Shanghai Construction Engineering (600170) was established on June 15, 1998 and listed on June 23, 1998.

Industry: Architectural Decoration

Related concepts: MSCI concept, One Belt and One Road, ppp concept, equity securities companies, Disney, Shanghai Stock Connect, margin trading, Shanghai state-owned assets reform, Xiong Anxin District

Business scope: Mainly engaged in general contracting of housing construction projects, professional construction, design, decoration, landscaping design and construction projects, real estate development and operation, stone mining and concrete processing and manufacturing, and municipal engineering construction projects Management, urban infrastructure investment and construction projects, complete sets of equipment and other commodity trade, Zara Mining, as well as engineering project management consulting and labor dispatch.

The company is also a long-established company in Shanghai. It has designed and built a number of international-level super high-rise buildings, comprehensive transportation hubs, cultural and sports facilities, municipal facilities, etc. in Shanghai and major cities across the country, shaping the " Shanghai Construction Engineering's high-quality brand image, the company's "SCG" trademark has been awarded the title of "China's Well-known Trademark" recognized by the State Administration for Industry and Commerce.

It is a cyclical stock. As the real estate growth slows down, it will affect the company. However, judging from 2017, it has not become a weak cycle. But still need to pay attention.

First: Growth potential (Figure 1)

At present, China's engineering contracting industry has low market entry barriers, many companies in the industry, low industry concentration, and serious homogeneous competition. Gross profit is low, and there should be bottlenecks in the growth of the industry. As can also be seen in Figure 1,

1. Business growth has been very slow, basically maintaining at 6% in the past three years. Compared with previous years, the growth rate has declined significantly.

2. Net profit growth averaged 13%. From the data point of view, it has been relatively good in the past two years. But don’t ignore cyclicality.

3. The growth rate of total assets and net assets also began to decline. (The data has not been posted, Flush can see it, and I have roughly calculated it myself)

Second: Profit analysis (Figure 1)

1. The gross profit margin is low, which mainly depends on to this industry.

2. The return on net assets has been stable at 10%

3. The return on total assets is 1.6%, which is significantly lower than the return on net assets.

Third: Assets and liabilities,

1. Asset-liability ratio? 1-15.5% = 84.5%

2. Net assets-liability ratio 5.45 times?

3. The assets and liabilities of the construction industry and the real estate industry are generally high, so the interest coverage ratio is very important. This mainly depends on whether your profits are enough to repay the interest. We have seen the 2017 annual report. Interest payment is ? 2.285 billion, profit is 3 billion, then the interest coverage ratio is 2.34.

4. Whether cash and cash equivalents are greater than current liabilities. Cash and cash equivalents are 54.2 billion, and current liabilities are 129.2 billion. This difference is too big, and there is obvious debt repayment risk, so you need to pay attention.

Let’s look at the current ratio of 1.24 (better than 2) and the quick ratio of 0.68 (better than 1), both of which are relatively low.

Generally speaking, because it is in the real estate industry, liabilities will be higher than in other industries. In addition, the company is an old state-owned enterprise, so the issue of asset security should not be a big deal.

5. The free cash flow is more than -90 million, which is acceptable.

The company’s main business, architecture, design, contracting, and construction, accounts for the highest proportion of revenue, but its gross profit margin is too low.

Judging from the industry comparison, PEG is slightly higher than the industry median value, and both marketing and sales performed well.

The current stock price is 3.7 yuan, the earnings per share in 2017 is 0.29, and the market price is 12.75. Institutional forecasts are shown in Figure 4

Buffett's Sanhao Company is clearly not up to standard.

Peter Lynch PEG, we calculate based on the growth of 13, 0.33*13 =? 4.29 in 2018, an increase of 15.9%

Graham, 0.29* (8.5+2* 13) = 10, an increase of 170%. The annualized rate is about 22%.

If you give us some safety margin, if calculated at 10 times the market price, it should be 3.3 yuan in 2018, so there should be no big problem if you buy below this.

Let’s take a look at two more charts, historical market and net market. We can see that after the stock market crash in 2015, the lowest point fell to 2.97 yuan on January 29, 2016, and the current stock price is 3.7 yuan. On the contrary, it is lower than that. This is the periodicity we need to pay attention to. Cyclical stocks should be bought when the market is high. Let’s abandon the bullish part from 2014 to 2015 and look at the cyclical nature of this stock.

Postscript: Cyclical industries may not do anything in the next few years. Long-term investors are advised to give up. Of course, if the country continues to promote real estate to promote economic development, then that is a different story. At least I don’t think the country will continue. You can look at the analysis of some real estate tycoons to confirm the direction.

In addition, the dividend of this stock has been relatively high in recent years. I don’t understand why the dividend has increased in recent years. Is it because it responded to the call of the China Securities Regulatory Commission? Or what, if you know, you can leave a message to communicate.