20180326-兴业金融证券-龙湖地产-00960.HK-Balanced_Growth_Story_Remains_Intact_13页_549kb

Longfor Group Holdings Ltd. Summary

Core Content

Longfor Group Holdings Ltd. is a mid-cap property developer with a strong, sustained, and balanced growth story. The report highlights its potential for share price appreciation in the medium term, driven by consistent sales and earnings growth, a resilient financial position, and a stable dividend payout. The analysts have reiterated a "BUY" recommendation, with a new target price of HKD26.30, representing a 14% upside from the current price of HKD23.00.

Main Points

• Growth Momentum:

  • FY17 results were largely in line with expectations, with revenue up 31.5% YoY and recurring net profit up 25.9% YoY.
  • GPM (Gross Profit Margin) exceeded expectations at 33.9% (vs 31.1% forecast).
  • The company announced a CNY200bn sales target for FY18F, which is higher than the sector average of 15-20%.

• Dividend Policy:

  • The payout ratio increased to 40% in FY17, up from 35% in FY16.
  • A special dividend of CNY0.085/share was announced, leading to a full-year DPS of CNY0.758/share, a 9.2% increase from the forecast.
  • The dividend yield is expected to rise to 6.0% by FY20F.

• Financial Position:

  • Net gearing is expected to remain between 45-54% over FY18-20F.
  • Weighted average borrowing cost declined to 4.5% in FY17 from 4.9% in FY16.
  • The company has a large land bank with CNY900bn total saleable resources, allowing it to maintain a 24.4% CAGR in contracted sales.

• Valuation and Forecast:

  • The target price is based on a 25% discount to end-FY18F ENAV of HKD35.10.
  • The ENAV for FY18F is calculated as HKD35.10, with a breakdown showing the contribution of landbank, investment properties, and net debt.
  • Recurring net profit is forecasted to grow at a 19% CAGR from FY17-20F, with EPS increasing steadily over the period.

• Performance Metrics:

  • Recurring EPS is expected to grow from CNY1.33 in Dec-16 to CNY2.79 in FY20F.
  • P/B (Price to Book) is projected to decline from 1.75 in Dec-16 to 1.11 in FY20F.
  • Net debt to equity is forecasted to fluctuate, with a decrease in FY18F to 47.4% from 53.9% in FY16.

Key Information

• Company Profile:

  • Established in 1993 in Chongqing.
  • Operates in 36 cities across China, including Western China, Yangtze River Delta, Bohai Rim, and Southern and Central China.
  • Engaged in property development, investment, and management through its Paradise Walk and Starry Street series.
  • Listed on the HKEx in 2009.

• Share Data:

  • Market Cap: USD17,337m.
  • Bloomberg Ticker: 960 HK.
  • Average Daily Turnover: HKD144m/USD18.4m.
  • 52-week Price Range: HKD12.8 - HKD26.6.
  • Free Float: 30%.
  • Shares Outstanding: 5,915m.
  • Estimated Return: 14%.

• Shareholders:

  • Wu Yajun: 43.7%.
  • Cai Kui: 26.2%.

• Key Risks:

  • Further tightening policies in tier-1 & tier-2 cities could pose a downside risk to the recommendation.

Financial Highlights

Peers Comparison

Key Risks

• Further tightening of policies in tier-1 and tier-2 cities could negatively impact the company's performance.

Summary

Longfor Group Holdings Ltd. continues to show strong and balanced growth, supported by its extensive land bank and diversified business segments. The company's financial resilience, along with its increased payout ratio and stable borrowing costs, positions it well for future earnings growth. The analysts maintain a "BUY" recommendation with a new target price of HKD26.30, based on a 25% discount to the end-FY18F ENAV of HKD35.10. Despite the potential risks from policy tightening, the company is expected to maintain its top-10 position in the property sector.