20171006-招商证券_香港_-雅居乐集团-03383.HK-Making_good_progress_with_ongoing_momentum_15页_1mb_1mb

AGILE GROUP (3383 HK) Summary Report

Core Content

AGILE GROUP (3383 HK) is a property development company that is making significant progress in improving its financial performance and unlocking business values through strategic initiatives. The report highlights the company's expected earnings growth, spin-off of its property management business, and potential for further value creation through asset disposals.

Main Points

Earnings Re-acceleration

• Agile's core net profit is expected to re-accelerate from a -15% CAGR (2013-2016) to a +28% CAGR (2016-2019E), driven by:
  • Improvements in gross profit margin (GPM), expected to rise from 27% in 2016 to 32-35% in 2017-2019E.
  • Accelerated contracted sales growth, projected to increase from a 9% CAGR (2013-2016) to a +30% CAGR (2017-2019E).
• In 1H17, Agile achieved a GPM of 37.3%, with booked ASP rising to RMB12,446psm and 41% above the FY16 level of RMB8,808psm.
• The current landbank of 31mn sqm is sufficient for the next 5-6 years of contracted sales.

Spin-off of Property Management Business

• Agile is spinning off its property management subsidiary, A-Living, which is estimated to have a market cap of HK$7.7bn.
• The spin-off is expected to generate HK$2.3bn in proceeds and reduce net gearing from 111% to 106% by end-18E.
• A-Living has shown strong performance, with revenue and net profit expected to grow at 34% and 40% CAGR respectively for 2016-2019E.
• A-Living is already among the top 100 property management companies in China and manages properties in over 40 cities with ~50 subsidiaries.

Financial Analysis

• Revenue: Expected to grow from RMB43,004mn in 2015 to RMB71,212mn in 2019E.
• Adj. Net Profit: Projected to increase from RMB2,429mn in 2016 to RMB5,757mn in 2019E.
• Adj. EPS: Estimated to rise from RMB0.63 in 2016 to RMB1.47 in 2019E.
• Dividend Yield: Expected to increase from 3.2% in 2016 to 6.7% in 2019E.
• Net Gearing: Forecast to rise to 111% by 2018E but reduce to 106% after the spin-off.

Key Information

Contracted Sales Growth

• Agile's contracted sales are expected to grow from RMB40bn in 2013 to RMB73bn in 2017E, with a 30% CAGR from 2016 to 2019E.
• In 1H17, Agile achieved contracted sales of RMB50.2bn, or 69% of its full-year target.
• The company has a saleable pipeline of RMB105bn for FY17E, indicating strong future sales potential.

Business Valuation

• A-Living's business valuation is estimated at HK$7.7bn, based on a 16.9x P/E on FY18E earnings of RMB358mn.
• This valuation would position A-Living as the second-largest H-listed property management services company by market cap.

Potential Spin-offs/Disposals

• Other potential spin-offs include investment properties (valued at >RMB6.3bn) and waste treatment (estimated at HK$0.7bn).
• Disposal of 20% of investment properties could yield up to RMB1.26bn and reduce net gearing from 111% to 108% by 2018E.

Operating and Financial Metrics

• SG&A as % of Total Revenue: Expected to increase to 10% for 2017E-2019E.
• Core Net Margin: Projected to be 9.6% in 2017E, 9.4% in 2018E, and 8.1% in 2019E.
• Core EPS: Estimated to be RMB1.03 in 2017E, RMB1.24 in 2018E, and RMB1.47 in 2019E, representing 91%, 94%, and 98% of consensus estimates, respectively.

Strategic Expansion

• Agile is focusing on the Hainan and Great Bay Area, which account for 19.9% and 31% of its landbank as of 1H17.
• The company has a concentrated development strategy in these regions, with ASP expected to continue rising due to high profitability.

Conclusion

AGILE GROUP is positioned for significant financial improvement through a combination of improved GP margins, accelerated contracted sales, and the spin-off of its property management business. The company's strong growth potential and strategic focus on high-margin regions suggest a positive outlook, with the report resuming coverage at a BUY rating and a target price of HK$13.57, implying a total stock return of 15.7%. The spin-off of A-Living is expected to enhance Agile's financial position and provide additional growth opportunities.