20151008-DBS_Group-华润置地-01109.HK-Share_price_lags_performance_13页_434kb

DBS Group Equity Research Summary: China Resources Land Limited (CR Land)

Core Content

• Company Overview: China Resources Land Limited is a PRC developer with a focus on nationwide residential development and shopping mall investment (MixC and Hi 5). As a state-owned red-chip, it receives strong support from its parent company through asset injection.
• Industry Classification: Financials; Real Estate Holding & Development.
• Key Financials:
  • FY16F EBITDA: HK$31,534 million
  • FY16F Pre-tax Profit: HK$30,297 million
  • FY16F Net Profit: HK$14,595 million
  • FY16F Core Profit: HK$14,595 million
  • FY16F EPS (HK$): 2.11
  • Valuation Metrics:
    • PE (X): 9.7
    • EV/EBITDA (X): 6.8
    • Net Debt/Equity (X): 0.4
    • ROAE (%): 10.9
    • P/Book Value (X): 1.0
    • Net Dividend Yield (%): 2.8
• Price Target: HK$24.98, representing a 23% upside from the last traded price of HK$20.40.
• Investment Thesis:
  • Decent growth driven by property sales and rental.
  • Abundant saleable resources after asset injection.
  • Better mix of saleable resources after asset injection.
  • Rental growth is expected from new malls.
  • Less margin compression pressure in 2015 and 2016.
  • Cost-saving efforts are beginning to show results.
  • Higher-margin Shenzhen projects will contribute to earnings in 2015 and full year 2016.
  • Strong access to low-cost funding.
  • Strong holding power of IPs.
• Valuation:
  • The valuation is based on an 11.9x FY16 price-earnings ratio, benchmarked against the average PE since 2011.
  • The company is undervalued relative to its improving sales and margin outlook.
• Share Price Performance:
  • Share price has underperformed large caps by 1% year-to-date.
  • Sales are expected to grow moderately in 4Q, with 9M15 sales likely to reach 83% of the full-year target.
  • Sales in Oct are expected to pick up due to two major launches in Shenzhen.
  • Despite a high base in 4Q14, management expects sales growth to moderate in 4Q.
• Risk Factors:
  • Macroeconomic risk: If China's economy slows faster than expected, the property sector will be significantly affected.
  • Policy risk: Unexpected sector tightening or loosening could trigger a sector-wide re-rating or de-rating.

Key Financial Forecasts

Valuation Comparison

Investment Rationale

• The company's share price lags behind its performance.
• Sales are expected to grow significantly in 2015, with a strong performance in 3Q and potential for improvement in 4Q.
• Valuation is undemanding given the improved sales and margin outlook.
• The company's strong support from its parent and asset injection contribute to its growth potential.
• Rental growth is expected from new mall openings.
• The company is recommended as a BUY with a price target of HK$24.98.

Risks

• Macroeconomic Risk: A slowdown in the Chinese economy could negatively impact the property sector.
• Policy Risk: Unexpected changes in sector policies may lead to a re-rating or de-rating of the entire industry, reducing the importance of bottom-up research.

Conclusion

China Resources Land Limited is positioned for growth in both property sales and rental income, supported by its parent company and asset injection. Despite a current undemanding valuation, the company's share price has underperformed large caps. The investment thesis remains strong, and the analysts reiterate a BUY recommendation with an unchanged price target. However, macroeconomic and policy risks should be closely monitored.