20210512-招银国际-宝龙商业-09909.HK-Visibility_enhanced_for_2021_target_with_on-track_rental_sales_growth_and_more_reasonable_opening_schedule_3页_748kb

Summary of Powerlong Commercial (9909 HK) Company Update

Core Content

Powerlong Commercial, a subsidiary of Powerlong Real Estate, has shown strong performance and progress toward its 2021 targets. The company has enhanced visibility for its 2021 financial goals due to improved rental and sales growth, a more reasonable mall opening schedule, and strategic brand upgrades under the new CEO. The research report from CMB International Securities reiterates its "BUY" recommendation and maintains the target price of HK$33.2, which reflects a 30x 2022E P/E ratio.

Main Points

1. Performance Highlights

• Mall Traffic and Sales Growth: During the May Golden Week, mall traffic and average SSSG (Same Store Sales Growth) increased by 44% YoY, outperforming the market average of 20% YoY.
• Sales Growth Estimate: The company estimates that 4M21 sales would have grown by 70% from the low base of 2020.
• Rental Income Growth: Assuming on-schedule openings and historical seasonality, the report estimates 27-34% YoY growth in 2021E rental income, on track with the parent company’s guidance of +24% YoY.
• Target Price: The target price of HK$33.2 is maintained, reflecting a 30x 2022E P/E ratio.

2. Opening Plans

• Powerlong plans to open 22 new malls in 2021, including 14 from the parent company, 2 third-party, and 6 Xinghui projects.
• Two malls have completed tenant sourcing and their opening is pushed to June from the previous Q4 2021 schedule.
• Xinghui opened its first shopping street in May, contributing to the company's visibility and growth prospects.

3. CEO Impact and Strategic Improvements

• Since the arrival of the new CEO, Mr. Chen, in June 2020, the company has focused on occupancy improvements, brand upgrades, and asset-light expansion.
• New malls have achieved occupancy rates above 95%, while existing malls are being improved through tenant adjustments.
• Strategic partnerships with key upscale tenants, such as Apple, are being formed to enhance brand presence and tenant quality.

4. M&A and Third-Party Contracts

• The company is in negotiations for 3 M&A deals targeting small-to-mid-sized shopping street projects.
• These deals are expected to be secured by 3Q21, along with other third-party contracts, which could further support growth.

5. Financial Projections (2021E and 2022E)

• Earnings Estimate: The report forecasts 2021E net profit of RMB459 million, representing a 45% YoY growth.
• 2022E Net Profit: Estimated at RMB592 million, with a 29% YoY growth.
• Revenue Growth: Expected to grow from RMB2,632 million in 2021E to RMB3,445 million in 2022E, reflecting a 30.9% YoY growth.
• Operating Profit: Projected to reach RMB634 million in 2021E and RMB821 million in 2022E.

6. Key Financial Metrics

• Gross Margin: Improved from 26.4% in FY19A to 32.0% in FY21E.
• Net Margin: Increased from 11.0% in FY19A to 17.4% in FY21E.
• ROE: Rose from 11.3% in FY18A to 18.4% in FY21E.
• ROA: Improved from 5.8% in FY18A to 8.6% in FY21E.

7. Cash Flow and Balance Sheet

• Net Cash from Operating Activities: Expected to be RMB825 million in 2021E and RMB1,029 million in 2022E.
• Cash and Cash Equivalents: Projected to increase from RMB3,676 million in 2021E to RMB4,425 million in 2022E.
• Total Assets: Estimated to grow from RMB5,303 million in 2021E to RMB6,420 million in 2022E.
• Total Liabilities: Projected to rise from RMB2,811 million in 2021E to RMB3,348 million in 2022E.
• Equity to Shareholders: Expected to increase from RMB2,492 million in 2021E to RMB3,072 million in 2022E.

8. Share Performance

• 12-month price performance: +130.9% in absolute terms, +95.7% relative to the market.
• Market Cap: Currently at HK$18.579 billion, with an average 3-month turnover of HK$47.01 billion.

9. Shareholding Structure

• Powerlong Real Estate: Holds 65.1% of the shares.
• Hoi Wa Fong: Holds 7.2%.
• Free float: Accounts for 27.7%.

Key Information

• Catalysts for Growth:
  • Third-party and M&A deals in the second half of 2021.
  • Better-than-expected operating metrics.
• Growth Outlook:
  • 40% NP CAGR for the long-term, assuming a 95% occupancy rate.
• Rental Income Model:
  • Powerlong takes a fixed 5% rental income for older malls, but has introduced a new system for newer malls where it takes the higher of rental income or EBITDA, aligning income more closely with sales performance.

Analyst Certification and Disclosures

• The report is prepared by CMB International Securities Limited, a subsidiary of China Merchants Bank.
• The research analyst certifies that the views expressed reflect personal opinions and that there are no conflicts of interest affecting the report's objectivity.
• The report is not investment advice and is intended solely for informational purposes.
• Investors are encouraged to consult professional financial advisors before making any investment decisions.
• Legal and distribution restrictions apply depending on the region of the recipient, including the UK, US, and Singapore.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• NOT RATED: Not rated by CMBIS.
• OUTPERFORM: Industry expected to outperform the broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the broad market benchmark.

Conclusion

Powerlong Commercial is on track to meet its 2021 targets with strong performance in sales, rental income, and mall openings. The company's strategic focus on occupancy improvements, brand upgrades, and M&A activity is expected to drive long-term growth. The target price of HK$33.2 reflects a 30x 2022E P/E ratio, and the report reiterates a BUY rating with a +15.1% upside from the current price of HK$28.9.