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报告摘要

Franshion Properties (817 HK) Summary

Core Content Overview

Franshion Properties (817 HK) is a real estate company listed in Hong Kong with a current share price of HKD2.15 and a target price of HKD2.77, representing a 29% upside. The company's market capitalization is HKD19.7B, with an average daily trading volume of USD2.4M. It has a free float of 37.1% and is primarily owned by Sinochem (62.9%), GIC (4.7%), and Warburg Pincus (2.0%).

The report reiterates a "BUY" rating due to the stock being undervalued, with a 53% discount to NAV and a 5x 2015 PER. The company's core net profit for 1H14 was HKD2.082B, up 14% YoY, and reached 56% of the Bloomberg full-year consensus. Despite a lower GPM in 1H14 (39.4%) compared to 1H13 (43.5%), the firm expects to achieve a full-year GPM of 40% in 2014, driven by an en-bloc sale of office space at Shanghai Shipping Center.

Franshion's management has set a full-year contract sales target of at least CNY24B, with CNY15.9B expected in the remaining five months. The firm also guides August land sales from Changsha, which is expected to improve in the next six to nine months. The company's net gearing increased to 58% as of June 2014, but the listing of Jinmao Investments (6139 HK) in July provides a potential platform for future asset disposals.

Key Financial Metrics

Metric	FY12A	FY13A	FY14E	FY15E	FY16E
Revenue (HKD m)	17,175.7	20,718.9	28,701.0	31,824.9	37,064.5
EBITDA (HKD m)	5,732.2	7,994.3	9,266.8	10,715.6	12,214.7
Core Net Profit (HKD m)	2,158.3	2,910.3	3,489.9	4,193.3	4,620.5
Core FDEPS (HKD)	0.20	0.27	0.32	0.39	0.43
Core FDEPS Growth (%)	31.1	34.8	19.9	20.2	10.2
Net DPS (HKD)	0.07	0.10	0.10	0.11	0.13
Core FD P/E (x)	10.8	8.0	6.7	5.5	5.0
P/BV (x)	0.8	0.6	0.5	0.5	0.5
Net Dividend Yield (%)	3.2	4.4	4.7	5.3	5.9
ROAE (%)	9.4	10.1	10.0	11.1	11.2
ROAA (%)	2.8	2.9	2.8	3.3	3.6
EV/EBITDA (x)	8.8	7.4	6.2	5.9	5.7
Net Debt/Equity (%)	79.4	62.6	63.7	66.8	71.5

Valuation and Performance

Franshion is currently trading at a 53% discount to NAV, and its valuation metrics (5x 2015 PER, 0.5x 2015 P/BV) are considered cheap. The stock has underperformed in the past 12 months, with a -20.7% absolute return, but it has a 29.1% relative return to the market.

The company's performance in the first half of 2014 was slightly ahead of expectations, with core profit of HKD2.082B and a 14% YoY increase. The firm expects to see a peak launch period in September to November 2014, which could drive further performance improvements.

Key Risks

Project slippage
Worse-than-expected margins
Unattractive land acquisitions
Unexpected macroeconomic changes

Recent Developments

Franshion's management maintains its full-year contract sales target of CNY30B but indicates that the firm should attain no less than CNY24B.
The listing of Jinmao Investments (6139 HK) in July provides a platform for potential future asset disposals.
The company expects a peak launch period in September to November 2014, which could drive further performance improvements.

Share Price Performance

Period	Absolute (%)	Relative to Index (%)
1 Month	0.5	(6.2)
3 Months	(8.1)	(17.0)
12 Months	(20.7)	(29.1)

Debt and Net Gearing

As of June 2014, Franshion's net gearing ratio was 58%, up from 53% in June 2013.
The company has a total borrowings of HKD45,567M, with 49% of on-shore loans and 51% of off-shore loans.
The average interest rate was 5.4% in 1H14, with interest capitalization at 26.5% compared to 35.3% in 1H13.

Outlook and Recommendations

The report suggests that Franshion is a good entry point, with the current share price offering a 53% discount to NAV. The firm's core net profit is expected to grow, and the company's valuation is considered attractive. The report reiterates a "BUY" rating and a target price of HKD2.77, which is 29% above the current price.

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