2024-09-18
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author: eastland
header image｜visual china
on september 3, 2024, china shipbuilding (SH：600150）、china heavy industry（SH：601989) and issued the "announcement on suspension of trading for planning major asset restructuring". after the completion of the restructuring, the surviving listed company remained the world's number one shipbuilding company, with the largest asset size, revenue and number of orders on hand leading the world.#shipbuilding aircraft carrier#
on september 6, guotai junan securities (SH：601211) announced that it would absorb and merge with haitong securities (SH：600837). after the reorganization, the total assets and net assets of the surviving listed companies were 1.68 trillion and 330.2 billion respectively, both ranking first in the industry.#securities aircraft carrier#
on september 7, salt lake co., ltd.SZ：000792) announced that the actual controller will be changed from qinghai provincial state-owned assets supervision and administration commission to china minmetals. the established china salt lake will become a world-class salt lake industrial base.#salt lake aircraft carrier#
faced with a major change that has not happened in a century, central state-owned enterprises are bound to adjust their layout. at the end of 2023, wang hongzhi, deputy director of the state-owned assets supervision and administration commission, proposed four threads: horizontal merger, vertical integration, innovation and internal coordination.
2024 is the crucial year for the sasac's "soe reform deepening and enhancement action" (2023-2025). the capital market will see mergers, reorganizations, and peaks, and "chinese magic ships" and "chinese magic lakes" will emerge one after another.
new energy is the focus of this round of restructuring.SH：601669.SH）、china energy construction（SH：601868) is also a heavyweight player in this field, with main businesses covering thermal power, hydropower, new energy and pumped storage.
highly similar background
the parent companies of the two listed companies, china power construction group and china energy engineering group, are both listed among the 98 central enterprises in the industrial sector and were both established in september 2011. the former focuses on water conservancy/hydropower and is good at "understanding water and electricity"; the latter has strong strength in thermal power, hydropower and nuclear power.
according to the "top 500 chinese enterprises 2024" list released on september 11, china power construction group had a revenue of 686.9 billion yuan, ranking 32nd, and china energy engineering group had a revenue of 408.5 billion yuan, ranking 63rd.
in 2011, powerchina was listed on the shanghai stock exchange with the stock code 601669. #capital operation in one step#
china energy engineering's capital operation is relatively tortuous:
in december 2015, nengjian shares were listed on the hong kong stock exchange with the code 3996;
in 2021, gezhouba (SH：600068) implemented an "absorption merger" with its parent company energy construction co., ltd. on september 13, gezhouba's shares were delisted, and the surviving listed company was renamed china energy construction, with the code 601868.
the scale of nengjian is roughly equivalent to 60% of power construction:
2021 (the year of completion of the merger), china energy construction's revenue was 322.3 billion, equivalent to 57.3% of power construction's;
in 2022, china energy engineering corporation's revenue will be 366.4 billion yuan, equivalent to 64.3% of china power construction corporation's;
in 2023, china energy engineering corporation's revenue will be 406 billion yuan, equivalent to 67% of china power construction corporation's;
in the first half of 2024, china energy construction's revenue was 194.3 billion, equivalent to 68.4% of china power construction's;
the ultimate controlling shareholders of powerchina and energychina are both the state-owned assets supervision and administration commission of the state council. their core businesses overlap, and in recent years both have been working towards the integration of "investment, construction, and operation," which is the basis for the merger.
core business competition
1) power construction corporation of china is slightly larger in scale
the core business of both companies is the exploration, design and construction of water conservancy/power/infrastructure.
in 2023, the gross profit of the power construction segment will be 59.7 billion, with a gross profit margin of 10.8%; the gross profit of the energy construction segment will be 34.5 billion, with a gross profit margin of 9.5%;
in the first half of 2024, the gross profit of the power construction segment was 25.3 billion, with a gross profit margin of 9.8%; the gross profit of the energy construction segment was 15 billion, with a gross profit margin of 8.7%;
in terms of the scale and profitability of core businesses, power construction has obvious advantages.
2) be more aggressive in getting projects
after successfully listing on the a-share market in 2021, china energy engineering corporation's newly signed contract value increased by 51% year-on-year to 872.6 billion yuan, surpassing power construction corporation of china in one fell swoop;
in 2022, the newly signed contract amounts of power construction and energy engineering both exceeded 1 trillion yuan; power construction's new energy contract amount was 33.3 billion yuan higher than energy engineering;
in 2023, the amount of new contracts signed by china energy engineering corporation will reach 1.28 trillion yuan, 12.3% higher than that of power construction corporation of china; the amount of new energy contracts signed by power construction corporation of china will be 87.6 billion yuan higher than that of china energy engineering corporation;
in the first half of 2024, the newly signed contract value of china energy engineering corporation reached 738.6 billion, 13.8% higher than that of china power construction corporation;
what is more noteworthy is that the amount of newly signed pumped storage contracts of china energy engineering corporation has been higher than that of power construction corporation of china for consecutive years: in 2022, power construction corporation of china and china energy engineering corporation were 24.3 billion and 66.4 billion respectively; in 2023, china energy engineering corporation signed 124.9 billion, 46.8 billion more than power construction corporation of china!
3) contract execution progress: power construction corporation of china is slightly ahead
contract liabilities are incurred when performancecontract) is the amount received before the obligation is fulfilled. the contract asset is the amount not yet received after the obligation is fulfilled. the purchase price received by the real estate company before the house is delivered is a contract liability. the right to receive payment after the restaurant has served all the dishes but before the bill is settled is a contract asset.
by observing the above two indicators, we can get a glimpse into the contract execution progress of the two companies.
as of the end of 2021, the contract liabilities of power construction reached 136.1 billion, which is 2.3 times the contract assets (79.7 billion) is 56.4 billion higher. the prepayment is greater than the unpaid after performance. in 2023, the situation is reversed, and the contract assets are 124.3 billion, which is more than the contract liabilities (113.4 billion) is 10.9 billion higher.
at the end of june 2024, contract assets were 40.7 billion higher than contract liabilities, which means that the financial pressure is increasing.
although china energy engineering has signed many new contracts, its execution progress is obviously lagging behind: as of the end of june 2024, its contract assets were 127.4 billion, 279.2 billion less than china power construction; china energy engineering's contract assets were 46.4 billion higher than its contract liabilities (higher than power construction）。
4) “mental work”
if exploration and design is "mental labor", then engineering construction is "physical labor", which are fundamentally different.
energy construction disclosed the revenue and costs of exploration, design and engineering construction respectively:
in 2023, exploration and design revenue will be 19.2 billion, cost will be 11.6 billion, gross profit will be 7.56 billion, gross profit margin will be 39.4%;
the project construction revenue was 343.5 billion yuan, the cost was 316.5 billion yuan; the gross profit was 27 billion yuan, and the gross profit margin was 7.8%;
for nengjian’s core business, income from mental labor accounts for 5.2%, and gross profit accounts for 22% of the sector.
the disclosure of power construction is not detailed enough, and it is estimated that the structure of this sector is similar to that of energy construction:
5% of revenue comes from exploration and design, with a gross profit margin of about 40%. based on this calculation, china power construction's exploration and design revenue in 2023 will be about 27.5 billion, costs will be 16.5 billion, and gross profit will be 11 billion.
5) qualifications and r&d capabilities
water conservancy/power projects are large-scale and technically complex. from design to construction, any problem in any link will cause huge losses to people's lives and property. therefore, all countries have extremely high requirements for the qualifications and experience of large-scale water conservancy/power project contractors.
there are 33 enterprises in my country that have special-grade qualifications for general contracting of water conservancy and hydropower projects, including 18 from power construction corporation of china and 6 from energy construction corporation of china, for a total of 24.
there are a total of 8 companies that have the special qualification for general contracting of power engineering projects, including 3 from power construction corporation of china and 4 from communications construction corporation of china!
by the end of 2023, power construction and energy construction have a total of 13 academician workstations, 25 postdoctoral workstations, 16 national r&d institutions, and 183 provincial and ministerial r&d platforms. there are 47,000 r&d personnel and r&d investment of 36 billion (approaching byd), ranking among the top among 5,300 a-shares.
comparing the five aspects of the two companies' core businesses, powerchina only has a clear advantage in terms of scale. and, it may be temporary.
power construction bonus points - second growth curve
1) second growth curve
"power investment and operation" is a natural extension of china power construction's design and construction business, with a gross profit margin much higher than that of exploration and design:
in 2020, the power investment income was 18.9 billion, the gross profit was 9 billion, and the gross profit margin was 47.9%;
in 2021, the power investment income was 21.3 billion, the gross profit was 8.9 billion, and the gross profit margin was 41.5%;
in 2022, the power investment income will be 23.8 billion, the gross profit will be 9.6 billion, and the gross profit margin will be 40.1%;
in 2023, the power investment income will be 24 billion, the gross profit will be 10.6 billion, and the gross profit margin will be 44.4%;
in the first half of 2024, the power investment revenue was 12.2 billion, the gross profit was 5.8 billion, and the gross profit margin was 47.1%.
the fundamental reason for the slow progress of power construction's "power investment and operation" business is insufficient funds. the slogan of "invest, build, and operate" itself shows that power construction is an industrial enterprise that is not familiar with capital operation - it should be "finance, investment, construction, operation, and withdrawal". only by adding "finance" in the front and "withdrawal" in the back can the loop be closed. in this regard, we should learn from three gorges energy.
2) following in the footsteps of three gorges energy
this business of power construction is closely related to china three gorges energy (SH：600905)homogeneous(note: three gorges energy was born out of the "new energy development and operation management" sector of the three gorges group. on february 9, 2018, the three gorges group approved the introduction of strategic investors into "three gorges new energy co., ltd.". in june 2019, "three gorges new energy" was transformed into a joint-stock company; in june 2021, it went public and raised 22.7 billion yuan.）
before the introduction of strategic investors in 2018, three gorges energy's installed capacity was less than 7.5gw; by the end of 2020, it reached 15.6gw;
by the end of 2022, the installed capacity of grid-connected wind power and photovoltaic power reached 26.2gw, including 15.9gw of wind power and 10.3gw of photovoltaic power.
by the end of 2023, the grid-connected installed capacity of wind power and photovoltaic power will be about 40gw, including 19.4gw of wind power and 19.8gw of photovoltaic power.
the three gorges group has a strong sense of capital operation and started early. it raised tens of billions of yuan through the introduction of strategic investors and the issuance of stocks, and achieved a leapfrog growth in the installed capacity of its holdings. in contrast, the progress of power construction was relatively slow:
in 2020, power construction holdings' installed capacity was 16.1gw, equivalent to 103% of three gorges energy;
in 2021, power construction investment's installed capacity was 17.4gw, only 76% of three gorges energy's;
as of the end of june 2024, the installed capacity of power construction corporation of china is 28.1gw, equivalent to 68.7% of china energy construction corporation of china. excluding 3.6gw of thermal power, the installed capacity of renewable energy is only 60.6% of that of three gorges energy corporation of china.
in june 2023, power construction new energy introduced 10 strategic investors and raised 7.625 billion yuan; according to normal progress, it will go public in 2025.#follow the footsteps of three gorges energy#
nengjian's minus point - business integration has not been completed
china energy engineering group has created a new structure with the core concept of "innovation, green, digital intelligence, and integration", with the focus on new energy business. however, it is still far from "focusing on the main business":
in 2023, the industrial manufacturing business revenue will be 33.7 billion, of which 8.4 billion will be from coal and 7.4 billion from building materials (cement, clinker, commercial concrete). in the first half of 2024, the revenue of this sector will be 14.6 billion (of which 3.52 billion will be from building materials).
in 2023, the investment and operation business revenue will be 29.4 billion, of which real estate will be 13.4 billion (down 33% year-on-year), comprehensive transportation will be 2.34 billion (up 16.5% year-on-year), and new energy will be only 3.72 billion (down 0.4% year-on-year).
self-reliance is a fine tradition, and being large and comprehensive is the "legacy" of central state-owned enterprises - they don't ask for help when blasting mountains, they produce all cement and building materials, and they build their own housing for employees...
businesses such as civil explosives, building materials, and real estate are of good quality and have high gross profit margins, so they have been retained by nengjian to this day.
however, it has little to do with "innovation, greenness, and digital intelligence", and its market position is not worthy of a state-owned enterprise.in 2023, china's total cement output will exceed 2 billion tons, and china national energy construction's share will be less than 1%; china national energy construction's real estate revenue of 13.4 billion is only equivalent to a real estate project of a large developer.
power construction's "easter egg" - pumped storage
the highlight of china power construction's power investment sector is pumped storage. in 2022, 48 new pumped storage projects were approved, with an installed capacity of 68.9gw, exceeding the total approved scale of the "13th five-year plan". 8.8gw was invested in 2022, setting a historical high.
at the end of 2022, china power construction's "yajiang hybrid pumped storage project" started construction with a total installed capacity of 4.2gw, making it the "world's largest power bank."
compared with conventional pumped storage power stations, hybrid pumped storage power stations use existing reservoirs, with low investment, short construction period and good economic benefits. tens of thousands of hydropower stations that have been built in china have been converted to hybrid pumped storage, which will greatly accelerate the construction of new power grid systems.
although the amount of the newly signed pumped storage contract was surpassed by china energy construction, china power construction is after all "the absolute main force in the field of pumped storage construction”、“undertook 90% of the exploration and design and 78% of the construction tasks of pumped storage power stations in my country”、“occupies more than 50% of the global large and medium-sized water conservancy and hydropower construction market”（excerpted from power construction corporation of china’s financial report）。
merger plan of energy construction and power construction (if any) there are so many variables that it is not even certain who will absorb or merge with whom.
what is certain is that one of the purposes of the system is to leave no room for arbitrage in the secondary market. a sharp rise or fall in stock prices would be a failure, and the designers would try to avoid it.
*the above analysis is for reference only and does not constitute any investment advice
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