Company Profile

Guoxing Rongda Real Estate Co., Ltd. (000838: SZ) (the company) designs,manufactures, installs, and sells chemical machinery equipment. The company'sproducts include chemical containers, sphere products, and oxygen.

Event

Chinese President XI Jinping announced on November 7 that the thirdSingapore-China government-to-government project will be in the Chinese city ofChongqing. Key focus of the project will be placed on financial services, aviation,transportation and logistics, as well as ICT. Officials had earlier said the project willfocus on modern connectivity and modern services, but had not announced thelocation.

Investment Highlights

Local companies in Chongqing will become big beneficiaries of the new project.Singapore and China already have joint projects in Suzhou Industrial Park and TianjinEco-city and both are progressing well. Statistics show that actual use of foreign capitalby Suzhou Industrial Park had reached a cumulative USD 26.7 billion by the end of2014. Being home to over 5,000 foreign-funded enterprises, Suzhou Industrial Parkreported output value of CNY 200 billion in 2014. The establishment of the SuzhouIndustrial Park has provided strong impetus for the city’s growth, enabling it to becomethe regional economic development leader. The launch of the newgovernment-to-government project in Chongqing will help accelerate the city’seconomic growth. With mature innovative development mode introduced fromSingapore, the transformation and upgrading of Chongqing’s modern service sector willbe gathering pace. Local companies in Chongqing will become big beneficiaries of thenew project.

The company’s major shareholder, Chongqing Casin Group has been focusingon developing property and environmental protection businesses in Chongqing.We think both Chongqing Casin Group and Guoxing Rongda Real Estate willsubstantially benefit from the new project. As a leading conglomerate based inChongqing, Chongqing Casin Group is principally engaged in real estate development,financial services, environmental engineering projects and municipal projectconstruction. As the only listed company under Chongqing Casin Group, GuoxingRongda Real Estate will be embracing new opportunities for development. Through theprivate placement in September, Chongqing Casin Group increased its stake inGuoxing Rongda Real Estate from 29.90% to 59.65%, thus becoming its controllingshareholder. We expect Guoxing Rongda Real Estate to become a more importantstrategic platform for Chongqing Casin Group. In terms equity investment, ChongqingCasin Group has taken stake in multiple financial institutes. Last year, Guoxing RongdaReal Estate released its plan to acquire 24.09% stake in Southwest Securities (600365:SH) with no less than CNY 6.85 billion – a strong proof of its financial strength. Withextensive social network and effective strategic planning, Guoxing Rongda Real Estate isable to grow businesses locally at a faster pace.

Investment Recommendations: The launch of the third Singapore-Chinagovernment-to-government project will bring substantial benefits to local companies,especially to Guoxing Rongda Real Estate, which boasts rich resources and strong socialnetwork. We are positive towards the fast development of Chongqing Casin Group and itsstrong support for Guoxing Rongda Real Estate. We made our EPS forecast for thecompany at CNY 0.37 in 2015, CNY 0.47 in 2016 and CNY 0.55 in 2017, implying 52x 15EPE, 41x 16E PE and 35x 17E PE. Reiterate BUY.

Potential Risk: Future sales might fail expectations.