Key takeaways from Hu An Cable’s 1-1 Meeting with CFO

Hu An Cable Holdings Ltd (“Hu An”) is one of the top ten integrated cable and wire manufacturers[1] in China. Based on the accumulated results from 2Q2010 – 1Q2011, Hu An’s is ranked top four by revenue among seven listed firms in China. In addition, according to my personal compilation of 14 listed peers in Taiwan and China, Hu An has the lowest FY10 PE and highest ROE. Against the backdrop of the positive mid – long term industry prospects, I have arranged to meet Hu An’s CFO Sharon Xue for a 1-1 discussion. Below is an abridged version of the matters discussed.
Hu An’s 2nd TDR – in progress
Barring unforeseen circumstances, Hu An remains committed in executing the 2nd TDR Programme. They have obtained all the approvals for their 2nd TDR Programme in August and have about three months to carry out. If necessary, they may seek a three month extension period (till Feb 2012) to carry out this Programme. Meanwhile, company has been busy in meeting fund managers in Taiwan to facilitate this 2nd TDR Programme.
Expansion plans (almost a doubling of capacity in 2012) on track
With reference to Figures 1 and 2 below, Hu An remains on track on its expansion plans. However, in the near term (i.e. 2HFY11F), it is noteworthy that as the three production lines and the copper production plant have just started commercial production, it is unlikely that there would be meaningful near term contribution (likely more contribution in 2012). Secondly, there are likely to be higher depreciation charges as new equipment is being used. Nevertheless, management pointed that these lines which are operational in 3Q2011 and 1Q2012 would almost double their production capacity from 3,000 km to 5,760 km in 2012.
In addition, the new copper production is also on track to commence production in Sep 2011. Together with the new production lines in 3Q2011 and 1Q2012, it should bode well for Hu An in the medium to long term.
Figure 1: New production lines scheduled in 2011 and 2012
生产线
Production Lines
电压等级
Voltage Of Products
数量
Number Of Production Lines
目前产能
Current Capacity
扩产后产能
Capacity  After Expansion
达产时间
Est.  start of operation
中压电缆生产线
Mid voltage power cables
6Kv-35Kv
2
3000Km
4800Km
3Q2011
高压电缆生产线
High voltage power cables
110Kv-220Kv
1
0
360Km
3Q2011
超高压电缆生产线
Ultra-high voltage power cables
220Kv-500Kv
2
0
600Km
1Q2012
电缆附件生产线
Power cable accessories
1Kv-
500Kv
1
32000sets
1Q2012
防火电缆生产线
Fire-resistant power cable
1Kv
1
1400Km
1Q2012
Source: Company


Figure 2: Copper production plant also on track
日产能 (吨)
Daily Production Capacity  (Tons)
主要用途
Major Usages
达产时间
Est.  start of operation
现有平炉铜杆熔炼炉
Current flat copper melting furnace
80
电解铜和废铜Electrolytic Copper & Scrap Copper
新增竖炉铜杆熔炼炉
New Vertical copper melting furnace
300
电解铜
Electrolytic Copper
September 2011
Source: Company
Further inroads to wind industry
Hu An Cable has recently secured a contract to provide cables for Phase 2 of Guodian Hefeng’s wind power project in Heilongjiang Province, following the successful delivery of RMB11.0 million worth of power cables to Phase 1 in October 2010. This increased their year to date contract wins to RMB102m with a total number of 35 projects in the bag and surpassed the company’s internal target of 25 wind farm projects in FY11. In the press release, Company elaborated that such projects enjoy high gross margins of 20-25%. Management also shared that in China’s latest 12th Five Year Plan, China is planning to increase the proportion of renewable energy to the total electricity consumption in China from 5% to 15% in FY2011-FY2015, thus fuelling strong demand for cables.
Sanguine industry prospects
In the recent 2QFY11 results briefing, management continues to be optimistic on the industry prospects. The PRC government mandates that the proportion of underground power cables has to increase from 40% to 60% by 2020 (underground power cables have higher margins). Furthermore, the continual urbanization in China bodes well for wire and cable manufacturers as 400m migrant workers are estimated to move from rural areas to urban areas in the next 20 years with estimated annual investment of RMB2 trillion. Figure 3 shows the estimated capex in the power industry under the 12th Five Year Plan.
Figure 3: Power cable sector boom under China’s 12th 5-year Plan
十一五规划
11th “five year” plan
(2006-2010) (RMB ’Billion)
十二五规划
12th “five year” plan
 (2011-2015) (RMB ’Billion)
变动
Chg
%
电力行业总投资  Total Capex in power industry
3,160
5,300
(52% in power generation sector; 48% in power transmission sector)
67.7
国家电网 
State Grid
总投资
Total Capex in power transmission
1,200
2,550
112.5
-农村电网
Rural power grid
307.5
410
33.3
-超高压电网
Ultra-high voltage power grid
20
500
2400.0
南方电网 
Southern Power Grid
总投资
Total Capex in power transmission
302.3
500
65.4
-农村电网
Rural power grid
69.1
111.6
61.5
Source: Company


“We continue to see buoyant order enquiries
from our customers. Contracts are also
getting larger.” Dai Zhixiang, chairman &
CEO of Hu An said in 2QFY11 results briefing.
Management continues to see abundant opportunities in the industry and contracts remain abundant. To this, I pointed out the lack of earnings visibility as company does not divulge their order books. Management explained that although they do have some indicative “idea” on when the contracts would be awarded, they do not know for sure whether the contracts would be awarded this year or next year and this makes order book guidance difficult and less accurate. Thus, they refrain from giving order book estimates. Nevertheless, management emphasize that besides the increasing abundance in contracts, the size of the contracts is increasing. This should bode well for Hu An, especially with the increased capacity coming on stream soon.
Valuations against peers
With reference to Table 1, Hu An has the lowest FY10 PE and highest ROE among its 14 listed peers in Taiwan and China. This is in contrast to the average FY10 PE of 24.4x (Prospective PE was not available for most of its peers, thus historical PE is used) and ROE of 8.6%. In order for it to close the valuation gap (at least reduce the stark valuation gap), execution is key in 2012 where investors would see how the increase in production capacity would contribute to their bottom line in 2012 and beyond.


Table 1: Hu An’s valuations vis-à-vis its China and Taiwan listed peers
Short Name
Cur
Last Px
1 Yr high
1 Yr low
Adj Mkt Cap (S$m)
FY10 PE
FY11F PE
ROE (%)
Div Yield
Hu An Cable Hlds
SGD
0.22
0.33
0.19
185.2
4.8
5.1
24.7
3.6
Walsin Lihwa
TWD
9.14
19.70
8.63
1395.7
5.9
11.2
7.9
4.4
Hua Eng. Wire&Ca
TWD
8.59
12.75
8.20
228.2
17.5
NA
3.4
4.1
Ta Ya Elect.Wire
TWD
7.84
9.68
7.30
191.9
11.2
25.3
5.7
4.4
Hong Tai Elec
TWD
9.28
17.10
8.90
126.6
8.1
NA
7.2
6.5
Dah San Electric
TWD
12.05
18.33
11.10
56.6
7.3
NA
13.1
9.5
Evertop Wire Cor
TWD
5.02
8.04
4.80
40.4
NA
NA
-3.7
NA
Hold Key Elect
TWD
11.20
24.22
9.95
114.7
4.9
NA
7.2
2.6
Zhejiang Wanma-A
CNY
11.79
18.00
11.01
979.0
45.5
NA
9.5
NA
Zhongli Scienc-A
CNY
20.03
35.00
19.88
972.7
25.6
NA
8.6
0.5
Qingdao Hanhe-A
CNY
15.56
37.73
15.25
2196.2
24.6
NA
18.1
0.9
Fujian Nanping-A
CNY
10.40
16.20
9.88
621.1
25.7
NA
11.4
2.9
Guangdong Nan-A
CNY
6.67
12.15
6.50
676.3
24.1
18.9
10.3
0.9
Baosheng Scien-A
CNY
12.77
23.90
12.61
520.6
78.8
NA
9.2
1.2
Jiangsu Zhongc-A
CNY
14.92
22.31
12.39
615.5
38.4
NA
12.3
1.6
Average excluding Hu An
24.4
18.5
8.6
3.3

Source: Bloomberg (as of 21 Oct 11)


[1] According to “Wire and Cable Industry Research Report” issued by Shanghai Electric Cable Research Institute in 2009.

Disclaimer
The information contained herein is the writer’s personal opinion and is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. The information or opinions provided herein do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or invest in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein are suitable for you. The writer will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials appended herein. The information and/or materials are provided “as is” without warranty of any kind, either express or implied.  In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.

104 thoughts on “Key takeaways from Hu An Cable’s 1-1 Meeting with CFO

  1. Hey! Quicfk question that’s totzlly ooff topic. Do you know how tto make your site mobile
    friendly? My sote look wekrd when browsin from my iphone.
    I’m trying to find a thyeme or plugin that mjght bee able too correct this problem.
    If yoou have any suggestions, please share. Cheers!

  2. My brother suggested I might like this blog. He was totallyright. This post actually made my day. You cann’t imagine just how much time I had spent for this info!Thanks!

  3. Superb post however I was wanting to know if you could write alitte more on this topic? I’d be very thankful ifyou could elaborate a little bit further. Kudos!asmr 0mniartist

  4. Awsome article and straight to the point. I am not sure if this is truly the best place to ask but do you folks have any thoughts on where to hire some professional writers? Thank you 🙂

  5. Pretty section of content. I just stumbled upon your blog and in accession capital to assert that I acquire actually enjoyed account your blog posts. Anyway I’ll be subscribing to your augment and even I achievement you access consistently fast.

  6. I travel all around the world for work, and it used to be really lonely. Now I can go onto Tinder and have a date lined up in a new city before I even get out of the airport!

  7. That is a really good tip particularly to those fresh to the blogosphere.Brief but very accurate information… Many thanks for sharing this one.A must read article!

  8. I will immediately grasp your rss as I can’t to find your email subscription hyperlinkor newsletter service. Do you’ve any? Please allow me recognise so that I could subscribe.Thanks.

  9. Hey There. I found your blog the usage of msn. That is an extremely well written article.I will make sure to bookmark it and return to read more of your helpfulinformation. Thank you for the post. I will certainly comeback.

  10. I’m extremely impressed with your writing skills and also with the layout on your blog. Is this a paid theme or did you modify it yourself? Either way keep up the excellent quality writing, it is rare to see a nice blog like this one today..

  11. A fascinating discussion is definitely worth comment. I think that you ought to publish more about this issue, it might not be a taboo subject but typically people do not talk about such subjects. To the next! All the best!!

  12. This particular blog is obviously entertaining and also diverting. I have chosen helluva helpful advices out of this amazing blog. I ad love to come back over and over again. Thanks a bunch!

  13. I am really impressed along with your writing talents and also with the format in your blog.Is this a paid topic or did you modify it yourself? Either way keep up the nicequality writing, it’s rare to see a nice blog like this one nowadays..

  14. I’ll right away snatch your rss as I can not to find your email subscription link or e-newsletter service.Do you have any? Kindly allow me realize in order that I could subscribe.Thanks.

  15. I blog quite often and I truly thank you for your information. The article has truly peaked my interest. I’m going to bookmark your blog and keep checking for new information about once a week. I subscribed to your RSS feed too.

  16. I will immediately grab your rss feed as I can not find your email subscription link or newsletter service. Do you’ve any? Kindly let me know so that I could subscribe. Thanks.

  17. Attractive section of content. I just stumbled upon your site and in accession capital to assert that I acquire in fact enjoyed account your blog posts. Any way I’ll be subscribing to your augment and even I achievement you access consistently rapidly.

  18. Thank you for some other informative web site. The place else may just I am getting that kind of info written in such a perfect approach? I’ve a venture that I’m simply now running on, and I’ve been on the look out for such info.

  19. Hey There. I found your weblog using msn. This is a really neatly written article. I will be sure to bookmark it and come back to learn more of your helpful info. Thank you for the post. I will certainly comeback.

  20. Pretty section of content. I just stumbled upon your website and in accession capital to assert that I get actually enjoyed account your blog posts. Anyway I will be subscribing to your augment and even I achievement you access consistently fast.

  21. Howdy! Someone in my Myspace group shared this website with us so I came to check it out. I’m definitely enjoying the information. I’m book-marking and will be tweeting this to my followers! Terrific blog and terrific style and design.

  22. It’s nearly impossible to find knowledgeable people about this subject, however, yousound like you know what you’re talking about! ThanksAlso visit my blog – 918kaya slot

  23. I like the valuable information you provide on your articles.I’ll bookmark your blog and take a look at again right here regularly.I am relatively sure I’ll learn many new stuff proper right here!Best of luck for the following!

  24. Thanks for your personal marvelous posting! I quite enjoyed reading it,you might be a great author. I will always bookmark your blog and will often come back very soon. I want to encourageyou to continue your great job, have a nice weekend!

  25. Aw, this was a really good post. Taking a few minutes and actual effort to produce a superb article… but what can I say… Iput things off a lot and don’t seem to get nearly anything done.

  26. Oh my goodness! an incredible article dude. Thanks However I am experiencing issue with ur rss . Don’t know why Unable to subscribe to it. Is there anyone getting identical rss downside? Anyone who is aware of kindly respond. Thnkx

  27. A motivating discussion is worth comment. I believe that you ought to publish more about this subject, itmay not be a taboo matter but generally folks don’t talk about these topics.To the next! All the best!!

  28. I am not sure the place you’re getting your info, but great topic. I must spend a while studying much more or understanding more. Thank you for magnificent information I was looking for this information for my mission.

  29. Hi there! This article couldn’t be written much better! Looking at this article reminds me of my previous roommate! He constantly kept talking about this. I’ll send this article to him. Fairly certain he’ll have a good read. Thank you for sharing!

Leave a Reply to Mirella Campione Cancel reply

Your email address will not be published. Required fields are marked *