20181022-招商证券_香港_-中国海外发展-00688.HK-Well_positioned_for_market_downcycle_7页_1mb

COLI (688 HK) Summary

Core Content

COLI (688 HK) is highlighted as a top BUY recommendation due to its strong execution, premium brand, and solid financials. The company is well positioned to weather the current market downcycle, especially in Zhuhai, Zhongshan, and Jiangmen, where property markets have been impacted by tightening policies. COLI's city complex model and land banking strategy are key to its resilience in the market.

Main Points

• Market Conditions: The property markets in Zhuhai, Zhongshan, and Jiangmen have slowed down due to tightening policies and home purchase restrictions, leading to a decline in home prices and sell-through rates.
• City Complex Model: COLI's city complex model includes residential, commercial, and retail components, providing synergy and rental income. This model helps in reducing the financial burden of development and enhances long-term profitability.
• Zhuhai Unipark: A city complex with residential, mall, office, and hotel components, located near Zhuhai metro Qianshan station. It was auctioned to COLI in 2007 and has a significantly lower land cost due to development delays.
• Zhuhai Midtown: The first city complex in Zhuhai, completed in 2014, with a high rental income and 95% office occupancy. It demonstrates COLI's ability to create value through integrated development.
• Strategic Flexibility: COLI adopts a flexible approach to development and operation, switching between strategies based on regional fundamentals. This includes a fast asset turnover strategy in weaker markets and a focus on land banking in others.
• Financial Performance: COLI has shown consistent growth in core profit and revenue, with a projected increase in rental income by 2020. Its P/E ratio is attractive at 5.2x in 2019E and 4.5x in 2020E.
• Valuation: The current valuation is at a 31% discount to NAV, with a target price of HK$32, which is 32% above the current price. This indicates potential for value appreciation.
• Risks: The key risks include RMB depreciation, economic recession, and further tightening policies that could affect the property market.

Key Financials

Investment Highlights

• Target Price: HK$32, which is 32% higher than the current price of HK$24.30.
• Discount to NAV: Current valuation is at 31% discount to NAV, with a potential upside of 32%.
• Dividend Yield: The dividend yield is expected to increase from 3.2% in 2017 to 6.3% in 2020E.
• Capital Structure: COLI has a moderate net debt to equity ratio, increasing from 7.3% in 2016 to 44.2% in 2020E.
• Dividend Payout: COLI maintains a consistent dividend payout ratio of 30% across all years.

Investment Ratings

• Industry Rating: OVERWEIGHT (expect the sector to outperform the market over the next 12 months)
• Company Rating: BUY (expect the stock to generate 10%+ return over the next 12 months)

Analyst Disclosure

The analysts responsible for this report certify that the views expressed reflect their personal opinions and that there is no direct or indirect compensation related to the recommendations.

Regulatory and Disclaimer Information

This document is prepared by China Merchants Securities (HK) Co., Ltd. and is for informational purposes only. It is not an advice, offer, or solicitation to buy or sell any security. The information and opinions are based on reliable sources, but no guarantees are made regarding accuracy or completeness. Investors are advised to evaluate the information independently and seek financial and tax advice before making investment decisions.