Franshion Properties Summary Report (20 August 2014)
Core Content
This report provides an update on Franshion Properties (817 HK), focusing on its 1H14 results, future outlook, and valuation. The report maintains a BUY recommendation with a 12-month price target of HK$3.30.
Main Points
- Sales Performance: 1H14 sales were HK$11.847bn, representing a 29% year-over-year increase, driven by property and land sales. The sell-through rate in 1H14 remained at 70%.
- 2H Outlook: The company has Rmb38.8bn in saleable resources for 2H14, with plans to launch 19 projects. It aims to achieve at least Rmb24bn in sales for FY14, down from its original Rmb30bn target.
- Flexible Pricing Strategy: Franshion plans to adopt a more flexible pricing strategy to boost sales in 2H14, especially for land sales in Changsha.
- Shanghai Office Project: The Shanghai Int'l Shipping Service Centre project is expected to benefit from the rezoning of the north bund area into the Lujiazui financial area, with a potential sale at close to Rmb100k/sm.
- Investment Properties: The company plans to triple its investment property portfolio by 2017 and is looking to spin off these properties through a new platform.
- Valuation Metrics: Franshion is currently trading at 5.1x FY15 PE, 0.7x P/BV, and 61% discount to NAV, which is lower than the mid-cap average of 5.8x/0.7x/54%.
- Earnings Visibility: High revenue lock-in and improved gross margins are expected to result in Rmb5bn net profit for FY14.
- Borrowing Costs: The average funding cost dropped to 5.4% in 1H14, down from 6.0% in FY12, aided by a HK$4bn syndicated loan.
- Cash Flow: The company is expected to generate HK$14.1bn in financing inflows for FY14, with a net cash flow of HK$4.7bn in 2H14.
- Key Projects: Several projects are highlighted, including the Shanghai Int'l Shipping Service Centre, Qingdao Jinmao Harbour, and Changsha Meixi Lake Jinmao Plaza, with varying GFA and ASP.
Key Information
Financial Highlights (FY Dec)
| Metric |
2013A (HK$m) |
2014F (HK$m) |
2015F (HK$m) |
2016F (HK$m) |
| Turnover |
20,719 |
29,292 |
35,721 |
42,073 |
| EBITDA |
9,832 |
10,436 |
12,395 |
13,030 |
| Pre-tax Profit |
8,428 |
9,153 |
10,846 |
11,328 |
| Net Profit |
4,227 |
3,517 |
4,196 |
5,047 |
| Core Net Profit |
2,910 |
3,517 |
4,196 |
5,047 |
| Core Net Profit after Perpetuals |
2,594 |
3,201 |
3,879 |
4,730 |
| EPS (HK$) |
0.43 |
0.35 |
0.42 |
0.52 |
| EPS Growth (%) |
27.8 |
(18.2) |
21.2 |
21.9 |
| Diluted EPS (HK$) |
0.36 |
0.30 |
0.36 |
0.44 |
| DPS (HK$) |
0.10 |
0.10 |
0.13 |
0.15 |
| BV Per Share (HK$) |
3.16 |
3.42 |
3.74 |
4.12 |
| PE (X) |
5.0 |
6.2 |
5.1 |
4.2 |
| EV/EBITDA (X) |
5.5 |
6.2 |
5.2 |
4.6 |
| Net Div Yield (%) |
4.4 |
4.9 |
5.9 |
7.2 |
| P/Book Value (X) |
0.7 |
0.6 |
0.6 |
0.5 |
| Net Debt/Equity (X) |
0.4 |
0.5 |
0.4 |
0.3 |
| ROAE (%) |
13.5 |
10.1 |
11.2 |
12.4 |
1H14 Results Summary
| Metric |
1H14 (HK$ million) |
1H13 (HK$ million) |
y-o-y % |
| Revenue |
13,819 |
11,132 |
24% |
| Property Sales |
11,847 |
9,185 |
29% |
| Property Leasing |
696 |
629 |
11% |
| Hotel Operations |
1,058 |
1,042 |
2% |
| Others |
218 |
276 |
-21% |
| Gross Profit |
5,441 |
4,837 |
12% |
| Pretax Profit |
5,829 |
4,403 |
32% |
| Reported Profit |
3,652 |
2,235 |
63% |
| Gross Margin (%) |
39% |
43% |
↓4 ppts |
| Core Net Margin (%) |
13.9% |
16.0% |
↓2.1 ppts |
| SG&A as % of Contracted Sales |
12.5% |
8.0% |
↑4.5 ppts |
1H14 Revenue Breakdown
| Project |
Revenue (HK$ million) |
GFA (sm) |
ASP (Rmb/sm) |
| Beijing Jinmao Palace Guangqu |
8,194 |
90,688 |
42,340 |
| Qingdao Jinmao Harbour |
1,971 |
95,730 |
17,262 |
| Chongqing Jinmao Long Yue |
791 |
87,944 |
7,539 |
| Shanghai Dongtan Jinmao Noble Manor |
152 |
4,147 |
29,980 |
| Nanjing Int'l Plaza |
21 |
540 |
31,845 |
| Changsha Jinmao Meixi Lake |
455 |
27,628 |
13,812 |
| Primary Land Sales |
3,654 |
990,835 |
2,917 |
Investment Properties Under Development
| Project |
Type |
Interest (%) |
GFA (sm) |
Completion |
| Lijiang Jinmao J-Life |
Retail |
100% |
12,990 |
2014 |
| Qingdao Jinmao Harbour |
Retail |
100% |
97,268 |
2016 |
| Shanghai Haimen Road |
Retail |
50% |
109,964 |
2016 |
| Shanghai Haimen Road |
Office |
50% |
193,500 |
2016 |
| Nanjing Int'l Centre Phase II |
Retail |
51% |
48,500 |
2017 |
| Nanjing Int'l Centre Phase II |
Office |
51% |
72,200 |
2017 |
| Changsha Meixi Lake Jinmao Plaza |
Retail |
100% |
99,000 |
2016 |
| Changsha Meixi Lake Jinmao Plaza |
Office |
100% |
55,000 |
2016 |
| Changsha Meixi Lake Int'l R&D Centre |
Office |
80% |
108,902 |
2016 |
| Shanghai Int'l Shipping Service Centre |
Retail |
50% |
17,927 |
2016 |
| Shanghai Int'l Shipping Service Centre |
Office |
50% |
78,303 |
2016 |
Valuation Comparison
| Company Name |
Code |
Price (HK$) |
Mkt Cap (HK$bn) |
Recom (US$) |
12-Month Target (HK$) |
EPS Growth (%) |
PE (X) |
Net Div Yield (%) |
ROE (%) |
Net Gearing (%) |
P/BV (X) |
NAV to NAV (%) |
| Franshion |
817 HK |
2.15 |
19.7 |
2.4 |
3.30 |
21 |
5.1 |
5.5 |
10.1 |
44.5 |
0.7 |
60.9 |
| China Overseas |
688 HK |
23.1 |
188.8 |
72.1 |
Buy |
29.90 |
19 |
8.6 |
2.5 |
28.2 |
1.7 |
24.5 |
| Country Garden |
2007 HK |
3.73 |
71.2 |
19.7 |
Buy |
5.08 |
15 |
5.5 |
7.6 |
57.4 |
1.2 |
28.5 |
| CR Land |
1109 HK |
18.18 |
106.0 |
31.1 |
Buy |
20.36 |
9 |
6.6 |
2.6 |
44.7 |
1.1 |
39.9 |
| China Vanke |
2202 HK |
15.6 |
171.8 |
28.2 |
NR |
n.a. |
15 |
7.4 |
4.6 |
44.7 |
1.7 |
n.a. |
| Agile Property |
3383 HK |
6.28 |
21.9 |
9.4 |
Buy |
6.98 |
2 |
5.1 |
5.9 |
73.4 |
0.5 |
16.9 |
| COGO |
81 HK |
5.1 |
11.6 |
4.0 |
Buy |
7.90 |
16 |
4.5 |
2.2 |
44.1 |
1.0 |
11.5 |
| Guangzhou R&F |
2777 HK |
10.82 |
34.9 |
9.1 |
NR |
n.a. |
15 |
3.7 |
4.2 |
110.8 |
0.9 |
18.1 |
| Hopson Dev |
754 HK |
7.92 |
17.8 |
0.8 |
NR |
n.a. |
13 |
10.2 |
4.0 |
59.5 |
0.4 |
n.a. |
| KWG Property |
1813 HK |
5.89 |
17.4 |
4.8 |
NR |
n.a. |
18 |
4.7 |
6.3 |
56.3 |
0.8 |
10.8 |
| Poly (HK) |
119 HK |
3.6 |
13.1 |
4.7 |
NR |
n.a. |
23 |
3.7 |
4.6 |
69.7 |
1.2 |
n.a. |
| Shui On Land |
272 HK |
2.08 |
16.6 |
2.2 |
Hold |
1.90 |
39 |
14.4 |
4.4 |
61.7 |
0.3 |
5.4 |
| Sino-Ocean Land |
3377 HK |
4.35 |
32.4 |
2.3 |
Hold |
4.27 |
20 |
8.2 |
5.1 |
48.3 |
0.7 |
8.4 |
| Soho China |
410 HK |
6.52 |
33.9 |
4.0 |
Hold |
6.47 |
(59) |
10.1 |
4.8 |
39.6 |
0.8 |
10.8 |
| Sunac China |
1918 HK |
6.33 |
21.3 |
16.0 |
NR |
n.a. |
23 |
3.7 |
4.6 |
69.7 |
1.2 |
n.a. |
| Yanlord Land |
YLLG SP |
1.195 |
2.3 |
1.0 |
Hold |
1.13 |
11 |
6.5 |
2.8 |
58.5 |
0.4 |
n.a. |
| Yuexiu Property |
123 HK |
1.73 |
16.1 |
5.4 |
Hold |
1.66 |
28 |
7.9 |
6.5 |
58.0 |
0.5 |
4.1 |
Conclusion
Franshion Properties is projected to achieve a Rmb5bn net profit in FY14 with above 40% gross margin and lower borrowing costs. The company is optimistic about its 2H14 performance and has a BUY recommendation with a price target of HK$3.30. It remains undervalued compared to the market, trading at a 61% discount to NAV.
