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The dividend payout ratio hit a record high.

Author | Fusu

Editor | Xiaobai

The best performing industries in Hong Kong stocks this year are raw materials and energy.

Looking at the constituent stocks of the Hang Seng Composite Index (“HSI”), from the beginning of this year to the end of May, the increases in raw materials and energy were 44.0% and 43.8% respectively, which were almost the same.

(Source: Hang Seng Index Company)

In the medium to long term, energy stocks have outperformed, with an annualized return of 26% over the past three years, ranking first among all industries and better than the Hang Seng Index's annualized return of -14.7%.

(Source: Hang Seng Index Company)

It is worth mentioning that energy stocks are often high-dividend stocks in the Hong Kong stock market.

According to current policies, the dividend tax rate for mainland individual investors investing in Hong Kong Stock Connect is usually 20%, and for some red chip stocks it is 28%. When red chip companies distribute dividends, they also need to pay 10% corporate income tax.

Those who follow Hong Kong stocks probably know that in May this year, there were rumors in the market that the 20% dividend tax for Hong Kong Stock Connect might be reduced.

If the above policies are implemented, high-dividend red chip stocks that are no longer "double-taxed" will directly benefit.

To sum up, considering the market and policy factors, it is time to focus on those companies with high performance certainty and continuous dividend payments.

Today, Fengyunjun would like to introduce a Hong Kong-listed company in the energy industry - CIMC Enric (03899.HK, “the Company”).

The third largest business of CIMC01Energy, Chemical and Food Equipment

CIMC Enric was established in 2004, listed on the Growth Enterprise Market of the Hong Kong Stock Exchange in 2005, transferred to the Main Board in 2006, and was included in the Hang Seng Index Energy Constituent Stocks in 2012.

The Company is a member of CIMC Group (02039.HK, 000039.SZ, “the Group”).

The Group is a well-known supplier of logistics equipment and energy equipment, and a leader in the global container manufacturing industry, ranking first in container production and sales since 1996.

The group's equity is relatively dispersed, with no controlling shareholder or actual controller. The largest shareholder is the municipal state-owned Shenzhen Capital Group, which holds 9.74% of the shares.

(Group equity structure, source: Market Capitalization App)

Currently, the group has a total of 4 listed companies, including the group itself, the company, CIMC Vehicles (301039.SZ), and CIMC Environment Technology (301559.SZ).

(Source: Market Capitalization APP)

As of the end of 2023, the Group holds 67.60% of the company's shares and is the controlling shareholder. The company has no other major shareholder holding more than 5%.

(Company equity structure, source: Oriental Fortune Choice)

CIMC Environmental Technology was spun off by the company and listed on the Shenzhen Stock Exchange's Growth Enterprise Market in October 2023. After the spin-off, the company holds a 76.50% stake and continues to be consolidated in the company and the group.

(CIMC Environmental Technology's equity structure, source: Market Capitalization App)

The Group's business is diversified, covering container manufacturing, road transport vehicles, energy, chemical and food equipment, marine engineering, logistics services, airport equipment, etc.

(Group revenue classification, source: Market Capitalization App)

The company is positioned in the group as the "Energy, Chemical and Food Equipment Sector", that is, based on the clean energy, chemical environment and liquid food industries, providing customers with key equipment, engineering services and system solutions for transportation, storage and processing.

(Source: Group official website)

More intuitively:

The Group's third largest business, "Energy, Chemical and Liquid Food Equipment", had revenue of 25 billion yuan and a net profit of 850 million yuan; the company's revenue was 23.6 billion yuan and its net profit was 1.16 billion yuan, accounting for 94% and 136% of the Group's business respectively. The company's contribution to the Group's revenue was 18%, second only to the Group's largest business, "Container Manufacturing", which had 24%, and the Group's second largest business, "Road Transport Vehicles", which was dominated by CIMC Vehicles, which had 20%.

(Source: Group 2023 Annual Report)

02Business expansion through acquisitions

Having said that, the company is not the "biological child" of the group.

The company went public in 2006 under the name "Enric Energy Equipment Holdings Co., Ltd.". At that time, it was a domestic manufacturer of special gas equipment, and its controlling shareholder was Hebei private enterprise Xin Ao Group.

In 2007, the Group acquired the company for HK$1.1 billion and renamed it "CIMC Enric" in 2009.

By the way, the company's former owner, ENN Group, currently still has four listed companies under its umbrella, namely ENN Energy (02688.HK), ENN Shares (600803.SH), ST Zhizhi (603869.SH), and Tibet Tourism (600749.SH).

(Source: Market Capitalization APP)

After the company was listed as a group, it embarked on a business layout journey of “crazy buying”.

In 2008, it acquired Jingmen Hongtu and entered the field of LNG (liquefied natural gas), LPG (liquefied petroleum gas), and CNG (compressed natural gas) storage and transportation equipment; in 2011, it acquired Nanjing Yangzi Institute to continue to improve its layout in the fields of energy and chemical storage; in 2012, it acquired the German veteran company Ziemann to enhance its engineering general contracting capabilities in the liquid food field; in 2015, it acquired Sichuan Jinke Deep Refrigeration and Liaoning Hashenleng to enter the field of natural gas processing; in 2019, it acquired DME, a North American craft beer engineering design and equipment manufacturer, to enter the craft beer field.

However, the company's goodwill level is relatively low. As of the end of 2023, goodwill was HK$290 million, accounting for 2.4% of net assets, and the proportion has been declining as the size of net assets has increased.

(Chart: Market Capitalization App)

According to the disclosure, the company ranks among the top in many segments:

The company ranks first in domestic market share for LNG cryogenic tank containers, cryogenic liquid transport semi-trailers, and medium-pressure gas tank trucks; the production and sales volume of high-pressure long tube trailers ranks first in the world; it accounts for more than 70% of the market share of China's cryogenic engineering storage tank design; the production and sales volume of ISO tank containers ranks first in the world.

Core business enters a high-growth period

Over the past 10 years, the company's revenue has fluctuated, and has been in a high-growth range in the past three years.

From 2021 to 2023, the company's revenue increased from 18.4 billion yuan to 23.6 billion yuan, with the growth rates in 2021 and 2023 being relatively high, increasing by 50% and 21% year-on-year respectively.

(Chart: Market Capitalization App)

The company's business is to sell transportation, storage and processing equipment to customers in three industries: energy, chemicals and liquid food.

Among them, clean energy business has always been the core, contributing more than half of the revenue; the revenue contributions of chemical environment business and liquid food business are comparable.

In 2023, clean energy, chemical environment, and liquid food will account for 63%, 19%, and 18% of revenue respectively.

(Chart: Market Capitalization App)

01Clean energy: outperforming the industry as a whole

The company's clean energy business mainly provides key equipment and engineering services for the natural gas industry chain, covering upstream production and processing, midstream storage and transportation, and downstream terminal applications.

(Source: Company's 2023 Annual Report)

It is worth noting that the company has also laid out the hydrogen energy industry chain, but the revenue scale is still relatively small.

In 2023, the company's hydrogen energy business revenue will reach 700 million yuan, a year-on-year increase of 59%. In contrast, the entire clean energy business, including hydrogen energy, has long had a revenue scale of more than 10 billion yuan.

(Source: Group 2023 Annual Report)

Natural gas includes LNG, LPG, CNG, etc., with LNG being the dominant one.

In terms of LNG, the company mainly provides water transport vehicles, such as small and medium-sized LNG transport ships and LNG bunkering ships; as well as LNG peak-shaving storage tanks, LNG tank containers, LNG vehicle bottles, etc. that are compatible with land transport vehicles.

For the industry in which the company operates, apparent natural gas consumption and import volumes are important indicators of business climate.

The first indicator is easy to understand. As for the second indicator, the reason is that when the international natural gas price goes down, the domestic natural gas import volume will increase significantly, which will drive the demand for natural gas storage and transportation equipment.

From the perspective of the natural gas industry:

In 2021, my country's industrial and manufacturing industries have recovered well. In addition, the process of "coal to gas" has accelerated under the background of carbon neutrality. Both domestic natural gas apparent consumption and imports have seen the highest growth rate during the epidemic. In 2022, due to the combination of strict domestic epidemic prevention and control measures and high international gas prices, domestic natural gas apparent consumption fell by 1.7% year-on-year, the first decline in the past 20 years; imports fell by 9.9% year-on-year, the first decline in the past 7 years. In 2023, as the epidemic ends and the economy recovers, domestic natural gas consumption and imports will both resume positive growth.

(Source: Polaris Energy Network)

The company's revenue change trend is in line with the natural gas market, but the specific growth rate is better than the industry as a whole.

From 2021 to 2023, the company's revenue increased from 11.2 billion yuan to 14.9 billion yuan overall, with a year-on-year decrease of 6% in 2022, and year-on-year increases of 60% and 41% in 2021 and 2023 respectively.

(Chart: Market Capitalization App)

The number of orders in hand is a more intuitive leading indicator. By the end of 2023, the company's clean energy business orders will be 16.6 billion yuan, a year-on-year increase of 53%, with both the absolute amount and growth rate reaching a record high.

(Chart: Market Capitalization App)

According to the group's disclosure, among the orders in hand, 9.6 billion yuan, or 58% of the corresponding amount, comes from clean water energy, namely the sales of LNG ships.

(Source: Group 2023 Annual Report)

It was disclosed that this part of the orders was mainly driven by the decarbonization of the global shipping industry.In Fengyunjun’s opinion, decarbonization of the shipping industry is also a trend with high certainty in the medium and long term.

According to the targets set by the International Maritime Organization (IMO) as early as 2008, the global shipping industry's carbon dioxide emissions should reach a target of a 40% reduction by 2030 and a 70% reduction by 2050.

According to Clarksons Research data, in 2023, the tonnage of newly built ships worldwide using clean energy will account for 45%, of which LNG will still be the alternative fuel with the largest share.

02Chemical environment: at a cyclical low

The company's chemical and environmental business mainly manufactures and sells tank containers for storing and transporting industrial chemicals, and provides after-market services such as maintenance, cleaning, and refurbishment.

China is the world's largest producer and consumer of chemicals. Tank containers play an important role in the storage and transportation of liquid, gaseous and powdered goods, especially in the multimodal transport of hazardous chemicals.

This business is CIMC Environment Technology, which is listed on the Shenzhen Stock Exchange's Growth Enterprise Market and is the global leader in tank containers.

At present, CIMC Environmental Technology ranks 1488th on the Market Capitalization Storm App, which is not outstanding, and its latest ranking has dropped significantly from 567th in 2023.

(Source: Market Capitalization App)

In recent years, the revenue of this business has fluctuated greatly, with a year-on-year decrease of 39% in 2020 and a year-on-year increase of 88% in 2021. Since then, the growth has slowed significantly.

In 2023, the business had revenue of 4.5 billion yuan, down 16% year-on-year, and was the only business with negative growth.

(Chart: Market Capitalization App)

As one of the sub-products of the container industry, the performance of tank container business is highly similar to that of the Group.

In 2021, the Group achieved outstanding performance, with both revenue and net profit reaching record highs of 163.7 billion yuan and 6.7 billion yuan respectively.

(Group performance, source: Market Capitalization App)

The reason can be traced back to the early stage of the outbreak in 2020. The shipping supply chain was severely disrupted, the container turnover rate dropped sharply, and "it's hard to get a container" became the norm throughout the year.

In 2021, the Group made every effort to increase production at a time when there was a global shortage of containers, helping China to "stabilize foreign trade" and ensure demand for export containers. The production and sales volume of containers reached the highest level in the same period in history.

In 2022, as port and supply chain congestion gradually improves, the container industry begins to return to normal. In 2023, the global economic slowdown directly hits shipping demand, and containers face redundancy.

From the current perspective, the business has not yet emerged from the cyclical trough. According to disclosures, in the first quarter of 2024, the business revenue was 560 million yuan, a further year-on-year decline of 59%.

(Source: Company's first quarter announcement for 2024)

03Liquid food: relatively stable

The company's liquid food equipment business mainly provides turn-key services for the liquid food industry, including beer.

Turnkey is a contracting model in engineering construction.

Compared with the more familiar EPC model, the contractor's responsibilities in the turnkey model are more comprehensive. The owner rarely intervenes in the construction process and only needs to wait for the contractor to "hand over" the "key" to him in full according to the contract before starting to operate the project.

The company's layout of this business started with the injection of assets from the group and then expanded through external mergers and acquisitions.

In 2007, the Group acquired Holvrieka, a world-renowned beer brewing turnkey engineering brand, and then injected it into the Company; in 2012, the Company acquired Ziemann, a German beer turnkey engineering brand; in 2019, the Company acquired DME, a North American craft beer engineering design and equipment manufacturer.

Compared with the first two businesses, which are significantly affected by industry cycles, the revenue growth rate of this business is relatively stable, with revenue of 4.3 billion yuan in 2023, a year-on-year increase of 19%, and a CAGR of 15% in the past five years.

(Chart: Market Capitalization App)

Entering a high dividend period01Dividend payout rate hits new high

Looking at the past 10 years, the company's overall gross profit margin has shown a downward trend, and has fluctuated greatly in the past three years.

In 2023, the overall gross profit margin was 15.7%, down 1.7 percentage points from the same period last year and down 3.1 percentage points from 2014.

(Chart: Market Capitalization App)

The main reason is that the core clean energy business has increased its revenue share, and the overall gross profit margin has declined. Clean energy has always been the company's business with the lowest gross profit margin, and the gross profit margin gap with the other two businesses is large.

Taking 2023 as an example, the gross profit margins of clean energy, chemical environment, and liquid food are 12.8%, 21.0%, and 20.7%, respectively.

From a long-term perspective, the company's main period expense rates are generally well controlled.

In 2023, the company's administrative expense ratio was 8.3%, up 1.1 percentage points from 2014; in the same year, the sales expense ratio was 2.0%, down 0.8 percentage points from 2014.

(Chart: Market Capitalization App)

The company has a history of consistent profitability.

In 2023, the company's net profit was 1.16 billion yuan, corresponding to a net profit margin of 4.9%, a decrease of 4.3 percentage points from 9.2% in 2014, mainly due to a decline in gross profit margin.

(Chart: Market Capitalization App)

In addition, the company suffered its only net loss in nearly 10 years in 2016, which was due to the impact of large provisions made due to the termination of the acquisition of Nantong Pacific that year and had nothing to do with the operating level.

The company spans two cyclical industries, energy and chemicals, and its dividends also show certain cyclical characteristics, that is, more dividends when performance is good and less dividends when performance is poor.

According to statistics, the company has distributed dividends 12 times since 2011, with the exception of 2016, when it suffered a net loss, when it did not distribute dividends.The cumulative cash dividends amounted to HK$11.5 billion, accounting for 32% of the net profit in the same period.

(Source: Oriental Fortune Choice)

In recent years, as the company's core energy business has entered a period of high prosperity, dividends have increased significantly.

In 2023, the company's dividend payout ratio was 49%, a new high, compared with 38% and 41% in 2021 and 2022, respectively.

(Source: Oriental Fortune Choice)

02ROE ranks first in the group

As of the end of 2023, the company had cash and cash equivalents of RMB 7 billion on its books, plus RMB 1.2 billion in time and restricted bank deposits. After deducting RMB 480 million in bank loans and RMB 1.45 billion in convertible bonds, there was still approximately RMB 6.3 billion in net cash.

As of the end of June 2024, the company's market value is HK$16 billion, corresponding to approximately RMB 14.9 billion, which means that more than 40% of the market value is cash, and the safety cushion is not low.

The company's ROE in 2023 is 9.4%, showing a slight decline since 2018, but still higher than the group's 1.4%, as well as other listed companies of LNG storage, transportation and terminal application equipment, such as Zhiyuan New Energy (300985.SZ)'s 4.6%, Houpu Co., Ltd. (300471.SZ)'s -7.6%, and Jingcheng Co., Ltd. (600860.SH)'s -6.1%.

(Chart: Market Capitalization App)

In addition, the company's ROE has been relatively stable over a long period of time, unlike Zhiyuan New Energy, which has experienced great ups and downs, and is also better than Houpu Shares and Jingcheng Shares, which have suffered net losses for many years.

(Source: Market Capitalization App)

The company's current PB is 1.29, which has declined since the second half of 2021.

(Source: Oriental Fortune Choice)

In Fengyunjun’s opinion, the company can be regarded as a high-quality Hong Kong stock target.

The company's core business of clean energy has entered a period of high prosperity in recent years and is expected to continue. The performance of the second largest chemical environment business is not as good, but it is mainly affected by the cyclical effects of the shipping and container industries, so there is no need to be too harsh.

In addition, if the rumored favorable policies are implemented, the company as a high-dividend red chip stock will also benefit.

Disclaimer:This report (article) is an independent third-party research based on the public company attributes of listed companies and the information disclosed by listed companies in accordance with their legal obligations (including but not limited to interim announcements, regular reports and official interactive platforms, etc.). Market Capitalization strives to be objective and fair in the content and views contained in the report (article), but does not guarantee its accuracy, completeness, timeliness, etc. The information or opinions expressed in this report (article) do not constitute any investment advice, and Market Capitalization shall not bear any responsibility for any actions taken as a result of using this report.

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