20210308-招银国际-新力控股集团-02103.HK-Breakthrough_into_industrial_land_acquisition_4页_847kb

Sinic Holdings (2103 HK) Company Update Summary

Core Content

Sinic Holdings is a property developer that has adopted a new strategy in acquiring industrial land, which is seen as a positive development for its sales and margins. The company has also made progress in improving its balance sheet and reducing its funding costs. Despite the impact of the pandemic on its financial performance, the research firm maintains a "BUY" rating for the stock.

Main Points

Sales Growth and Performance

• Expected Sales Growth: Sinic is expected to record 15–20% sales growth in 2021.
• Historical Growth: In 2020, the company achieved 25% YoY sales growth to RMB 114bn.
• Sales Mix: 99.2% of revenue comes from property development in 2021, with the rest from other sources.
• Sales Achieved in 2021: In the first two months of 2021, Sinic recorded RMB15.9bn in sales, which is +124% YoY, with an average selling price (ASP) of RMB15,400/sq m.
• Attributable Sales Ratio: The company has achieved an attributable sales ratio of 72% in 1H20, with a target of 45% attributable ratio for 2021.

Industrial Land Acquisition Strategy

• New Approach: Sinic is collaborating with a theme park operator to acquire industrial land, which allows it to only pay for the residential part.
• Potential Impact: If successful, this approach could bring in RMB10bn in saleable resources with a gross margin >30%.
• Replication in Nanchang: The company is applying a similar strategy in Nanchang, expecting 15–20% of its land acquisition to come from this channel.

Balance Sheet and Funding

• Net Gearing: Reduced from 238% in 2018 to 66.2% in Jun 2020, with a target to stay below 80%.
• Funding Strategy: Sinic is lowering the ratio of trust loans from 36% in 2019 to 23% in 1H20 at a 10–11% rate.
• Funding Cost Reduction: The company is using offshore bonds and syndicated loans to further reduce the overall funding rate.
• Cash Collection: Aiming to improve the cash collection ratio from 80% in 2020 to the industry average of >85%.

Earnings and Profitability

• Net Profit: Trimmed to RMB1.94bn in 2020 from RMB2.58bn due to the impact of the pandemic.
• EPS: Revised to RMB0.58 in 2021 from RMB0.69.
• Gross Margin: Stabilized at 27.9% in 2021, slightly below the 2020 level of 28.3%.
• EBIT Margin: Maintained at 18.1% in 2021, down slightly from 18.2% in 2020.
• Net Margin: At 7.5% in 2021, down from 7.3% in 2020.
• ROE: Declined to 17.5% in 2021, from 21.4% in 2020.

Target Price and Valuation

• Target Price: HK$4.95, representing a 50% discount to NAV.
• Previous Target Price: HK$5.06.
• Current Price: HK$3.98, which is +24.4% below the target price.
• NAV Forecast: Revised to HK$9.90 from HK$10.11.
• P/E Ratio: At 5.3x in 2021, compared to 5.2x in 2020.
• P/B Ratio: At 1.0x in 2021, down from 1.2x in 2020.
• Yield: Increased to 4.9% in 2021, up from 4.4% in 2020.

Financial Highlights (Key Ratios)

• Current Ratio: Stabilized at 1.2x in 2021.
• Payables Turnover Days: Increased to 73 days in 2021.
• Inventory Turnover Days: Increased to 1,082 days in 2021.
• Net Debt/Total Equity Ratio: At 68.5% in 2021, up from 66.2% in 2020.
• ROA: At 2.0% in 2021, down from 2.1% in 2020.

Key Information

• Analyst: Jeffrey Zeng and Bowen Li from CMB International Securities.
• Stock Data:
  • Market Cap: HK$14.2bn.
  • 52-Week High/Low: HK$4.55/HK$3.60.
  • Total Issued Shares: 3,570 million.
• Shareholding Structure:
  • Zhang Yuanlin: 79.0%.
  • Employee Incentive Trust: 4.2%.
  • Public: 16.8%.
• Share Performance:
  • 1-Month: +1.0% (Relative: +1.7%).
  • 3-Month: -2.7% (Relative: -11.3%).
  • 6-Month: 0.0% (Relative: -15.5%).
  • 12-Month: -6.8% (Relative: -16.2%).

CMBIS Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• HOLD: Stock with potential return of +15% to -10% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• Underperform: Industry expected to underperform the relevant broad market benchmark.

Disclaimer

• The report is not an offer or solicitation to buy or sell any security.
• CMBIS does not provide individually tailored investment advice.
• Past performance is not indicative of future results.
• The information is subject to change without notice.
• CMBIS may have conflicts of interest and is not liable for any losses incurred from reliance on this report.

Conclusion

Despite the challenges posed by the pandemic, Sinic Holdings is making strategic moves to improve its sales and margin through innovative land acquisition methods and better financial management. The firm maintains a BUY rating, highlighting its potential for over 15% returns in the next year.