As a nation grows, a few things tend to happen. The general wealth of its people starts to grow. With increased wealth, the populations might demand more products and services. This would then help its industrial sector get a boost as demand for goods increases. One more thing that is almost certain is that electricity usage would increase dramatically. This is what has been happening in China. With the country still expecting to grow at around the 7% range, the demand for electricity is
far from over.
Shanghai Electric Group Company Limited (HKG:2727), one of the largest energy equipment providers in China. The company achieved a sale of RMB 78.8 billion in 2013. The company operates in 4 main segments of business.
The company is engaged in the design, manufacturing and sale of nuclear power, nuclear island equipment products, and wind power equipment products. This is the smallest segment of its business, obtaining only RMB 5.86 billion worth of sales in 2013. The department was still loss making for 2013.
High Efficiency and Clean Energy
This segment of the business design, manufacturing and sale of thermal power equipment products and corollary equipment, nuclear power conventional island equipment products and power transmission and distribution equipment products. This is the largest segment of the company, recording about RMB 32.7 billion of sales in 2013, and chalking up RMB 2.0 billion of operating profit.
This segment of the business design, manufacturing and sale of elevators, electrical motors, machine tools, printing and packaging equipment, marine crankshafts and other electromechanical equipment products. This is also quite a significant contributor of sale, recording RMB 25.3 billion of sales and RMB1.7 billion of operating profit in 2013.
Lastly the company has a modern services segment which is engaged in the provision of integrated engineering services for power station products, financial products and services, international trading services, financial lease and other consulting and brokerage business.
This segment contributed RMB20.3 billion of sales and RMB1.47 billion of operating profit. This is also the highest margin segment of the business, having an operating margin of 7.2%.
Value In Action
Revenue is actually growing at 7.3% CAGR since 2009. However, investors have to know that its net profit for its shareholders has hardly moved in the same period. Yet, the huge potential of China’s future electricity demand cannot be denied. It would be interesting to see how this company panned out in the future.Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies!We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded. The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any shares in the companies mentioned above.