May 18, 2016
Disclaimer: The opinions expressed herein are that of HSC Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities
- CII AGM yields few surprises.
- Company forecasts 36% y/y growth in the bottom line this year.
- Reducing CII B&R holding to 49% to record gain on exchangeable bond.
- HSC forecasts bottom line growth of 34% for FY2016, giving us fully diluted EPS of VND3,097.
- At the current price, this stock is trading at reasonable forward diluted P/E of 7.8xs and forward P/B of 1.3xs.
- Reiterate BUY.
CII AGM yields few surprises. Decent growth prospects this year. Reiterate BUY.
Company forecasts 36% y/y growth in the bottom line this year – The company set a total revenue target of VND3,020 billion (-2% y/y), consisting of financial income, other income and internal revenue from CII E&C which would be eliminated from consolidated revenue. Meanwhile, they set a NPATMI target of VND847 billion (+36% y/y) of which a half will come from the gain on exchangeable bond issued to MPTC last year after these bonds are converted in Q1 and Q3, FY2016.
By division, CII B&R set a total revenue target (including financial income & other income) of VND630.7 billion (-39.7% y/y) and PBT of VND352.8 billion (-20% y/y). CII B&R’s revenue & earnings is expected to decline compared to last year as one-off gains from negative goodwill will drop out. However, revenue from toll fee collection will increase by 89% y/y to VND293.5 billion as Phan Rang – Thap Cham phase 2 comes into operation plus the full-year consolidation of the DT741 station. Currently, CII B&R owns 3 operating toll fee stations including Phan Rang – Thap Cham (a 100% stake), DT741 highway (a 100% stake) and Rach Mieu bridge (a 49.75% stake).
CII E&C targets FY2016 total revenue of VND1,557.5 billion (+31.1% y/y) and PBT of VND133.1 billion (+11.3% y/y) given the current backlog and project pipeline. CII E&C currently executes projects for CII Group such as Ha Noi highway expansion, Trung Luong – My Thuan express way and infrastructure for the Thu Thiem project.
CII Water set a total revenue target of VND1,004 billion (+64.5% y/y) and PBT of VND66.2 billion (-64% y/y) as the Cu Chi water distribution network and Tan Hiep 2 water plant will be put into operation in Q1, FY2016. CII Service plans a revenue target of VND67.4 billion (+13% y/y) and PBT of VND8.2 billion (-8% y/y).
CII service is currently in charge of toll fee collection and road maintaining services for Ha Noi highway station and Phan Rang – Thap Cham station.
Reducing CII B&R holding to 49% to record gain on exchangeable bond – At the AGM, CII won shareholders’ approval for reduce their holding in CII B&R to 49% in FY2016 to recognize a gain of VND424 billion from the exchangeable bond issued to MPTC last year. As we mentioned in our previous notes that CII issued VND1,020 billion worth of exchangeable bond to MPTC and these bonds can be exchanged for CII B&R shares at an price of VND18,000 per share after 1 year. Currently, CII holds a 81.5% stake in CII B&R however after MPTC converts all VND1,020 billion worth of bond into 56.67 million shares of CII B&R in Q1 and Q3, FY2016, CII will reduce their holding to a 52.13% stake or 100.5 million shares of CII B&R.
According to Circular 202, such a gain may be recorded in the BS as retained earnings instead of in the P&L as CII B&R is still CII’s subsidiary post transaction. Therefore, CII plans to temporarily reduce their holding in CII B&R to 49% and record this gain in the P&L.
20% dividend for FY2016 – CII already paid cash dividend of 16% per par value for FY2015 and for FY2016, the company plans to pay a dividend of 20% per par value, maybe in cash or stock.
Capital requirement of VND6,000 billion for FY2016 – The company will need around VND6,000 billion to fund their projects such as BOT Hanoi highway expansion, BT Thu Thiem project, BOT Trung Luong – My Thuan expressway and BOT No.60 highway expansion. CII plans to issue around VND700 billion worth of bonds with a liquidity guarantee from a bank in Q2, FY2016. Meanwhile, CII B&R also plans to issue around VND1,000 billion worth of bonds with a warrant that allows bondholders to buy stock at the price 20% higher than the market price. These 7-year bonds offer a coupon rate equivalent to deposit rate plus 4.5%.
According to CII, they will not participate in new BOT projects due to fierce competition from other investors. However, they will consider buying efficient existing projects from SOEs or construction companies which will help to improve the average IRRs.
HSC forecasts bottom line growth of 34% for FY2016 – Due to the effect of a reduced CII B&R stake on consolidated results, we revise down our sales forecast from VND2,281 billion (+30% y/y) to VND1,831 billion (+5% y/y) and trim our NPATMI forecast from VND845 billion (+34.6% y/y) to VND837 billion (+34% y/y). Therefore, we estimate FY2016 fully diluted EPS of VND3,097 and at the current price, this stock is trading at reasonable forward diluted P/E of 7.8xs and forward P/B of 1.3xs.
Investment thesis – Reiterate BUY. Given CII’s best of breed status for key infrastructure segments such as road; bridge and water around the HCMC area and into neighboring provinces, CII is a very attractive way to play into the growth theme. Some of the payment will be made in land banks which offer the potential of a further income stream in the form of real estate development and may also offer them a new source of finance in the form of land sales. The holding group structure which is almost fully setup allows CII to take full advantage of the various expected opportunities. Potential diluted is already priced in. Although the FOL is full at the moment.
SOME KEY PROJECTS