20180503-兴业金融证券-绿城中国-03900.HK-Still_Awaiting_a_Recovery_10页_468kb

Greentown China Holdings Summary

Core Content

Greentown China Holdings (HK:3900) is a property developer primarily operating in Hangzhou and the Zhejiang region, known for its strong brand reputation and presence in the Yangtze River Delta. The company has been actively acquiring land since FY17 and has adopted a project management approach to enhance its saleable resources.

Main Points

• Current Recommendation: Maintain SELL
• Target Price (TP): HKD7.10, which represents a 35% downside from the current price of HKD10.90
• Market Cap: USD3,010m
• Share Data:
  • Average daily turnover: HKD60.8m/USD7.68m
  • 52-week price range: HKD6.98 - HKD13.7
  • Free float: 36%
  • Shares outstanding: 2,163m
• Share Performance:
  • Absolute return (YTD): 8.3%
  • Relative return (YTD): 5.3%
  • 1-month return: 2.6%
  • 3-month return: -19.3%
  • 6-month return: 10.2%
  • 12-month return: 45.9%

Key Financial Forecasts and Valuations

Valuation Basis

• ENAV (End-Year Fair Value): HKD20.30 for FY18F
• Discount: 65% discount to ENAV, leading to a TP of HKD7.10

Key Drivers and Risks

Drivers:

• Increasing exposure in Tier-1&2 cities
• Potential for NAV-accretive acquisitions

Risks:

• Limited contracted sales and earnings growth due to small landbank and weak profit margins
• High net gearing levels (75% in FY17 and 78% in FY18F)
• Slow sell-through rates for some high-end projects
• Declining gross margin over the past few years

Financial Highlights

• Contracted Sales: Expected to rise 25% YoY in FY18, reaching 25% of full-year estimated target
• GPM (Gross Profit Margin): 19.1% in FY17, expected to remain under pressure in FY18 due to inventory clearance sales
• Margin Recovery: Likely to occur only by FY19, with modest improvements
• Recurring EPS Growth: 89.5% in FY17, 45.8% in FY18, then negative 14.8% in FY18F

Peer Comparison

SWOT Analysis

Strengths:

• Well-established brand reputation in Hangzhou and Zhejiang
• Strong focus on product quality

Weaknesses:

• Small landbank
• Weak profit margins
• High net gearing levels
• Limited contracted sales and earnings growth

Opportunities:

• Potential for NAV-accretive acquisitions
• Recovery in Tier-2 cities, especially in the eastern region and Hangzhou
• Acceleration of revenue bookings

Threats:

• Slow sell-through rates for high-end projects
• Declining gross margin over the past few years

Valuation and Investment Recommendation

• Target Price: HKD7.10
• Investment Rating: SELL
• Recommendation Chart:
  • 2018-04-03: SELL, TP: HKD7.10, Price: HKD11.1
  • 2017-08-29: SELL, TP: HKD6.8, Price: HKD9.1
  • 2017-03-27: SELL, TP: HKD6.5, Price: HKD7.9
  • 2016-08-30: Neutral, TP: HKD6.0, Price: HKD6.3
  • 2015-09-01: Neutral, TP: HKD6.1, Price: HKD5.8
  • 2013-12-19: Buy, TP: HKD15.2, Price: HKD12.1

Investment Rating Guide

• Buy: Share price may exceed 10% over the next 12 months
• Trading Buy: Share price may exceed 15% over the next 3 months, but long-term outlook is uncertain
• Neutral: Share price may fall within +/- 10% over the next 12 months
• Take Profit: Target price has been attained, look to accumulate at lower levels
• Sell: Share price may fall by more than 10% over the next 12 months
• Not Rated: Stock is not within regular research coverage

Conclusion

Greentown China Holdings is currently facing challenges due to its limited landbank and weak profit margins, which are constraining its growth. Despite some positive indicators such as increased contracted sales and a focus on Tier-1&2 cities, the company is expected to see meaningful recovery only starting from FY19. The valuation remains low, with a TP based on a 65% discount to ENAV. Key risks include high net gearing and slow sell-through rates, while potential upside lies in NAV-accretive acquisitions and improved margins. The investment recommendation remains SELL, with the TP unchanged.