Recently, the State Council issued “Certain Opinions on Strengthening Supervision and Risk Prevention and Promoting High-Quality Development of the Capital Market” (“Nine Rules of the New Country” for short). The policy lays out arrangements for adhering to a high level of institutional openness and security in the integrated capital market, and expanding and optimizing the mechanism for cross-border connectivity in the capital market.
Under this guidance, the China Securities Regulatory Commission issued 5 measures on April 19, corresponding to specific arrangements for expanding and optimizing the cross-border interconnection mechanism in the capital market. Looking at the details, these include easing the scope of eligible products for stock ETFs under the Shanghai Shenzhen-Hong Kong Stock Connect, incorporating REITs into the Shanghai-Shenzhen-Hong Kong Stock Connect, supporting the integration of RMB stock trading counters into Hong Kong Stock Connect, optimizing mutual fund recognition arrangements, and supporting the listing of leading companies in the mainland industry in Hong Kong.
Industry insiders believe that the nine rules of the new country are more biased towards a long-term layout, while the impact of the five measures on the Hong Kong capital market is more rapid. Among them, the inclusion of REITs in the Shanghai-Shenzhen-Hong Kong Stock Connect has attracted much attention. According to relevant industry opinions, incorporating REITs into the investment targets of the Shanghai-Shenzhen-Hong Kong Stock Exchange is an effective way for the capital market to open up to the outside world. This move is conducive to promoting more overseas investors to enter the market, enhance the liquidity of the domestic market, explore suitable capital for the REITs secondary market, and thus enable the revitalization of stocks and the development of the real economy.
As a continuous infrastructure asset improver and service provider using asset securitization products such as REITs, Shoucheng Holdings (00697.HK) is expected to benefit from favorable policies and usher in new opportunities for development.
1. New opportunities for capital operation under the new policy
First, from a policy perspective, incorporating REITs into the Shanghai-Shenzhen-Hong Kong Stock Connect measure can accelerate capital market attention while expanding investors' effective portfolio boundaries.
The China Securities Regulatory Commission stated that it is intended to include eligible REITs from the Mainland and Hong Kong in the Shanghai, Shenzhen, and Hong Kong Stock Exchange Standard in general, based on the two countries' stock and ETF interconnection system arrangements, to further enrich the variety of Shanghai-Shenzhen-Hong Kong Stock Exchange transactions.
In fact, incorporating REITs into the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism has not only greatly enriched investment products in the financial markets of the two regions, but also brought investors a wider range of investment choices, and effectively met investors' needs for diversified investment. This made it easier for investors from the two places to allocate assets across borders, help them expand the boundaries of their portfolios, spread risk and pursue higher returns through a wider range of asset classes. At the same time, this measure has also strengthened connectivity between the Shanghai, Shenzhen and Hong Kong markets, enhanced the overall efficiency and international competitiveness of the market, and injected new vitality into regional economic integration and the collaborative development of financial markets.
As a state-owned enterprise, Shoucheng Holdings can further utilize its existing resource advantages, attract a wider range of investors, and increase the diversity of funding sources, with the support of strong shareholders' strength. This helps make it more attractive and competitive in the capital market. At the same time, as participation in the REITs market increases, its market vitality will also be further strengthened. Shoucheng Holdings can further unleash the integrated advantages of asset operation and asset financing and revitalize infrastructure assets.
Furthermore, the steady operation and good reputation of First Journey Holdings will also help achieve more efficient capital operation and gain wider market influence under the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism, and promote the further development of Shoucheng Holdings in the capital market.
2. Continue to give back to shareholders and highlight the undertone of steady management
Earlier, Shoucheng Holdings released its annual report. Judging from the data, the company's various performances are remarkable.
Specifically, on the one hand, the profit performance of the company's main business is good. In 2023, revenue for the full year was HK$883 million and net profit attributable to mother was HK$404 million. Excluding market fluctuations and the impact of Shougang Resources' dividend revenue contributions, the main business profit increased by more than 20% compared with 2022. Until the company officially makes adjustments in accordance with the “Guidelines for the Application of Regulatory Rules - Accounting Class No. 4”, the new capital market cooperation measures with Hong Kong will also have a favorable impact on the overall situation of the company.
On the other hand, the company's core capabilities in infrastructure asset management have been further demonstrated. During the period, the company's asset operating revenue was HK$658 million, asset financing revenue was HK$225 million, and operating service revenue reached HK$555 million, an increase of 43.44% over the same period last year.
Furthermore, the company's asset structure continues to maintain a healthy level. The company's monetary capital in 2023 was HK$4,014 billion, accounting for about 30% of total assets. During the year, Shoucheng Holdings repaid HK$448 million in overseas debt, leaving only HK$106 million to be repaid. The debt pressure is manageable. The company's interest-bearing debt was HK$793 million, a year-on-year decrease of 24%; the company's interest-bearing debt ratio was only 5.9%, a year-on-year decrease of 1.8 percentage points.
It is worth mentioning that the company gave back to investors in a big way. In 2023, on top of the announcement of an interim dividend of HK$243 million, it is further proposed to declare a final dividend of HK$161 million, for a total of HK$404 million. In other words, the company paid out up to 100% of net profit to mother as dividends, fully demonstrating the importance it attaches to investors.
The reason behind being able to pay dividends also stems from the fact that the company has a high level of confidence in future development, while its excellent business model and healthy cash flow also provide strong support.
Under the current favorable policy trend of REITs being incorporated into the Shanghai-Shenzhen-Hong Kong Stock Exchange Standard, Shoucheng Holdings' steady operating background and ability to pay dividends definitively has also given market investors a strong shot, helping the company gain market attention and popularity.
3. Conclusion
Looking forward to the future, in the context of national policies supporting the development of the REITs market, the first holding that has passed the new “asset financing+asset operation” model of “asset acquisition+operation efficiency+asset securitization+circular investment” has broad prospects for future growth. It is also expected to play a benchmark role in the interconnection of capital markets and become an important leader in market investment trends.