NWS HOLDINGS(659.HK)：WAITING FOR MULTIPLE CATALYSTS-格隆汇

机构：招银国际
研究员：Daniel So

NWS’s annual results for the year ended 30 Jun 2021 (AOP +49% / net profit +353% YoY) were in line with the positive profit alert announced on 20 Jul. Core businesses’ AOP +34% YoY, thanks to strong recovery in Roads and full-year contribution by Insurance. We lowered FY22E AOP/NAV by 6%/5%, and revised TP to HK$11.48 having applied a larger discount to NAV. Valuations remain attractive, with 8.1% dividend yield. Maintain BUY. We identify some potential catalysts which might drive a re-rating.
Recovery across business segments. All businesses, except Construction, recorded YoY improvements in Attributable Operating Profit (AOP). Excluding discontinued businesses (Environment & Transport), net profit to shareholders +121% YoY.
Final DPS +3% under progressive dividend policy. Since FY19, NWS adopted a progressive dividend policy, keeping DPS steady in FY20 despite a slump in EPS. FY21 final DPS +3% to HK$0.30, bringing full-year DPS to HK$0.59 (HK$0.58 in FY20).
Maintain BUY, TP revised down to HK$11.48. We revised FY22E/FY23E AOP by -6%/-1%, EPS by -25%/-16%, and FY22E NAV by -5%, mainly accounting for the prolonged impact from COVID. We lowered our target price to HK$11.48, based on a 45% discount on FY22E NAV (previously 35% discount on FY21E NAV), to factor in the overall derating of HK/China market. Valuations remain attractive, with trailing P/B at 0.59x, 2 s.d. below 10-year average, and dividend yield at 8.1%, 2 s.d. above 10-year average. NWS’s progressive DPS policy makes it a stable yield play with high dividend visibility.
Potential catalysts to drive re-rating. While valuations are very attractive, we acknowledge that some catalysts are needed to drive valuations upward. These might include: 1) Acquisitions at attractive valuation to drive earnings growth, potentially in toll roads & modern logistics businesses; 2) HK-Mainland China border reopening to boost FTLife and Facilities Management; 3) resumption of global travel after vaccine rollout would benefit Aviation; 4) China’s protective policies (still in discussion) to compensate for Roads’ toll- exemption in Feb-May 2020; 5) further disposals of non-core assets.