MCC (01618) announced a major divestiture of non-core assets worth over 60 billion yuan, yet the market responded negatively, sending its Hong Kong-listed shares plunging 21% and wiping out over 10 billion HKD in market value. The company plans to sell its entire stake in MCC Real Estate to Minmetals Land Holdings for approximately 3.124 billion yuan, along with transferring related debts. Additionally, it will sell stakes in several other subsidiaries—including Nonferrous Engineering Research Institute, Huaye, MCC Tongxin, and Ramu Management—to its parent company China Minmetals Corporation for about 2.944 billion yuan. The total transaction value amounts to 60.676 billion yuan.
The sale prices represent significant premiums over the net asset values of the divested entities, which is expected to notably boost MCC's net assets post-transaction. The company stated that this move aims to optimize resource allocation, streamline its business structure, and sharpen focus on core operations such as metallurgical engineering, nonferrous and mining projects, high-end infrastructure, industrial construction, and emerging industries. However, the market reaction was starkly negative, with MCC's Hong Kong shares plummeting over 20% the next day, while its A-shares hit the daily limit down and continued declining thereafter.
**High-Premium Divestiture to Strengthen Core Business** MCC's revenue primarily comes from three segments: engineering contracting (90.3% of H1 2025 revenue), specialty businesses (7.62%), and integrated real estate (2%). The six divested subsidiaries contributed only 5.1% of total revenue (122.08 billion yuan for Jan-July 2025) but collectively reported a net loss of 1.841 billion yuan due to underperforming real estate assets. Their combined assets accounted for 9.75% of MCC's total assets (836.36 billion yuan). While the divestiture has minimal impact on overall revenue, it eliminates loss-making segments, potentially improving profitability.
Notably, the 60.676 billion yuan transaction price includes substantial premiums. For instance, MCC Real Estate, with negative net assets of -16.276 billion yuan, was sold with bundled debts of 46.164 billion yuan, effectively valuing it at 29.888 billion yuan—a 4.5% premium. Other subsidiaries saw even higher premiums: MCC Tongxin (183% premium), MCC Jinji (183.5%), and Huaye Duda (789.6%).
The buyers, China Minmetals and Minmetals Land, will pay in two installments: 50% within 20 days of board approval and the remaining 50% upon completion. The divestiture is projected to increase MCC's net assets by 11%, with proceeds exceeding 60 billion yuan, potentially lifting its cash reserves above 100 billion yuan. The company plans to reinvest these funds into core metallurgical projects, advanced R&D platforms, and emerging sectors like new materials and high-end equipment.
**Weak Earnings but Strategic Refocus** MCC's recent financial performance has been lackluster, with 2024 and Q1-Q3 2025 revenue and net profit declining by 13%/18.8% and 22.1%/41.9% YoY, respectively. All three business segments—engineering, specialty, and real estate—contracted, with real estate losses dragging down margins. However, its core engineering segment retains strong competitive advantages, boasting 12 top-tier design institutes and 15 construction firms with elite certifications.
The divestiture removes the loss-making real estate burden while freeing up capital for core growth. Management emphasized a "one core, two pillars, five specialties" strategy, prioritizing metallurgical projects, urbanization initiatives, and high-margin niche businesses. Post-divestiture, MCC's gross margin (9.58% in H1 2025, up 1.08 pp YoY) and cash flow are expected to improve further.
Despite the market's knee-jerk sell-off, MCC's current 0.3x P/B ratio and 3.4% dividend yield present a potential value opportunity for long-term investors. The company has consistently paid dividends since 2013, averaging a 20% payout ratio. The exaggerated reaction to its strategic restructuring may have created an entry point for those bullish on its refocused trajectory.
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