China Galaxy International: Maintaining First Journey Holdings (00697)'s “Gain” Rating and Giving the Company a Target Price of HK$2.04

China Galaxy International recently released a research report saying,Maintain the “increase” investment rating of Shoucheng Holdings (00697.HK)，The company was given a target price of HK$2.04, based on 22 times the 2022 price-earnings ratio。

The main views of China Galaxy International are as follows

■Shoucheng Holdings' 2021 results were affected by macroeconomic factors.

■Despite pressure in the recent macroeconomic environment, Shoucheng Holdings' business structure has successfully transformed from a typical cyclical industry business to a parking and travel business and infrastructure real estate fund business that spans the economic cycle, has good cash flow, and stable and healthy operation will achieve steady growth in the future.

■Management has been actively enhancing shareholder value by maintaining a high dividend ratio.

■We maintain the “increase in holdings” rating of Shoucheng Holdings. The target price is HK$2.04, based on 22 times the 2022 price-earnings ratio.

2021 Results Summary

First Journey Holdings recorded a turnover of HK$1,195 million in 2021, an increase of 69% compared with HK$706 million in 2020. The company recorded sales costs of HK$648 million during the year, an increase of 22% compared with HK$531 million last year. Shoucheng Holdings lost HK$1,095 million, and last year's profit was HK$659 million. Mainly due to the company's impairment assessment based on Shougang Resources Group Limited's recent market prices and sales costs, the joint venture's impairment loss provisions totaled HK$1,615 million. Excluding impacts such as depreciation of Shougang's resources and dividend profits, Shougang's own business brought pre-tax profit of HK$365 million to shareholders, an increase of 13% over the previous year. The company's gross margin in 2021 was 45.8%, up 21% from 24.8% in 2020. On the one hand, the increase in gross profit was due to the infrastructure real estate fund management business confirming a fund allocation during the year, and its excess income before tax was HK$258 million, leading to a sharp increase in turnover. On the other hand, the efficiency of parking operations has been further improved, and the overall gross profit of the parking and travel business has gradually increased. The parking and travel business recorded revenue of HK$614 million in 2021, an increase of 28% over last year. Although profit showed a sharp decline, its composition changed significantly. Based on judging market trends in the real estate industry, Shoucheng Holdings slowed down the pace of growth in the proprietary parking space product line in 2021 and waited for a better time. As a result, the return on confirmed investment in property parking space projects in 2021 decreased significantly compared to the same period of the previous year. Under these circumstances, the parking and travel business remained profitable, and the Group saw that even under the repeated impact of the epidemic, the overall resilience and profitability of the parking and travel business was gradually increasing. In terms of technological upgrading, the parking and travel business has introduced expert talents in the industry to further supplement and improve the R&D team and increase investment in R&D. The iteration speed of the parking operation management system based on the “Express Stopper” system has been significantly accelerated, the application scenarios of the system continue to expand, and the system functions continue to be rich. The team also continued to build platform-level and city-level comprehensive solution capabilities, and achieved a breakthrough in the city-level smart parking project in Baiyin City, Gansu Province.

The business is still growing steadily

Despite the recent pressure on the macroeconomic environment, the company is maintaining guidelines. The parking and travel business will be carried out according to the goals set in the past this year and next year, which means that the expansion of parking space management scale in 2021-23 will maintain steady development, and Shoucheng Holdings will double the number of parking spaces managed by the end of 2023 compared to 2021. In terms of fund management, there will be steady growth at the 2021 level. The business structure of Shoucheng Holdings has successfully transformed from a typical cyclical industry business to a parking and travel business and infrastructure real estate fund business that spans economic cycles, has good cash flow, and stable and healthy operation will achieve steady growth in the future.

Stable dividends enhance shareholder value

Shoucheng Holdings recorded a large net loss last year, but the company still announced a generous dividend plan to actively increase shareholder value. The company's profitability continues to improve. Thanks to the stable performance of the infrastructure real estate fund management business and the company's abundant cash on hand, Shoucheng Holdings' dividend policy will remain stable. Coupled with the special dividend, the 2022 dividend will be higher than the 2021 level.

Maintaining an “Overweight” rating

We maintain the “increase in holdings” rating of Shoucheng Holdings. The target price is HK$2.04, based on 22 times the 2022 price-earnings ratio. The stock price has recovered since the beginning of the year, and we expect the company's various businesses to maintain steady and healthy development in the future.

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