Shanghai Industrial Holdings's industrial investment has built a cash cow industry (infrastructure) as the basic market to develop emerging industries supported by green environmental protection and health policies as multiple engines, and diverse industries jointly drive performance growth.
The dividend rate is 30%, and the dividend rate is close to 10%. Shanghai Industrial Holdings (00363) handed over the 2023 performance report card to the market, and the stock price rose sharply.
On March 27, Shanghai Industrial Holdings announced its 2023 results, achieving turnover of HK$32.698 billion, up 4.3% year on year, net profit of shareholders of HK$3.424 billion, up 47.96% year on year, and net shareholder interest rate of 10.47%, up 3.09 percentage points year on year. In addition, the company plans to pay a final dividend of HK52 cents per share, with a total annual dividend of HK94 cents per share, with a dividend rate of 30% and a dividend rate of nearly 10%.
The Zhitong Finance App learned that Shanghai Industrial Holdings is Shangshi Group's largest overseas industrial investment holding platform, involving the fields of infrastructure, real estate, environmental protection, and health. Performance growth is steady. However, due to market liquidity and sector, the valuation is very low, and the PB value is only 0.24 times. Under undervaluation, boosted by increased performance and dividends, the company's stock price opened the next day and closed with a 9.17% increase.
In fact, in the context of the “dual carbon” policy, the company actively invests in industrial investment transformation, explores and explores investment opportunities in the green environmental protection and health sector, and continuously expands the scale of the industry through shareholding and acquisitions. The transformation has achieved remarkable results in recent years, contributing to performance growth, and the fundamentals are more solid.
Four major industrial sectors: profit levels have increased dramatically
The Zhitong Finance App learned that through holding and shareholding, Shanghai Industrial Holdings's layout includes the four major sectors of infrastructure, real estate, consumer goods, and big health. Among them, infrastructure is mainly road and bridge infrastructure and green environmental protection sectors. Consumer goods are mainly tobacco and printing, while Big Health holds shares in Shanghai Pharmaceutical through shareholding and is not included in the consolidated list, but profits are recorded through joint ventures.
In 2023, the company's revenue from infrastructure, real estate and consumer goods remained steady, with revenue shares of 31.8%, 58.4% and 9.8% respectively, and profitability increased across the board. During this period, the net profit of the three major business shareholders increased by 20.5%, 180.1% and 20.8%, respectively. Net interest rates were 22.32%, 4.4% and 11.71%, respectively. Another health recorded profit of HK$80 million in the form of shareholding. The profit contributions of the above four major sectors were 64.2%, 23.2%, 10.4%, and 2.2%, respectively.
In fact, by sorting through the industrial system of Shanghai Industrial Holdings, it is easy to find that infrastructure is its core cash flow business, maintaining a healthy profit margin level in previous years. The real estate business has benefited from industry recovery, but the weak market in the industry is mainly aimed at optimizing profits, and consumer goods look at overseas markets for tobacco. The most important thing is the company's industrial transformation direction, green environmental protection and big health, which will dominate its future growth space.
Specifically, the main attribute of infrastructure cash lies in road and bridge infrastructure projects, which can bring stable and long-term cash flow. The company holds 100% interest in the Beijing-Shanghai Expressway, the Shanghai-Kunming Expressway and the Shanghai-Chongqing Expressway (all on the Shanghai section), and holds a 23.06% interest in the Hangzhou Bay Bridge. Traffic traffic increased dramatically after the release of the epidemic in 2023. These four sections brought the company a total net profit of HK$1,454 billion, accounting for 62.65% of the business.
However, profits in the real estate business increased dramatically in 2023. On the one hand, Shangshi developed and optimized sales plans to ensure the removal efficiency of sales projects, and increased revenue and profit. Shangshi City adjusted the product structure to achieve a 21.6% year-on-year increase in shareholders' net profit, driven by products with high gross margins; on the other hand, under refined management, operational efficiency was improved, and overall costs were reduced. The two carriers are “defensive” development. Shangshi has 4 projects under construction, with an area of 412,300 square meters, and 12 projects under construction in Shangshi City, with an area of 2.499 million square meters.
In the consumer goods business, the core carrier is Nanyang Tobacco. In 2023, turnover and shareholders' net profit increased by 26.8% and 65.3% year-on-year respectively, accounting for 56.67% and 80.3% of the business (corresponding index) shares, respectively. Nanyang Tobacco is actively expanding the international market. The Malaysian branch was officially put into operation in 2023. It is Nanyang Tobacco's first step in “production and marketing implementation” of Nanyang Tobacco's overseas factory. Cooperation between the company and large cigarette companies complements each other's advantages, bringing expectations to the release of performance.
Green environmental protection and big health are the transformation direction of Shanghai Industrial Holdings's industrial investment strategy. In the context of “double carbon,” clean energy and environmental protection are all industries that the country needs to develop. The development prospects for the next few decades are measured in 2050, and the market space is huge. At the same time, the big health industry is developing rapidly. Under the guidance of the “Healthy China 2030” Plan Outline, it is planned that the total scale of the health service industry will reach 16 trillion yuan by 2030, and the industry will enter a six-year sprint cycle.
Transformation of emerging industries: Laying out green, environmentally friendly and healthy
First, let's look at the green environmental protection industry. Shanghai Industrial Holdings's green environmental protection business includes sewage treatment water services, waste incineration/solid waste power generation, and clean energy businesses such as photovoltaics and wind power. In terms of water, the company holds 49.25% of Shangshi Environmental's shares and 45% of Zhonghuan Water's shares. Among them, Shangshi Environmental remained in the first tier in China's water and environmental protection industry. In 2023, the water treatment capacity exceeded 13.16 million tons per day, plus Central Water Services reached a total of 19.69 million tons.
Sewage treatment is an “environmentally friendly” route and has received policy support, but the market rules are good. The company is actively expanding overseas and opening up space. The commissioned operation project at the Taipa Sewage Treatment Plant in Macau in 2023 was the first sewage treatment project obtained overseas, thereby expanding its business map in the Guangdong-Hong Kong-Macao Greater Bay Area. At the same time, the company is actively promoting solid waste, sludge and related business exploration, and its solid waste benchmark project, the Baoshan project, has entered commercial operation.
In terms of clean energy, Shanghai Industrial Holdings holds 19.48% of Yuefeng Environmental Protection's shares and 14.14% of Kangheng Environmental's shares. The main business is waste incineration and power generation. Among them, Yuefeng Environmental Protection's business covers 12 provinces and 26 cities. The project processing scale reached 5,4540 tons/day, and the operating scale reached 4,3690 tons/day. Waste treatment and power generation capacity all showed a double-digit growth trend.
In October 2023, the company subscribed to Yuefeng Environmental Convertible Bonds for HK$1,637 billion to increase its shareholding ratio, mainly to promote close cooperation between its solid waste business and Yuefeng Environmental Protection in an attempt to further become a major solid waste integration platform and build an industrial consortium with the strongest scale, leading technical advantages and the highest operational efficiency in China's waste incineration industry. Due to the advantages of resource integration, solid waste treatment and power generation have also become key areas for the company's development.
In addition, the company is vigorously promoting the construction of photovoltaic and wind power projects. Its subsidiary, Galaxy Digital and Galaxy Energy, which owns 740 megawatts of photovoltaic power plant assets, covers various provinces such as Gansu, Qinghai, Xinjiang, and Shandong. The 15 photovoltaic power plants it operates have completed 1,081 billion kilowatt-hours of feed-in electricity. The company is also expanding other green energy and energy storage projects, saying it will increase industrial investment in the wind power sector in the future and explore investment opportunities in offshore wind power.
Next is the big health industry. In November 2022, Shanghai Industrial Holdings completed the acquisition of Shanghai Pharmaceutical and held 19.348% of A-shares, making it the single largest A-share shareholder. The revenue scale of Shanghai Pharmaceutical reached 255.173 billion yuan in 2023. It is a leading enterprise in the proper industry with the pharmaceutical industry and pharmaceutical business. It is a leading enterprise in the proper industry, involving many in the pharmaceutical field, and is an important vehicle for the company's health layout.
The company said at the investor conference that it will increase its investment in the health sector, not ruling out continuing to increase its holdings of Shanghai pharmaceuticals, and at the same time seek high-quality targets and potential investment opportunities to expand the scale of investment in the industry. In fact, the industrial investment style of Shanghai Industrial Holdings, whether it is clean energy or big health, is based on anchoring industry leaders, and most of them are listed companies with a certain scale, because target companies can also obtain capital for industrial expansion through listed platforms. The health industry is the core transformation direction of Shanghai Industrial Holdings, and future performance releases should not be underestimated.
Sustained performance: undervalued and high dividends are favored
Overall, Shanghai Industrial Holdings's industrial investment has built a cash cow industry (infrastructure) as the basic market to develop emerging industries supported by green environmental protection and health policies as multiple engines. Diversified industries jointly drive performance growth. In fact, the company not only performed well in 2023. If the cycle is extended, judging from the performance trajectory of the past 20 years, although there were fluctuations in the middle, it maintained a strong trend of strong performance.
In 2003-2023, the company's revenue grew from HK$2,826 million to HK$32.698 billion, with a compound growth rate of 13%, and shareholders' net profit from HK$451 million to HK$3,424 million, a compound growth rate of 11%. The company continued through the economic cycle and achieved everlasting performance. The company actively gives back to shareholders. According to Oriental Choice data, it has accumulated 50 dividends since 1998, which is equivalent to two annual dividends, with a cumulative dividend of HK$25.618 billion, with an average dividend ratio of 21%.
How can Shanghai Industrial Holdings achieve everlasting performance and year-round dividends? In fact, the company has always adhered to a long-term development path, unswervingly transforming and upgrading towards ESG (environmental, social and governance) values, deepening the integration of finance and production to ensure the stable operation and development of various core businesses. Of course, the company's industrial investment strategy is biased towards prudence, actively exploiting policy opportunities, and has also driven the development of its industries.
Overall, Shanghai Industrial Holdings is indeed a good investment target. The industrial investment logic is clear, the performance is strong throughout the economic cycle, the fundamentals are strong, the dividend payout rate is stable all year round, and the valuation is also very low. The PB is less than 0.3 times, making the dividend ratio close to 10%. It is not easy to find such targets in the Hong Kong stock market. Furthermore, ESG is currently the mainstream of investment under the theme of sustainable development, and the company's outstanding performance is expected to be favored by capital.