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Yangtze Business Daily News● Yangtze Business Daily reporter Xu Jia

In the five years since state-owned assets took over Ningbo Construction Engineering (601789.SH), they have actively promoted asset integration.

On the evening of August 4, Ningbo Construction Engineering disclosed a restructuring plan. The listed company intends to purchase 100% of the equity of Ningbo Transportation Engineering Construction Group Co., Ltd. (hereinafter referred to as "Ningbo Transportation Engineering") and raise matching funds by issuing shares and paying cash.

The reporter of Yangtze Business Daily noticed that in this transaction, Ningbo Construction Engineering and Ningbo Communications Engineering are both subsidiaries of Ningbo Transportation Investment Group (hereinafter referred to as "Communication Investment Group"). After the completion of this transaction, Ningbo Communications Engineering will become a wholly-owned subsidiary of Ningbo Construction Engineering, realizing the collection and integration of the business areas of housing construction, municipal engineering and highway engineering under Communications Investment Group. Communications Investment Group fulfilled the commitment to resolve the competition in the same industry made when it took control of Ningbo Construction Engineering five years ago.

On the other hand, through horizontal mergers and acquisitions and restructuring, Ningbo Construction will not only achieve business integration and enhance the competitive advantage of the industrial chain, but its profitability will also be further improved.

Data shows that from 2022 to the first quarter of 2024, Ningbo Jiaogong achieved operating income of 5.627 billion yuan, 5.733 billion yuan, and 1.196 billion yuan, respectively, and net profits of 102 million yuan, 138 million yuan, and 31.1358 million yuan. As of the end of March 2024, Ningbo Jiaogong's total assets were approximately 10.187 billion yuan, total liabilities were 8.382 billion yuan, and total owner's equity was 1.805 billion yuan.

Jiaotong Group promotes asset integration

According to the transaction plan, Ningbo Construction intends to purchase 100% of the equity of Ningbo Jiaogong and raise supporting funds by issuing shares and paying cash. At present, the audit and evaluation of the target company have not been completed, and the valuation of the target assets and the transaction price have not yet been determined.

A reporter from the Yangtze Business Daily noted that this transaction is essentially an asset integration led by Ningbo state-owned assets, and is also a major measure taken by Ningbo Jiaotong Group to fulfill its public commitment to resolve competition among peers.

In October 2019, Jiaotong Group acquired 292 million unrestricted tradable shares of Ningbo Construction Engineering through an agreement, accounting for 29.92% of the total share capital of the listed company, becoming the controlling shareholder of the listed company, and Ningbo State-owned Assets Supervision and Administration Commission became the actual controller of the listed company.

At that time, in view of the fact that Ningbo Jiaogong and Luqiao Company, subsidiaries of Jiaotong Group, were engaged in construction engineering-related businesses, and there was horizontal competition between them and the main businesses of Ningbo Construction Engineering and its affiliated enterprises, Jiaotong Group promised to integrate some overlapping businesses between Ningbo Jiaogong, Luqiao Company and other companies and the listed company within five years from the date when the company acquired the control of Ningbo Construction Engineering. Before this transaction, Luqiao Company had become a wholly-owned subsidiary of Ningbo Jiaogong through equity transfer.

At present, Ningbo Jiaogong mainly engages in comprehensive transportation construction business, and has the qualifications of special-grade general contracting for highway engineering construction, first-grade general contracting for port and waterway engineering construction, and first-grade general contracting for municipal public works construction, etc. It is a leading transportation engineering construction enterprise in Zhejiang Province. At the same time, Ningbo Jiaogong has completed the industrialized production layout of transportation construction in Ningbo, laying a solid foundation for its construction of the "mutually driven and jointly developed" business model of transportation engineering construction and transportation construction industry.

Ningbo Construction's main business is the survey, design, construction and installation of housing construction projects, the design and construction of municipal roads and bridges, landscaping, building decoration and curtain walls, and the production and sales of ready-mixed commercial concrete, precast cement components, steel structures, and prefabricated buildings.

After the completion of this transaction, Ningbo Jiaogong will become a wholly-owned subsidiary of Ningbo Construction Engineering, realizing the collection and integration of the business areas of housing construction, municipal engineering and highway engineering under Jiaotong Group, which will be conducive to solving the problem of competition in the same industry. At the same time, the synergy advantages of both parties in terms of qualifications, technology, talents, etc. will be further enhanced, and the resource allocation within the industrial chain will be further optimized, which will effectively enhance the overall competitiveness and external influence of the listed company's industrial chain, thereby promoting the high-quality development of listed companies and improving their ability to resist risks.

Horizontal mergers and acquisitions to improve profitability

Through horizontal mergers and acquisitions and restructuring, Ningbo Construction will not only achieve business integration and enhance the competitive advantage of the industrial chain, but its profitability will also be further improved.

The Yangtze Business Daily reporter noted that after the change of ownership to Ningbo State-owned Assets, the profitability of Ningbo Construction's main business remained stable as a whole. From 2019 to 2023, Ningbo Construction achieved operating income of 18.555 billion yuan, 19.797 billion yuan, 21.32 billion yuan, 21.867 billion yuan, and 22.673 billion yuan, respectively, with year-on-year growth of 19.39%, 6.69%, 7.69%, 2.56%, and 3.69%; net profit of 240 million yuan, 280 million yuan, 416 million yuan, 349 million yuan, and 329 million yuan, with year-on-year growth of 9.44%, 16.36%, 48.7%, -16.15%, and -5.51%.

Among them, affected by non-recurring gains and losses caused by asset impairment reversal, Ningbo Construction's net profit fluctuated in 2022 and 2023.

During the above reporting period, Ningbo Construction's net profit after deducting non-recurring items was RMB 198 million, RMB 234 million, RMB 182 million, RMB 254 million and RMB 290 million, respectively, up 13.22%, 18.18%, -22.49%, 39.75% and 14.11% year-on-year. Among them, the company's net profit after deducting non-recurring items increased by 59.34% in 2022 and 2023.

In the first quarter of 2024, Ningbo Construction achieved operating income of 5.672 billion yuan, a year-on-year decrease of 0.43%; net profit and non-net profit were 84.3131 million yuan and 70.5859 million yuan respectively, a year-on-year decrease of 13.3% and 22.6%.

During the reporting period, Ningbo Construction and its subsidiaries signed 312 new contracts with a total contract value of approximately RMB 3.679 billion, an increase of 15.66% over the same period last year.

As the target of this transaction, Ningbo Jiaogong has strong operating strength. The restructuring plan shows that Ningbo Jiaogong has participated in the construction of a number of landmark major transportation infrastructure projects such as the Hangzhou Bay Bridge, Zhoushan Island Linking Project, Xiangshan Port Bridge, Jiashao Bridge, Ningbo Zhoushan Port, etc.; it has undertaken the maintenance of influential projects such as the Hong Kong-Zhuhai-Macao Bridge, Hangzhou Bay Bridge, Xiangshan Port Bridge, etc.; and completed the construction and management of large projects such as the Ningbo Ring Expressway and the Fenghua section of the S309 Provincial Road.

From 2022 to the first quarter of 2024, Ningbo Jiaogong achieved operating income of 5.627 billion yuan, 5.733 billion yuan, and 1.196 billion yuan, respectively, and net profits of 102 million yuan, 138 million yuan, and 31.1358 million yuan, respectively. The net profit attributable to the parent company's owners was 97.9168 million yuan, 128 million yuan, and 29.8335 million yuan, respectively.

As of the end of March 2024, Ningbo Jiaogong’s total assets were approximately RMB 10.187 billion, total liabilities were RMB 8.382 billion, and total owners’ equity was RMB 1.805 billion.

Ningbo Construction further stated that this transaction is in line with the requirements of layout optimization and restructuring and integration of state-owned enterprises, and is conducive to further improving the layout structure of Ningbo’s state-owned capital and optimizing the allocation and operation efficiency of state-owned assets and resources; it is also conducive to building the advantages of a comprehensive construction and construction industry chain, enhancing market competitiveness, and expanding the brand influence of Ningbo Construction, thereby enhancing the profitability of listed companies.