Mixed, Huaxia Broadband and China Advantage Growth are taking up, with 48,788,400 shares, 4,501,100 shares and 23,462,300 shares. Based on Gezhouba's closing price of 11.60 yuan last year, it holds a market value of over 1.3 billion yuan. In addition, among the top ten shareholders, there are new social security fund portfolios that hold 18 million shares.

Focus on Hydropower Construction in Remote Areas

Excluding restructuring expectations, the company's engineering construction, cement, civil explosion, hydropower, highways and other major plates have more detailed development plans.

First of all, for the engineering business, while consolidating the traditional hydropower market, the company is preparing to significantly increase the non-hydropower market share, seize the opportunities for continued prosperity of non-hydropower markets such as roads, railways, airports, port and shipping, civil engineering and civil engineering, and further increase international The breadth and depth of market development.

Secondly, for cement and civil explosive companies, the annual report disclosure companies are prepared to expand their business scale and enhance their research and development capabilities in the form of mergers and acquisitions. In terms of expressways, the company is trying to open the Sichuan Neigu Expressway within the year.

On the hydropower side, the Fukushima nuclear crisis is a good thing. The company believes that hydropower development is expected to usher in a new round of development opportunities during the “Twelfth Five-Year Plan” period compared with the prudent attitude of hydropower development in the previous phase. With the continuous improvement of the power transmission network system and improvement of traffic conditions, Tibet, Xinjiang, and other regions with relatively poor development conditions but abundant resources have become hot spots for hydropower investment. At present, the company is building a Simutas hydropower station in Xinjiang.

In addition, the annual report also announced the company's capital expenditure commitments this year. It will inject 1.8 billion yuan, 1.75 billion yuan and 1.222 billion yuan in three directions: highways, equity and equipment investment, and civil explosions and cement investment. The overall budget is roughly the same as in 2009.