As a white horse stock in infrastructure and consumer goods with steady earnings growth, Shanghai Industrial Holdings (00363) has continuously attracted high investor attention due to its high dividend yield and low valuation. On September 17th, a "Consumer Investment Summit and 2025 Joint Autumn Strategy Conference" was launched in Hangzhou, the vibrant capital of China's new economy and e-commerce. During the roadshow session, Shanghai Industrial Holdings reported on the company's development status, future prospects, and dividend returns, engaging in direct and in-depth communication with on-site investors.

According to Shanghai Industrial Holdings' recently released interim financial report, the company achieved revenue of HK$9.476 billion and net profit attributable to shareholders of HK$1.042 billion. By business segment, infrastructure environmental protection and consumer goods formed a strong performance foundation, contributing core earnings with net profits of HK$933 million and HK$403 million respectively during the period.

Notably, as China's domestic real estate industry remained in a transformation phase of "destocking and structural adjustment" in the first half of the year, the company made combined impairment provisions of HK$1.15 billion for certain project inventories and investment properties, which dragged down overall profitability levels. However, the company maintained its consistent approach of increasing shareholder returns, announcing an interim dividend of HK$0.42 per share with a payout ratio of 43.8% and dividend yield reaching 6.4%.

**Strong Fundamentals with Multi-track Diversified Growth**

Shanghai Industrial Holdings is a diversified conglomerate with multi-track layout. Through its positioning in infrastructure and consumer goods, it continuously consolidates its fundamental business foundation, contributing stable earnings growth and cash flow. The company then leverages its substantial cash resources to invest in high-potential sectors such as healthcare through equity participation, expanding growth opportunities.

First, looking at the infrastructure track, which comprises three parts including toll roads, water utilities, and clean energy, contributing core performance with up to 92% of net profit in the first half.

Toll roads serve as cash cows. The company operates three toll road sections in Shanghai, contributing stable profits and cash flow. Historical profits have been at the level of HK$900-1,000 million, with HK$548 million contributed in the first half of this year. Company management stated that toll roads require heavy capital expenditure with large upfront investments, but obtain government operating rights for decades, generating continuous stable cash flow after project completion.

In water utilities, there are mainly two sewage treatment businesses including Shanghai Industrial Environment and Zhonghuan Water, with relatively stable profitability. They contributed net profits of HK$344 million and HK$120 million respectively in the first half, with Shanghai Industrial Environment showing significant profitability improvement mainly due to the establishment of a capital management center that substantially reduced financing costs, with financial expenses declining by 12.5%.

In clean energy, the main focus is on Kanghen Environment for solid waste treatment and waste-to-energy generation, with both waste intake volume and grid-connected electricity generation maintaining steady growth in the first half.

Worth mentioning is that the company completed its exit from Yuefeng Environmental Protection this year, recovering a total of HK$4 billion in cash through "equity + convertible bonds." This exit was mainly based on judgments about the target's development and optimal choice for maximizing shareholder interests. Company management stated that they made a forward-looking investment in the highly sought-after waste-to-energy quality project Yuefeng Environmental Protection in 2017, with the entire project investment yielding returns exceeding 50%.

Second, in the consumer goods track, consumer products business is the company's second major core business for stable cash flow, including Nanyang Tobacco and Wing Fat Printing. Consumer products business is significantly affected by the overall economic environment with large performance elasticity. With continuous consumption recovery in recent years, this business achieved a compound growth rate of 20.23% during the 2023-2025 interim period, becoming a core driver of stable earnings growth.

Revenue reached HK$1.9 billion in the first half of this year, accounting for 20.05% of total revenue, with profit contribution of HK$403 million, up 26% year-on-year. Profit margin reached 21.2%, accounting for approximately 39.8% of business net profit, with Nanyang Tobacco contributing over HK$300 million in profit.

Nanyang Tobacco mainly focuses on overseas market expansion due to limited domestic market quota participation. The company has production facilities in both Hong Kong and Malaysia, with the Malaysian facility serving to expand local markets and radiate to Southeast Asian and Central American markets. Company management stated that overseas markets account for over 60% of Nanyang Tobacco's revenue, driving double-digit growth levels under overseas market momentum.

The company will continue to promote Nanyang Tobacco's overseas market expansion, especially duty-free channel layout, while promoting Wing Fat Printing's transformation toward high value-added areas such as cigarette packaging, pharmaceutical packaging, and e-cigarette packaging.

Finally, new tracks for expanding growth space mainly focus on the healthcare sector, with the company positioning through shareholding in Shanghai Pharmaceuticals and contributing performance through profit consolidation methods. Shanghai Pharmaceuticals is a leading pharmaceutical company with not only stable earnings growth but also continuously improving profit margins, bringing considerable profit contributions to the company. It contributed HK$141 million in share of results of joint ventures in the first half of this year, representing a 14% contribution ratio.

Shanghai Industrial Holdings is also actively exploring investment opportunities in new tracks. As of June 2025, the company held HK$28.5 billion in cash with very sufficient cash flow. Management stated they will focus on investment opportunities in national high-tech sectors, especially in AI and application track areas, achieving shareholder interest maximization through forward-looking layout while monitoring industry technological progress and opportunistically increasing holdings in quality targets.

Worth noting is that while exploring new tracks, the company is also focusing and recovering from underperforming businesses. For example, in July this year, it sold Quanzhou assets for RMB 2.053 billion, on one hand accelerating inventory reduction, optimizing resource allocation and accelerating focus on Yangtze River Delta development, and on the other hand quickly recovering funds to free up more resources for investing in new tracks.

The real estate business made impairment provisions of HK$1.15 billion in the first half of this year, with expectations of no further impairment in the second half, which may not significantly impact profits.

**Significantly Undervalued with Multi-dimensional Drivers for Valuation Recovery**

The stability of fundamental business plus continuous development of new tracks are all built on a foundation of strong financial strength. Shanghai Industrial Holdings continuously improves its balance sheet, ensuring sustained performance across business tracks while safeguarding maximum shareholder interests, maintaining steady dividend payments unaffected by operations, achieving long-term sustainable development.

As of the first half of 2025, the company continued optimizing net debt ratio levels, declining from 65.12% at the end of 2024 to 60.99%. Interest-bearing debt steadily decreased to HK$58.51 billion, a reduction of HK$1 billion from the end of 2024. Combined with reasonable arrangements of long and short-term debt, financing costs decreased by 15%.

The company holds HK$28.5 billion in cash, including HK$24.186 billion in cash equivalents, which is 1.42 times short-term borrowings and 27.6 times financing costs.

More importantly, the stable cash flow provided by the company's fundamental business is sufficient to cover net financing outflows and partial investment support. In 2023-2024, operating cash flow net amounts were HK$4.355 billion and HK$4.813 billion respectively, totaling net inflows of HK$9.168 billion, while financing net outflows totaled HK$4.723 billion, leaving a difference of HK$4.445 billion available for investment business. The mutual support of business tracks forms a virtuous investment and financing cycle for the company.

With abundant financial resources, Shanghai Industrial Holdings pays very generous dividends. Since 2000, the company has paid dividends 54 times cumulatively, with total dividends of HK$21.838 billion and dividend ratio of 33.15%. Even during the three pandemic years (2020-2022), the average dividend ratio reached 35.2%. In the first half of 2025, the company paid HK$0.42 per share, with dividend ratio increasing from 38% in the same period last year to 43.8%.

The company has strong fundamentals with high appeal to investors. From a valuation perspective, the company has significant undervaluation.

First, in terms of PB pricing, its current PB ratio is only 0.3x, while railway and highway sectors trade at 0.9x, environmental protection sector at 0.52x, and tobacco consumer sector at 8.8x. The company is clearly undervalued regardless of which business track perspective, providing sufficient room for valuation improvement.

In terms of PE, the company's current PE (TTM) is 5.5x, while the aforementioned sectors trade at 9x, 10.4x, and 36.5x respectively. The company is also at obviously undervalued levels.

Moreover, the company's profitability over the past two years was mainly dragged down by real estate business, but with gradual business divestiture and focus, expected losses continue to narrow. Combined with continued performance from stable tracks, profitability will achieve substantial improvement, further reducing PE (TTM) and thereby enhancing valuation attractiveness again.

Over the past three years, driven by performance, Shanghai Industrial Holdings' valuation has continued to recover with market value rising 98%. However, valuation recovery remains a long marathon. Nevertheless, gold will always shine. With acceleration of stable track plus new track layout, there will be more conceptual momentum and value discoverers joining, driving multi-dimensional valuation recovery.