See the last page for disclaimer Page 1 of 10

中

外

运

输

Eq

uit

y R

ese

arc

h

Eq

uit

y R

ese

arc

h R

ep

ort

证 券

研 究

报 告

Co

mp

an

y R

ep

ort

股

票

研

究

公

司

报

告

证

券

研

究

报

告

[Tab

le_I

nfo1

]

综

合

业

务

公

司

行

业

Co

ng

lom

era

te S

ec

tor

[Tab

le_I

nfo2

]

粤

海

投

资

Gu

an

gd

on

g In

ves

tme

nt

(00

27

0 H

K)

[Table_Title] Company Report: Guangdong Investment (00270 HK) Jun Zhu 朱俊杰

(852) 2509 7592

公司报告： 粤海投资 (00270 HK) junjie.zhu@gtjas.com.hk

9 November 2018

[Table_Summary] A Defensive Pick Amid Market Turmoil, Maintain "Accumulate" 市场动荡时极具防御性的投资标的，维持“收集”

Adjusted profit before tax in 9M2018 went up by 4.6% YoY, in line. Net

profit in 9M2018 was down 14.9% YoY to HKD 4,227 mn in 9M2018, mainly

due to approximately HKD 1.2 bn in gain on bargain purchase recorded

during the same period of 2017. Excluding non-recurring items, GDI’s

recurring pre-tax profit in 9M2018 reached HKD 5,197 mn, up by 4.6% YoY,

roughly in line with market expectation.

Property sales from GD Land is set to drive GDI’s growth from 2018 to

2020. As the Zhuguanglu Project in Guangzhou is scheduled to begin sales in

4Q2018, we expect sales from GD Land to reach HKD 945 mn/ HKD 2,135

mn/ HKD 2,189 mn from 2018 to 2020, respectively. The projected surge in

property sales is expected to drive growth within GDI’s property investment

segment from 2018 to 2020.

Gross margin is expected to stabilize at around 60%, mainly due to

changing sales mix. As revenue contribution from the highly profitable water

business of GDI is set to gradually decline to 57%/ 50%/ 49% from 2018 to

2020, respectively, we expect the gross margin of GDI to fall from its high

level (approximately 66%) in previous years to 59%/ 60.5%/ 60.8% in 2018 to

2020, respectively. Anticipated RMB appreciation in 2019 and 2020 is

another key factor set to undermine the gross margin of the water business.

A defensive pick in times of market turbulence, maintain "Accumulate".

As market turbulence is likely to continue, we believe that GDI will be a

defensive pick for risk-averse investors. Based on the DCF valuation, we

raise GDI's TP to HKD 15.20 and maintain the "Accumulate" rating.

2018 年前三季度的经调整税前利润同比升 4.6%，符合预期。公司在 2018 年前三季度的

净利润同比下降 14.9%至 42.27 亿港币，主要因为公司于去年同期录得了约 12 亿港币的

议价收购收益。撇除各项一次性收益，公司于 2018 年前三季度的经常性税前利润达 51.97

亿港币，同比升 4.6%，大致符合市场预期。

粤海置地的房地产收入将驱动粤海投资于 2018 至 2020 年的增长。鉴于公司的广州珠光路

项目将于 2018 年四季度开始进行销售，我们预计粤海置地的收入将于 2018 至 2020 年间

分别达到 9.45 亿港币/ 21.35 亿港币/ 21.89 亿港币。房地产销售的收入上升预计将推升粤

海投资的物业投资板块于 2018 至 2020 年的增长。

在收入构成的变化下，公司的毛利率预计将稳在 60%左右。鉴于公司高利润率的水资源板

块的收入贡献预计将分别于 2018 至 2020 年间逐渐回落至 57%/ 50%/ 49%，我们预计粤

海投资的整体毛利率将由前几年的高位（约 66%）分别回落至 2018 至 2020 年的 59%/

60.5%/ 60.8%。此外，预计将于 2019 及 2020 年不断走强的人民币亦是削弱公司水资源

毛利率的另外一个核心因素。

在市场动荡期极具防御性的投资标的，维持“收集”。鉴于市场动荡预计仍将持续一段时间，

我们相信粤海投资将是低风险偏好投资者的防御性选择。根据现金流贴现估值法，我们上

调粤海投资目标价至 15.20 港币，并且维持其“收集”的投资评级。

[Table_Rank] Rating: Accumulate

Maintained

评级： 收集 (维持)

[Table_Price] 6-18m TP 目标价: HK$15.20

Revised from 原目标价: HK$14.10

Share price 股价: HK$14.080

Stock performance

股价表现

[Table_QuotePic]

[Table_PriceChange] Change in Share Price

股价变动

1 M

1 个月

3 M

3 个月

1 Y

1 年

Abs. %

绝对变动 % (0.3) 4.2 22.8

Rel. % to HS Index

相对恒指变动 % 1.3 11.6 32.6

Avg. Share price(HK$)

平均股价（港元） 13.88 13.58 12.13

Source: Bloomberg, Guotai Junan International.

[Table_Profit] Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE

年结 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率

12/31 (HK$ m) (HK$ m) (HK$) (△ %) (x) (HK$) (x) (HK$) (%) (%)

2016A 10,464 4,212 0.673 7.7 20.9 5.145 2.7 0.420 3.0 13.2

2017A 12,169 5,685 0.880 30.8 16.0 6.421 2.2 0.506 3.6 15.7

2018F 13,864 5,158 0.799 (9.2) 17.6 6.439 2.2 0.533 3.8 12.6

2019F 15,970 5,596 0.867 8.5 16.2 6.727 2.1 0.607 4.3 13.2

2020F 16,752 5,868 0.909 4.8 15.5 7.001 2.0 0.636 4.5 13.2

[Table_BaseData] Shares in issue (m) 总股数 (m) 6,537.8 Major shareholder 大股东 GD Holdings 56.5%

Market cap. (HK$ m) 市值 (HK$ m) 92,052.2 Free float (%) 自由流通比率 (%) 42.9%

3 month average vol. 3 个月平均成交股数 (‘000) 7,456.5 FY18 Net gearing (%) FY18 净负债/股东资金 (%) Net cash

52 Weeks high/low (HK$) 52 周高/低 (HK$) 14.500 / 10.320 FY18 Est. NAV (HK$) FY18 每股估值（港元） 17.8

Source: the Company, Guotai Junan International.

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

Nov-17 Feb-18 May-18 Aug-18 Oct-18

% of return

HSI GDI

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 2 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

KEY UPDATES

Dongshen Water Supply Project: Guandong Investment ("GDI" or the "Company") derives more than 60% of its revenue from

water business, with Hong Kong being its key market for the water supply business. The volume of water supply to Hong Kong,

Shenzhen and Dongguan in 9M2018 amounted to 1.621 billion tons, up YoY by 14.9%, and generated revenues of HKD 5,016

mn, representing an increase of 3.7% YoY. The revenue from water sales to Hong Kong increased merely 0.3% YoY to HKD

3,921 mn, with remaining revenue contributed by Shenzhen and Dongguan area sales; the latter went up YoY by 17.7% to HKD

1,095 mn. Pursuant to the Hong Kong Water Supply Agreement for the years from 2018 to 2020, entered into between HKSAR

and Guangdong Provincial Government in 2017, annual revenue figures for water sales to Hong Kong for 3 years from 2018 to

2020 are HKD 4,793 mn/ HKD 4,807 mn/ HKD 4,821 mn, respectively, regardless of the volume of water delivered. The water

supply contract with HKSAR is fixed and revenue is set to grow at 0.3% per year during the contract period. As such, we expect

the mainland water business to become the main growth driver for the Company going forward. Total revenue from Dongshen

Project is estimated to grow YoY at 1.5%/ 1.1%/ 2.1%, respectively, from 2018 to 2020.

Figure-1: Annual Payment of HK Water Supply from the

Dongshen Project

Figure-2: Water Supply Volume from the Dongshen

Project

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Other Water Business: Apart from the Dongshen Water Project, the Company has a number of subsidiaries and associates

that are engaged in water distribution, sewage treatment operation and waterworks construction in mainland China. In 9M2018,

the Company entered into a service concession agreement for expansion of existing water sewage treatment plants in Meizhou,

Guangdong. Additionally, the Company was awarded the bid for 6 new water resources projects in Yangjiang, Yangshan,

Wuchuan in Guangdong Province, and Enshi in Hubei Province. The expected total investment of these projects secured in

9M2018 amounts to RMB 4,093 mn. Excluding Dongshen, these new investments will add to the Company’s existing portfolio of

6,004,000 tons per day of water supply capacity and 1,025,000 tons per day of water treatment capacity. Profit before tax of

other water resource projects (ex Dongshen) in 9M2018 reached HKD 238 mn, up 26% YoY, mainly due to the approximately

20% YoY increase in total operational capacity of these projects, which amounted to 2.4 million tons per day at the end of

9M2018. We expect the other water business (ex Dongshen) to continue to grow at a rapid pace, with operational capacity

hitting 2.5 mn tons/ 2.7 mn tons/ 2.8 mn tons, respectively, from 2018 to 2020. Total revenue from the water business

(Dongshen project + other water) is projected to grow YoY by 2.4%/ 1.6%/ 3.5%, respectively, from 2018 to 2020.

2,959 3,146

3,344 3,539

4,492 4,778 4,793 4,807 4,821

0

1,000

2,000

3,000

4,000

5,000

6,000

2009A

2010A

2011A

2012A

2016A

2017A

2018F

2019F

2020F

Hk$ mn

681 818

709 629 608 639 698 761

1,282

1,345

1,282

1,197 1,296 1,361

1,401 1,443

0

500

1,000

1,500

2,000

2,500

2010A

2011A

2012A

2016A

2017A

2018F

2019F

2020F

Total water supply to HK (mn ton)Total water supply to Shenzhen & Dongguan (mn ton)

Hk$ mn

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 3 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

Figure-3: Revenue Composition of GDI Figure-4: Revenue from GDI's Water Supply Projects

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Property Investment: Sales of Teem Plaza comprised of rental and property management fee income from both the shopping

mall and the office building. In 9M2018, revenue of Teem Plaza increased by 8.9% YoY to HKD 908 mn. The shopping mall and

the office building had average occupancy rate of 99.9% and 98.4%, respectively. Tianjin Teem Shopping Mall was opened in

June 2017 and had an average occupancy rate of 97.9% in 9M2018. Sales of Tianjin Teem Shopping Mall went up YoY by

nearly 200% to HKD 126 mn. Guangdong Investment Tower sales remained flat at HKD 42 mn with an average occupancy rate

of 100%. With more than HKD 10 bn already invested in the development, the Panyu Wanbo CBD and Shenzhen Buxin

projects are expected to be launched in 2020 and 2021, respectively. As the Zhuguanglu Project in Guangzhou, a project with a

GFA of 119,267 square meters, is scheduled to go on sale in 4Q2018, we expect revenues from GD Land to reach HKD 945

mn/ HKD 2,135 mn/ HKD 2,189 mn from 2018 to 2020, respectively. The growth of GDI from 2018 to 2020 will mainly be

boosted by a surge in revenues from GD Land, a subsidiary GDI acquired in April 2017.

Department Stores and Hotel Management: The Company operates 9 department stores with a total leased area of 176,200

sq.m. as at the end of 9M2018. Sales in 9M2018 went up 4.1% YoY to HKD 571 mn, and profit before tax increased 2.9% YoY.

Except for Mingsheng store and Nanhai store, all other 7 stores recorded positive growth in sales during the reporting period.

We believe that rapidly rising e-commerce will negatively affect the operation of the Company's department stores, and the

weakening of profitability is just one of the very early signs. Meanwhile, the Company manages a total of 31 hotels and owns 5

star-rated hotels. The average occupancy rate of Sheraton Guangzhou is 92.7% with an average room rate of HKD 1,247; that

of other 4 star-rated hotels was 76.8% with an average room rate of HKD 728. We expect the hotel business to remain stable

from time to time, with gradually rising room rates. Revenue from hotel business in 9M2018 amounted to HKD 507 mn, up YoY

by 7.0%. Profit before tax during the period reached HKD 119 mn, up YoY by 10.9%.

Energy Project: GDI owns 100% equity interest in Zhongshan Power Project, which operates 2 power generation units with

total installed capacity of 600 MW, and 25% equity interest in Yudean Jinghai Power Project, which runs 4 power generation

units with total installed capacity of 3,200 MW as at the end of September 2018. In 9M2018, sales of electricity from the

Zhongshan Power Project amounted to 2,162 mn kWh, up YoY by 17%, which led to a jump in revenues by 28.9% YoY to HKD

1,199 mn during the period. Profit before tax from the Zhongshan Power Project increased only 13.7% YoY to HKD 148 mn,

mainly as a result of high coal price. For Yudean Jinghai Power Project, sales of electricity in 9M2018 rose YoY by 9.4% to

10,475 mn kWh, and revenues jumped YoY by 13.3% to HKD 4,519 mn. Profit before tax from Yudean was down YoY by

35.2% to HKD 163 mn. As both domestic power consumption and nationwide thermal power utilization hours have recorded

strong growth in 9M2018, we expect that these indicators will continue to improve and benefit the thermal power business of the

Company. Electricity output and the profitability of thermal power are estimated to improve from 2018 to 2020 amid expectation

of high utilization hours and stable coal price. We expect coal price to stabilize at an average of RMB 650/ton in 4Q2018 and in

2019. The negative impact of high coal price is projected to be offset by a rise in utilization hours.

4,775 6,505

7,698 7,886 8,009 8,287

1,040

1,130

1,355 2,247

3,443 3,562

711

717

720

864

904 978

520

847

1,064

1,411

1,459 1,548

25

630

647

776

1,471 1,659

665

634

685

680

684 719

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012A

2016A

2017A

2018F

2019F

2020F

Water resources Property investment and development

Department store Electric power generation

Road and bridge Hotel operation and managementHk$ mn

2,959 3,146 3,344 3,539

4,492 4,778 4,793 4,807 4,821

909 921

1,149 1,236

1,164 1,295 1,373 1,424 1,541

849

1,625 1,720 1,778 1,925

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2009A

2010A

2011A

2012A

2016A

2017A

2018F

2019F

2020F

Revenue from HK water supply (HK$ mn)Revneue from Shenzhen and Dongguan water supply (HK$ mn)Revnenue from other water supply projects (HK$ mn)

Hk$ mn

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 4 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

Table-1: Key Stats of Zhongshan Thermal Power Zhongshan Power Plant 2014A 2015A 2016A 2017A 2018F 2019F 2020F

Total install capacity (MW) 110 110 415 600 600 600 600 Annual power sales(mn kwh) 624 652 1,926 2,416 3,021 3,135 3,192 Power generation 692 725 2,062 2,640 3,180 3,300 3,360 Utilization hours 6,291 6,591 4,836 4,400 5,300 5,500 5,600 Total revenue 400 391 838 1,261 1,411 1,459 1,548 Tarriff (HK$) 0.640 0.599 0.435 0.446 0.467 0.466 0.485 Source: the Company, Guotai Junan International.

Figure-5: QHD 5,500k Thermal Coal FOB Price Figure-6: QHD Port Coal Inventory

Source: National Bureau of Statistics of China, Guotai Junan International. Source: National Bureau of Statistics of China, Guotai Junan International.

Road & Bridge: Xingliu Expressway comprises of a main line approximately 100 km in length and 3 connection lines with an

aggregate length of approximately 53 km. Average daily traffic flow of Xingliu Expressway was 26,808 trips in 9M2018, up YoY

by 6.6%. Revenues of Xingliu Expressway during the period went up 10.8% YoY to HKD 563 mn and profit before tax was up

12.5% YoY to HKD 348 mn. We expect Xingliu’s sales to grow 13.4%/ 15.1%/ 16.5% from 2018 to 2020, respectively. Further,

accrued interest and management fee in the amount of HKD 9.7 mn was recorded from the Yinping PPP project during the

period while 3 project roads were currently under construction. We expect the Yinping project to contribute significantly to the

overall sales of the road and bridge business from 2019 and onwards. As a result of the anticipated earnings contribution from

the Yinping Project, we estimate the segment sales to grow YoY at 13.4%/ 89.5%/ 12.8% from 2018 to 2020, respectively. The

Yinping PPP project includes construction of certain A-grade highways, connecting roads and municipal roads, and the related

ancillary support services in Dongguan, Guangdong. Subject to the agreement with Xiegang Government of Dongguan City, the

Company’s returns will come mainly from 1) accrued interest (8% of outstanding amount); 2) management fees (2.5% of

development costs); and 3) maintenance fees (1.1% of development costs). Total development cost of the project is expected

not to exceed RMB 4,754 mn. The calculated IRR of the Yinping PPP project hit 10.5% throughout its 10-year maintenance

period, which we believe is an attractive return that meets the investment criteria of GDI.

Figure-7: Average Daily Traffic of Xingliu Expressway Figure-8: Average Rate per Trip of Xingliu Expressway

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

22,429

26,005

29,126

32,621

36,535

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2016A

2017A

2018F

2019F

2020F

Vehicles/day

77

72

73

75

78

69

70

71

72

73

74

75

76

77

78

79

2016A

2017A

2018F

2019F

2020F

HK$/per trip

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 5 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

Recap of 1-3Q2018 Operating Results. Total sales of GDI in 9M2018 went up YoY by 9.4% to HKD 9,951 mn, while net profit

attributable to shareholders decreased YoY by 14.9% to HKD 4,227 mn. The decrease in earnings in 9M2018 was mainly due

to the absence of a one-off gain on bargain purchase of HKD1,213 mn arising from the acquisition of approximately 73.8% of

issued share capital of Guangdong Land Holdings in 9M2017. In comparison, only approximately HKD 297 mn in one-off

provisional gain on bargain purchase arising from the acquisition of 100% equity interest of Guangdong Yuehai Property

Development Limited was recorded in 9M2018. Meanwhile, net exchange gain in the amount of HKD 124 mn was recorded as a

result of RMB depreciation in 9M2018. Gains arising from fair value adjustment for investment properties for the period

amounted to approximately HKD 158 mn, only a third compared to the same period of last year. The improvement in sales in

9M2018 was mainly due to better performance in mainland water business, road and bridge, power business and property

investment & management business during the period. Recurring profit before tax (excluding one-off items and impact from

forex) was approximately HKD 5,197 mn, up YoY by 4.6%. Operating results in 9M2018 was in line with market expectation.

Table-2: Operating Performance of GDI in 9M2018

Key operating and financial figures for GDI (HK$ mn) 9M2018 9M2017 YoY %

Revenue 9,951 9,095 +9.4% Gain on bargain purchase 297 1,213 -75.5% Changes in fair value of investment properties 158 443 -64.2% Net exchange gain 124 (6) n.a. Profit before tax 5,776 6,618 -12.7% Net profit attributable to shareholders 4,227 4,969 -14.9% Adjusted profit before tax (ex non-recurring) 5,197 4,968 +4.6% Source: the Company, Guotai Junan International.

EARNINGS ASSUMPTIONS

Major assumptions: 1) average RMB/ HKD exchange rate is estimated to be RMB 0.867/ RMB 0.870/ RMB 0.835 in 2018/

2019/ 2020, respectively; 2) revenue is estimated to grow YoY by 13.9%/ 15.2%/ 4.9% from 2018 to 2020, respectively. Key

reasons behind the rapid sales expansion in 2018 and 2019 include the rapid increase in sales from the property investment

and development segment (as a result of a surge in sales of GD Land) and the sales increase from the road & bridge segment

(mainly from the contribution of Yinping PPP project); 3) gross margin is estimated to be 59.0%/ 60.5%/ 60.8% from 2018 to

2020, respectively. The anticipated gradual rise in RMB exchange rate in 2019 and 2020 is projected to squeeze the profitability

of the water business in 2019 and 2020. As the cost of water sales to HKSAR is mainly incurred in RMB while sales in HKD, a

rise in RMB will automatically lower the gross margin of the water business. Meanwhile, the expected decline in the revenue

contribution from the water business is a key factor leading to gross margin decline during the forecast period. The revenue

contribution of the highly profitable water business of GDI is set to gradually decline to 57%/ 50%/ 49% in 2018 to 2020,

respectively, due to the projected surge in sales of other business segments; 4) 2018-2020 net profit is forecasted to be HKD

5,158 mn/ HKD 5,596 mn/ HKD 5,868 mn from 2018 to 2020 (-9.3%/ +10.2%/ +4.8% YoY), respectively. The sharp decline in

2018 earnings was mainly due to the absence of non-recurring gain in the amount of HKD 1,213 mn recorded from bargain

purchases recorded in 2017. Taking out the non-recurring one-off items, the Company’s recurring core net earnings from 2018

to 2020 has been calculated to be HKD 4,920 mn/ HKD 5,596 mn/ HKD 5,868 mn from 2018 to 2020, respectively, implying

core net profit YoY growth of 4.0%/ 13.7%/ 4.9%, respectively. Estimated core EPS from 2018 to 2020 is HKD 0.762/ HKD

0.867/ HKD 0.909, respectively. 5) High dividend payout is expected to be maintained. The Company’s dividend payout in 2016

and 2017 averaged at approximately 66%, and we expect dividend payout to average at 70% (from the core net earnings) for

the period from 2018 to 2020 given the stability and the defensiveness of GDI’s businesses.

Key risks: 1) lower-than-expected water sales in Dongguan and Shenzhen (Dongshen project); 2) delayed expansion of other

water resource business; 2) sluggish economic growth in China could affect the performance of commercial real estate

business of GDI (i.e. decline in mall, office and hotel rentals); 3) government regulations to further slow down the booming

growth of real estate industry in China could lead to lower-than-expected sales from GD Land; and 4) high fuel cost, particularly

coal price, will undermine the profitability of GDI’s thermal power business.

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 6 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

Table-3: Segmental Operating Figures of GDI in 9M2018

Key operating and financial figures for GDI (HK$ mn) 9M2018 9M2017 YoY %

Water 6,268 5,928 5.7% Dongshen water supply project

Total supply volume (mn cm) 1,621 1,411 14.9% Income from:

HK 3,921 3,909 0.3% Shenzhen & Dongguan 1,095 930 17.7% PBT 3,280 3,240 1.2%

Other water projects

Water supply capacity (mtpd) 3.8 2.5 54.8% Waste water treatment capacity 0.5 0.4 10.8% Revenue 1,252 1,089 14.9% PBT 238 188 26.3%

Property management

Teem Plaza 908 833 8.9% Occupancy rate from Teemall 99.9% 99.9% 0.0ppt Occupancy rate from Teem Tower 98.4% 91.5% -6.9ppt Revenue from Teemall 747 689 8.3% Revenue from Teem Tower 161 144 11.6% PBT from Teemall 621 571 8.7% PBT from Teem Tower 139 118 18.3%

Tianjin Teem Shopping Mall

Occupancy rate 97.9% 96.0% -1.9ppt Revenue 126 42 198.9% PBT 32 (4) n.a.

Guangdong Investment Tower

Occupancy rate 100.0% 100.0% 0.0ppt Revenue 42 42 -0.2%

Department Stores

Revenue from:

Teemall Store 389 374 4.0% Wan Bo Store 67 64 4.2% Ming Sheng Store 35 37 -6.0% Dong Pu Store 39 36 7.9% Ao Ti Store 31 29 8.5% Dongguan Store 3 2 10.2% Nanhai Store 2 2 -10.7% Yuehaiyangzhong Hui Store 2 1 61.8% Tianjin Teem Store (opened in June 2017) 3 2 46.5% Total 571 548 4.1% PBT 210 204 2.9%

Hotel Operation

Occupancy rate from Sheraton Guangzhou Hotel 92.7% 89.6% -3.1ppt Occupancy rate from other four star-related hotels 76.8% 78.9% 2.1ppt Average room rate from Sheraton Guangzhou Hotel (HK$) 1,247 1,165 7.0% Average room rate from other four star-related hotels (HK$) 728 653 11.5% Revenue 507 474 7.0% PBT 119 107 10.9%

Energy

Zhongshan Power Plant

Electricity sales (mn KWh) 2,162 1,848 17.0% Revenue 1,199 930 28.9% PBT 148 131 13.7%

Guangdong Yuedian Jinghai Power Plant

Electricity sales (mn KWh) 10,475 9,575 9.4% Revenue 4,519 3,990 13.3% Share of profit 31 48 -36.9%

Road and Bridge

Xiuliu Expressway

Average daily traffic flow (vehicle trip) 26,808 25,160 6.6% Revenue 563 508 10.8% PBT 348 309 -11.1% Source: the Company, Guotai Junan International.

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 7 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

VALUATION

A safe harbor in the middle of a highly turbulent market, reiterate "Accumulate" with TP of HK$15.20. GDI is a defensive

pick for risk-averse investors given the stability provided by its water business, which contributed more than half of its revenues

as well as earnings. The water business is a solid cash cow for the Company and has very high profitability due to the more

expensive water tariffs in Hong Kong compared to that of mainland China. We also like the commercial real estate and road and

bridge businesses of GDI for the same reason – stable cash flows and high defensiveness. Our DCF valuation suggests a

target price of HK$15.20 per share subject to a discount of 15%, and this target price translates to 19.0x FY18 PER/ 17.5x FY19

PER. We believe that such a valuation is justifiable given the Company’s high dividend yield (averaging at 4.3% in FY18/ FY19/

FY20) and the stability of its businesses. Due to the defensiveness of the businesses of GDI, the Company’s share price went

up by approximately 33% YTD 2019, which significantly outperformed the Hang Seng Index (-13.3% YTD 2019). As the

uncertainties in the market are expected to persist, we reiterate our "Accumulate" investment rating for GDI. We like GDI

especially in times of market turbulence and uncertainties.

Table-4: DCF Valuation FY18

Risk-free rate

2.3% Market risk premium

13.3%

Beta

0.52 Cost of equity

9.2%

PV of FCFE during 2018E to 2027E (HK$mn)

42,920 Perpetual growth after 2027E

3.5%

PV of terminal FCFE value after 2027 (HK$mn)

72,213 PV of FCFE (HK$mn)

115,133

Outstanding shares (mn)

6,458 NAV per share (HK$) 17.8 Source: Guotai Junan International.

Figure-9: Forward PER of GDI Figure-10: Forward PBR of GDI

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

3.0

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

11-15 05-16 11-16 05-17 11-17 05-18 11-18

PER (x) Average PER

Max: 18.9xAverage: 13.6xMin: 9.6x

1.0

1.3

1.6

1.9

2.2

2.5

05-16 11-16 05-17 11-17 05-18 11-18

PBR (x) Average PBR

Max: 2.2xAverage: 1.8xMin: 1.4x

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 8 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

Table-5: Peers Comparison

Company

Stock Code Currency Last price

PE (fiscal year) PB (fiscal year) ROE(%)

GP Margin(%)

Dividend Yield (%)

Market Cap

17A 18F 19F 20F 17A 18F 19F 20F 18F 18F 18F HKD mil

HK Listed Conglomerates

Guangdong Investment Ltd 270 HK HKD 14.08 15.8 18.2 17.1 16.2 2.3 2.1 2.1 2.0 12.0 59.1 3.9 92,052

Shanghai Industrial Hldg Ltd 363 HK HKD 17.08 5.9 5.4 5.2 4.8 0.4 n.a. n.a. n.a. 7.7 n.a. 5.7 18,570

Simple Average 10.8 11.8 11.1 10.5 1.4 2.1 2.1 2.0 9.8 59.1 4.8

Weighted Average 14.1 16.0 15.0 14.3 1.9 2.1 2.1 2.0 11.3 59.1 4.2

HK Listed Water Peers

Beijing Enterprises Water Gr 371 HK HKD 4.23 10.0 8.4 7.5 6.7 1.8 1.5 1.4 1.2 18.6 33.1 4.1 39,817

China Everbright Intl Ltd 257 HK HKD 6.90 9.0 8.0 7.4 6.5 1.4 1.1 1.1 1.0 15.4 36.8 3.7 42,387

Ct Environmental Group Ltd 1363 HK HKD 0.38 3.5 3.4 3.6 2.9 0.5 0.5 0.4 0.4 14.5 43.7 6.6 2,400

Canvest Environmental Protec 1381 HK HKD 4.19 17.5 13.9 12.0 10.6 2.1 1.9 1.6 1.4 14.0 34.8 1.1 10,288

China Everbright Greentech L 1257 HK HKD 6.07 11.7 9.3 7.3 6.0 1.4 1.3 1.1 1.0 14.2 30.4 2.2 12,541

Dongjiang Environmental-H 895 HK HKD 8.22 12.9 11.7 9.8 8.4 1.6 1.4 1.2 1.0 12.4 35.3 2.2 10,389

Simple Average 10.8 9.1 7.9 6.8 1.5 1.3 1.1 1.0 14.8 35.7 3.3

Weighted Average 10.6 9.0 7.9 6.9 1.6 1.4 1.2 1.1 16.0 34.7 3.4

Other HK Listed Peers with Similar Businesses

Anhui Expressway Co Ltd-H 995 HK HKD 4.79 6.4 6.3 6.3 7.3 0.7 0.7 0.6 0.6 11.4 39.5 5.6 9,515

China Resources Power Holdin 836 HK HKD 13.60 14.0 9.6 7.8 6.6 0.9 0.8 0.8 0.7 8.8 40.2 6.5 65,422

Huaneng Power Intl Inc-H 902 HK HKD 4.59 36.1 16.9 10.5 8.2 0.8 0.7 0.7 0.7 4.2 10.3 4.1 104,641

Huadian Power Intl Corp-H 1071 HK HKD 3.14 n.a. 12.2 8.7 7.3 0.6 0.6 0.6 0.6 5.2 22.5 3.2 44,872

Shenzhen Intl Holdings 152 HK HKD 15.52 8.0 9.2 8.2 7.0 1.3 1.2 1.1 1.0 14.4 38.8 5.7 32,795

Shenzhen Expressway Co-H 548 HK HKD 7.36 9.7 6.4 7.3 6.7 1.0 1.0 0.9 0.8 16.0 46.9 7.2 18,405

Sun Art Retail Group Ltd 6808 HK HKD 9.41 28.1 28.3 26.9 23.6 3.4 3.3 3.1 2.8 12.2 24.7 1.5 89,769

Simple Average 17.1 12.7 10.8 9.5 1.2 1.2 1.1 1.0 10.3 31.8 4.8

Weighted Average 24.1 16.3 13.3 11.4 1.5 1.4 1.3 1.2 8.8 25.8 4.1

Source: Bloomberg, Guotai Junan International. *Prices are updated as of 8th November 2018.

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 9 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

Financial Statements and Ratios

[Table_IncomeStatement] Income Statement

Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F

Total Revenue 10,464 12,169 13,864 15,970 16,752

Cost of sales (3,584) (4,985) (5,684) (6,310) (6,573)

Gross profit 6,880 7,184 8,180 9,660 10,180

Other income (loss/gain), net 552 666 494 351 336

Changes in fair value of

investment properties 113 432 145 141 136

Selling and distribution costs (242) (281) (277) (319) (335)

Administrative expenses (1,398) (1,584) (1,971) (2,263) (2,383)

Other operating

income/(expenses), net (201) 1,213 315 20 22

Operating Profit 5,703 7,630 6,887 7,589 7,956

Share profits of associates 179 102 144 146 151

Finance costs (130) (111) (116) (116) (119)

Profit Before Tax 5,752 7,621 6,914 7,619 7,987

Income Tax (1,100) (1,617) (1,381) (1,607) (1,684)

Profit After Tax 4,652 6,004 5,533 6,012 6,303

Non-controlling Interest (440) (318) (375) (417) (435)

Shareholders' Profit / Loss 4,212 5,685 5,158 5,596 5,868

Basic EPS 0.673 0.880 0.799 0.867 0.909

Recurring EPS 0.673 0.755 0.762 0.867 0.909

DPS 0.420 0.506 0.533 0.607 0.636

[Table_CashFlowStatement] Cash Flow Statement

Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F

Profit before tax 5,752 7,621 6,914 7,619 7,987

Depreciation & amortisation 1,358 1,486 1,713 1,862 1,901

Finance costs 130 111 116 116 119

Share of profits less losses of

associates (179) (102) (144) (146) (151)

Bank interest income (203) (288) (187) (223) (223)

Gains on bargain purchase 0 (1,213) (297) 0 0

Changes in fair value of

investment properties (113) (432) (145) (141) (136)

Others (43) (177) (307) (178) (163)

Dividend received 259 123 174 177 183

Working capital change (345) (931) (1,206) 315 114

Interest & Tax (520) (1,127) (589) (859) (934)

Cash from Operating Activities 6,099 5,072 6,044 8,543 8,697

CAPEX (1,332) (1,276) (3,395) (4,159) (3,123)

Net movement in

available-for-sale financial

assets (1,796) 1,370 2,056 543 1,323

Acquisition of assets through

acquisition of a subsidiary (12) 9 0 0 0

Acquisition of minority

interests (105) (3) 0 0 0

Others (21) (2,163) (510) (1,010) (1,010)

Cash from Investing Activities (3,267) (2,062) (1,849) (4,626) (2,810)

Proceeds from issue of new

ordinary shares 61 0 0 0 0

New bank loans 146 1,151 1,000 2,500 2,500

Repayment of bank loans (2,278) (1,308) (1,266) (2,269) (2,338)

Dividend paid (2,464) (3,165) (4,406) (4,000) (4,328)

Others 416 (37) 217 84 80

Cash from Financing Activities (4,118) (3,359) (4,455) (3,685) (4,086)

Net Changes in Cash (1,286) (350) (261) 233 1,801

Cash at Beg of Year 8,095 6,411 7,565 7,305 7,537

Cash from acquisitions 0 1,045 0 0 0

Foreign exchange rate

changes (398) 458 0 0 0

Cash at End of Year 6,411 7,565 7,305 7,537 9,338

Source: the Company, Guotai Junan International.

[Table_BalanceSheet] Balance Sheet

Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F

Property, plant and

equipment 6,692 7,485 9,283 11,371 12,350

Investing properties 12,561 16,038 17,273 18,304 19,280

Prepaid land lease payments 264 276 323 312 301

Goodwill 301 304 305 306 306

Interests in associates 1,716 3,680 3,649 3,618 3,585

Intangible assets 14,140 14,113 13,690 13,236 12,815

Receivables under service

concession\n arrangement 417 922 1,021 1,071 1,120

Others 153 340 497 555 587

Total Non-current Assets 36,246 43,156 46,041 48,771 50,343

Cash & Cash Equivalents 6,411 7,565 7,305 7,537 9,338

Property under development 0 5,749 6,186 7,114 8,033

Completed properties held for

sale 0 418 480 552 633

Available-for-sale financial

assets 7,623 8,093 6,237 5,793 4,570

Receivables, prepayments

and deposits 803 1,100 1,630 1,875 1,966

Restricted cash and bank

balances 783 137 0 0 0

Others 264 321 314 350 366

Total Current Assets 15,885 23,383 22,152 23,221 24,907

Total Assets 52,130 66,539 68,193 71,992 75,250

Payables and accruals 3,643 4,667 4,136 4,825 5,033

Due to non-controlling

shareholders of subsidiaries 200 175 193 198 209

Bank and other borrowings 1,012 5,176 2,937 3,177 3,274

Others 718 970 1,128 1,316 1,513

Total Current Liabilities 5,573 10,988 8,393 9,515 10,029

Bank and other borrowings 4,416 153 2,127 2,118 2,182

Deferred tax liabilities 2,514 4,849 5,080 5,289 5,507

Other liabilities 1,389 1,386 1,453 1,441 1,503

Total Non-current Liabilities 8,319 6,387 8,660 8,848 9,193

Total Liabilities 13,892 17,375 17,053 18,363 19,221

Total Shareholders' Equity 32,222 40,214 41,579 43,442 45,212

Minority Interest 6,017 8,949 9,561 10,186 10,817

Total Equity 38,239 49,164 51,140 53,629 56,029

[Table_FinancialRatio] Financial Ratios

2016A 2017A 2018F 2019F 2020F

Growth (%):

Revenue 14.1 16.3 13.9 15.2 4.9

Gross profit 12.0 4.4 13.9 18.1 5.4

Operating profit 12.8 33.8 (9.7) 10.2 4.8

Net profit 7.9 35.0 (9.3) 8.5 4.9

Core net profit 15.2 17.7 4.0 13.7 4.9

Profitability (%):

Gross margin 65.8 59.0 59.0 60.5 60.8

Operating margin 54.5 62.7 49.7 47.5 47.5

Net margin 40.3 46.7 37.2 35.0 35.0

Core net margin 38.4 38.9 35.5 35.0 35.0

ROA 7.9 9.6 7.7 8.0 8.0

ROE 13.2 15.7 12.6 13.2 13.2

Liquidity & Solvency

Current Ratio (x) 2.9 2.1 2.6 2.4 2.5

Net gearing net cash net cash net cash net cash net cash

Interest coverage (x) 44.0 69.0 59.3 65.5 66.6

Dividend payout (%) 65.5 67.0 70.0 70.0 70.0

Co

mp

an

y R

ep

ort

See the last page for disclaimer Page 10 of 10

[Table_RightMar1]

9 N

ove

mb

er

20

18

[Table_RightMar2]

Gu

an

gd

on

g I

nve

stm

en

t 粤

海投

资 (0

02

70

HK

)

[Table_PageHeader] Guangdong Investment (00270 HK)

[Table_CompanyRatingDefinition] Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable.

Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral.

Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

[Table_IndustryRatingDefinition] Sector Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Outperform 跑赢大市 Relative Performance>5%; or the fundamental outlook of the sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral.

Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[Table_DISCLOSUREOFINTERESTS] DISCLOSURE OF INTERESTS

(1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886 HK),VALUE A SHARE (03095

HK),CAM SCSMALLCAP (03157 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report.

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report.

(6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. © 2018 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk