China Saite Group (中国赛特): Introduction

China Saite Group is considered as a new stock. It's listed only in Oct 2013, merely one and a half year ago. 

The group primarily involved in 2 segments, namely steel structure and prefabricated construction in Jiangsu province. 

Steel structure (钢结构建筑) uses steel and concrete as raw materials. It offers lots of advantages compare to construction structure. Steel structure mainly used in the construction of large-scale structures, bridges, factory and industrial park zones. 

The group is the third largest steel structure provider in Jiangsu Province. Gross profit margin for steel structure is around 20-30%. Government target to consume steel structure at 10% of the total steel production in 2015 from 4.5% in 2011. 

Prefabricated construction (预制构件) mainly involves the pre-production of major structural components in factory and direct assemble them at work sites. It provides shorter construction lead time, higher quality and lower wastage. It mainly used in construction of social housing and public structure projects. Gross profit margin is around 35-40%. 

The group is the second largest prefabricated construction service providers in Jiangsu Province. In addition, the group also obtained a number of patented technologies in prefabricated construction. 

The group's business platform based on contracts. The group make a bid, get the offer and deliver the products. Thus, every contract has its own cost structures. 

In terms of cost structure for the group's overall cost of goods sold, raw material contributed 64% of the average cost in FY2014, followed by installation fees. These 2 elements almost contributed 88% of the cost involved. 

The raw materials for steel structure are steel plate and steel coil while for prefabricated structure, the raw materials are reinforced steel, insulation material and concrete. The recent drop in steel price may work in favour for the group, depends on its purchasing policy. 

Revenue for FY2014 increased but the quality of the increase was not that good as its growth in net profit was not that high. Both gross profit margin and net profit margin also dropped. Dividend for FY2014 was around HKD2.4 cents. 

In terms of balance sheet, the group was in net cash position with no borrowings. One thing to take note is its trade receivables were quite high. Trade receivables turnover was around 130 days. 

Current ratio was around 5. ROE and ROIC were 26% and 47% respectively for FY2014. They did it with internal generated funds. 

Operating cash flow was good, although it could be better if not for the high trade receivables. FCF was positive with FCF/Sales >5%. 

Profit margin for prefabricated division was higher than steel structure division, although both divisions also showed decreasing profit margin. 

According to the latest AR, the lower profit margin for steel structure division was due to high proportion of exports orders which fetched lower profit margin in year 2014 compared to local projects. This trend will continue as the management mentioned they will continue to market exports. 

As for its prefabricated division, lower profit margin was due to higher proportion of contracts at which the group acted as sub-contractors which fetched lower profit margin instead of general contractor. 


Growth plan for FY2015;

- Increase the market presence in second and third tier cities as well as overseas markets for its steel structure division. 

- It's expected that 4.8 million units of social security housing would be completed in 2015 and the government required the technology of prefabricated construction must be applied to 30% of social security housings by 2016 on a nationwide scale. This will benefit the group. 

- In 2014, the group entered into corporate agreements with each of Beijing Urban Construction group and Shanghai Urban Construction group in relation to civic construction projects. This will help to expand its prefabricated business to other regions outside Jiangsu. The group also get its first contract in Shanghai from these agreements. 

- The group plans to expand its prefabricated construction business and increase the proportion of this division to 45% in terms of overall revenue. 

- New income from the proposed acquisition of Jiangsu Chenli who involved in manufactures eco-friendly related equipment. 

Cons ..

- High trade receivables at which the management mentioned that was due to increase amount of high value individual contracts. 

- Reducing profit margin

- Unable to get any new contracts. 

- New listed companies with lack of track records



Well, I like it because of its prefabricated business with good growth prospects. Have to keep an attention on the housing development. 



Reference: 

-Presentation slide

-AR 2014