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Market Review

Corporate News Commentary / Reports Summary

  • Sanbase Corporation (8501 HK HK$1.52) Exporting craftsmanship from HK to China

Sanbase Corporation provides fit-out solutions to offices in Hong Kong, mainly A-grade sites. The company’s 1HFY3/19 revenue and earnings are HK$221m and HK$7.78m respectively. Apart from fitting out, Sanbase also generates revenue from restacking (rearranging rooms and walls), reinstatement, churn work and maintenance. Some of Sanbase’s major clients include China Life, AXA and DBS with China Life being a recurring client.

 

Projects on-hand aplenty with bullish outlook – Sanbase made an announcement on 6 ongoing projects to be completed by Mar 2019, with project sum totaling HK$312m. Barring delays or variation orders, the entire sum should be booked in FY3/19. The announced projects do not include small/mid-sized projects from returning clients, maintenance and churn works. We believe that the HK government’s CBD2 initiatives, such as Inland Revenue Department’s moving to Kai Tak and facilitating conversion of industrial buildings to commercial use, can support the company’s growth in the next 2 years. Kai Tak alone has 2m sqm of commercial space planned.

 

Vertically integrating by acquiring design houses – Sanbase acquired interior design houses Core Group and Guangzhou Siwu in Apr and May 2018 respectively. These acquisitions enable the company to offer one-stop design AND fit-out services, winning new clients who would have patronized other design houses. The Guangzhou deal may also smoothen Sanbase’s expansion into Mainland China, starting with China Life’s onshore offices. Management is considering M&A opportunities in SE Asia. The general approach to M&A is to maintain a controlling stake, leaving 30-40% shares for the seller to motivate the incumbent team.

 

Valued at 13x FY3/19 P/E – FY3/19 revenue and earnings are estimated at HK$470m and HK$23.4m respectively, driven by new customers and revenue from Mainland China. We believe Sanbase is fundamentally sound, with the prospect of Main Board listing adding to its appeal.

 

Key risks – 1) Failure to recruit talents; 2) Slow adaptation to the Mainland market; 3) slowdown in office renovation. (Phelix Lee)

 

China Market News

  • China stocks stayed weaker yesterday amid concerns over the US/China trade tensions.
  • Selected pharm/healthcare names continued their tumble. Technology shares were under great pressure.