20210304-招银国际-宝龙商业-09909.HK-Remain_confident_in_delivery_and_occupancy_improvement_despite_slower-than-expected_FY20_5页_765kb

Powerlong Commercial (9909 HK) Summary

Core Content Overview

Powerlong Commercial, a real estate company listed on the Hong Kong Stock Exchange, reported FY20 results that were less than expected in terms of mall delivery and top-line growth, but core profit exceeded consensus due to improved margins. The company has maintained a positive outlook, revising its earnings estimates for 2021E and 2022E upwards and lifting its target price (TP) to HK$33.2. The firm remains a Top Pick with a "BUY" rating, reflecting confidence in its long-term growth potential.

Key Financial Highlights

• Revenue Growth: FY20 revenue reached RMB1.92bn, up 18.6% YoY, slightly below the consensus and CMBIS estimates.
• Core Profit: Core profit increased by 81% YoY to RMB324mn, beating expectations due to higher contribution from pre-opening services and margin corrections in the residential segment.
• Occupancy Rate: Occupancy returned to pre-pandemic levels at 90%, with plans to reach 93% in 2021 and 95% in the long term (LT).
• Earnings Estimates: Revised to RMB459mn for 2021E and RMB592mn for 2022E, reflecting improved margin assumptions.
• Target Price: Updated to HK$33.2, up from HK$30.9, based on 30x 2022E P/E.

Strategic Initiatives

• Mall Delivery: The company expects to deliver 22 new commercial projects in 2021, with 14 from the parent company, 2 from third-party partners, and 6 from Xinghui projects. This is supported by a reserve of 40 malls and potential for additional third-party gains.
• Brand Upgrade: Powerlong plans to build 1-2 high-end, flagship malls in each of 6 major cities in the Yangtze River Delta (YRD) over the next five years to enhance its brand image and support third-party expansion.
• Expansion Team: The expansion team has tripled in size since the new CEO took office in June, focusing on the YRD and Greater Bay Area (GBA) regions.

Financial Metrics

• Gross Margin: Improved to 32.3% in FY21E from 29.3% in FY20A.
• Net Margin: Increased to 17.6% in FY21E from 15.1% in FY20A.
• ROE: Rose to 19.3% in FY22E from 14.1% in FY20A.
• P/E Ratio: Dropped to 24.3x in FY22E from 45.5x in FY20A.
• P/B Ratio: Decreased to 4.7x in FY22E from 6.6x in FY20A.

Shareholder Structure

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

Stock Performance

• 1-Month Return: 13.1%
• 3-Month Return: 24.4%
• 6-Month Return: 7.0%
• 12-Month Return: 140.1%

Cash Flow and Balance Sheet

• Net Cash from Operating Activities: Increased to RMB825mn in FY21E from RMB592mn in FY20A.
• Net Cash from Investing Activities: RMB-10mn in FY21E from RMB-5mn in FY20A.
• Net Cash from Financing Activities: RMB-176mn in FY21E from RMB-176mn in FY20A.
• Total Assets: Rose to RMB6,420mn in FY22E from RMB4,520mn in FY20A.
• Total Liabilities: Increased to RMB3,348mn in FY22E from RMB2,355mn in FY20A.
• Equity to Shareholders: Grew to RMB3,072mn in FY22E from RMB2,166mn in FY20A.

Key Ratios

• Sales Mix: Commercial operational services accounted for 82.0% of revenue in FY21E, with residential property management services making up 18.0%.
• Current Ratio: Decreased to 1.8x in FY22E from 2.2x in FY20A.
• Receivable Turnover Days: Stabilized at 31 days in FY21E and FY22E.
• ROA: Increased to 9.2% in FY22E from 6.7% in FY20A.

Analysts and Ratings

• Analysts: Bowen Li and Jeffrey Zeng.
• CMBIS Rating: "BUY" for Powerlong Commercial, indicating potential return of over 15% over the next 12 months.
• CMBIS Ratings:
  • BUY: Potential return of over 15%.
  • HOLD: Potential return of +15% to -10%.
  • SELL: Potential loss of over 10%.
  • NOT RATED: No rating provided.
  • OUTPERFORM: Industry expected to outperform the market.
  • MARKET-PERFORM: Industry expected to perform in-line with the market.
  • UNDERPERFORM: Industry expected to underperform the market.

Disclosures

• Analyst Certification: The analyst certifies that the views expressed in the report reflect their personal views and that there are no conflicts of interest.
• Investment Banking Relationship: CMBIS or its affiliates have investment banking relationships with the issuers covered in the report within the past 12 months.
• Legal Disclaimer: This report is not an offer to buy or sell any securities and is provided solely for informational purposes. CMBIS is not registered in the U.S. or Singapore, and the report is subject to jurisdictional restrictions.

Conclusion

Despite slower-than-expected mall delivery and top-line growth in FY20, Powerlong Commercial has demonstrated strong core profit growth and margin improvements. The company is on track to achieve a 40% net profit CAGR, supported by its expansion strategy, improved occupancy rates, and enhanced brand positioning. The revised earnings estimates and target price reflect the analysts' confidence in the company's future performance.