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On the first trading day of the new year, the " good start " in market was achieved, mainly because the central bank announced a reduction of the reserve ratio to hedge the tight situation of funds close to the annual close, which was positively reflected by the whole market.
From the perspective of trading psychology, to be exact, two sides in the market always exist. Good and bad news always appear at the same time. Investors only choose the surface information they want to see, which will easily filter out a lot of real situations. Usually, many people are also accustomed to look back at some problems. 2019 becomes the past, and 2020 just open quietly, while the future is the driving factor of the development.
For example, CIMC group released two announcements after the market closing on December 30, 2019. One announcement is about the risk of impairment of the company's assets, and the other is about the new progress of Qianhai land plot that the market has been concerned about - the announcement that the signing of Qianhai land-use right transfer contract by the wholly-owned subsidiary. How to interpret these two announcements comprehensively? Is it long or short?
Before further analysis, let's look at the market performance of CIMC group on the first trading day in 2020. By the deadline, CIMC A shares closed at 9.86 yuan, up by 0.41%, and CIMC H shares closed at 7.30 yuan, up by 0.41%. According to this performance, the market obviously reflected relatively warm and stable after the two news released, and even benefited from the overall market is getting warmer.
（1）Is the asset impairment treatment of offshore engineering business has become "bottomless" or has the "dark time" passed?
According to the announcement, CIMC expects to make an impairment provision of about 4-5.5 billion yuan for relevant assets of offshore business in 2019, and the final amount of impairment shall still be subject to the audit data.
Some investors have seen the huge amount of impairment withdrawn this time, and many doubts have arisen. Some media have also taken the opportunity to question CIMC's investment and development in offshore engineering business with its "Thunder break" performance. How can these surface data relate to other data? On the basis of long-term and in-depth analysis, will different conclusions be drawn?
First of all, let's see if CIMC's asset impairment treatment in offshore industry is bottomless? Our judgment is the amount. After two consecutive large-scale asset impairments in 2019 and 2018, there may be little space left to continue to accrue asset impairment, such as In 2018, the impairment of offshore business assets was about 2 billion.
In 2018, the assets for impairment of CIMC offshore business are corresponding to the jack up platform. Compared with the assets for impairment of semi-submersible platform in 2019, the scale of fixed assets formed by the former is relatively small, so the scale of impairment in 2019 is larger should be completely normal.
According to the performance of segment business, from the public information, in 2017, CIMC's offshore business lost 1.04 billion yuan, and in 2018, it recorded a loss of about 3.45 billion yuan. In mid-2017, it lost 550 million yuan, and in mid-2018, it lost 710 million yuan, and in mid-2019, the business recorded a loss narrowed, and its revenue and orders increased significantly. According to the performance data, it can be judged that the loss recorded in 2018 is likely to become a historical peak. Generally, after the performance and operating conditions change to a better direction, the possibility of sustained large-scale asset impairment is low.
From the perspective of the global industry, based on the situation of the offshore equipment market in the past few years, most of the large-scale offshore enterprises have experienced losses. These enterprises have basically done merger and reorganization, asset impairment or divestiture in the past two or three years.
In terms of the current progress, only the overseas market and overseas companies have cleared up earlier. As a result, CIMC group's offshore business will only suffer a large amount of asset impairment in 2019. Only the recognition of past industry trends is not necessarily the continuation of industry future trends (after all, crude oil prices have bottomed out for several years, as shown in the figure below). The situation of CIMC's asset impairment of offshore business is not a special case. It is more common in the industry, so it is "not a big deal".
In addition, we are confident to conclude that the company's offshore business has gone out of the "dark time" on the other hand, according to the public information and reports, CIMC is promoting the restructuring of offshore business.
In the middle of December, CIMC signed a strategic cooperation agreement with Yantai municipal government to prepare for the construction of the North headquarters of China National Offshore Engineering Co., Ltd., to carry out in-depth cooperation in deep-sea areas such as far-reaching marine fishery, offshore wind power, offshore tourism, marine chemical industry, offshore resource exploration and development, offshore engineering equipment, and to participate in logistics equipment, fire rescue, urban sanitation, energy supply and other urban supporting service bases Infrastructure construction.
This strategic cooperation is expected to take CIMC's offshore business as the leader, and take opportunities to drive other business segments of CIMC. If we go back to the background of CIMC's negotiation on the reorganization of offshore business, the company conducts large-scale asset impairment action on offshore assets, we can further speculate that the reorganization process is near the end. After all, if it is not related to equity consideration, who will have the motivation to make the accounts clear? Moreover, in 2018-2019, after the asset impairment of offshore engineering is basically completed, the burden can be removed before departure, which is also conducive to the promotion of offshore engineering restructuring.
In general, after the asset impairment of CIMC's offshore business is completed, the subsequent impairment will not be a worry, which will remove the "danger" of potential losses. Besides, the current oil price is still maintained above $60, which is conducive to the continuous improvement and recovery of the global offshore market.
（2）CIMC group's Qianhai plot successfully completed, and the income form confirming the right will hedge the impairment accrued by offshore engineering
According to another announcement of CIMC group on December 30, 2019, CIMC group announced on the evening of December 30 that Shenzhen Qianhai shengang Modern Service Industry Cooperation Zone Administration Bureau and CIMC wholly-owned subsidiary signed the land use right assignment contract for 9 plots of Qianhai. CIMC group basically completed the confirmation of land rights in Qianhai area. According to reports, and according to current preliminary estimates, this transaction is expected to increase CIMC's after tax net profit by about 6.69 billion yuan.
According to the announcement, the total land area of the above nine plots transferred by Qianhai Administration Bureau to CIMC is 64926.72 square meters, and the total land transfer price is more than 8.8 billion yuan. All land uses are commercial land, which can be used for construction of commercial, office and apartment facilities, and the land life is 40 years. As the above nine plots are all replacement land, the land transfer price of these nine plots will not be charged separately.
After confirming the right of Qianhai land, CIMC group not only obtains the accounting profit from the revaluation of land value, but also can enjoy the huge potential income and value-added brought by the development of Qianhai land through the commercial development and investment in the future. Compared with the one-off revaluation of the initial land evaluation value, the subsequent development profit, the long-term potential income and property assets of the commercial property is clearly much more attractive to investors.
Finally, if combine two announcements, in the short term, the confirmation income of Qianhai plot has completely wiped out the asset impairment made by CIMC in the offshore business sector; in the long term, CIMC group shows a long-term trend of turning better no matter in the development of Qianhai plot or in the reorganization and industry recovery of the offshore business. Once again, the investment logic of CIMC is based on long-term judgment. In the long run, the certainty of value release of CIMC will be higher than that of the short-term.
So, basically, investors who are optimistic about CIMC group, their views and logic are almost related to the long-term, while investors who are pessimistic about CIMC group usually focus more on the short-term factors. You can pay attention to this difference. What could be more important than investing in the long run, in the future, and in certainty?
