20180118-申万宏源研究_香港_-碧桂园-02007.HK-Capital_structures_11页_1mb

Country Garden (2007 HK) Summary

Core Content

Country Garden, a Guangdong-based private developer, announced a share placement and convertible bonds issuance on 18 January 2018. The share placement involved the issuance of 460 million new shares at HK$17.13 per share, representing a 3.7% discount to the previous close. The convertible bonds were issued with a principal amount of HK$15.6 billion and a conversion price of HK$20.556 per share, which is a 15.6% premium to the previous close. These measures are expected to raise estimated net proceeds of HK$23.3 billion.

Key Financial Metrics

Contract Sales

In 2017, Country Garden achieved contract sales of Rmb551 billion, representing a 78% YoY increase, which was significantly higher than the sector average of 58%. This made it the largest mainland developer by sales for the first time in 2017. The company's total gross floor area (GFA) sold reached 61 million square meters, a 62% YoY increase, with an average selling price (ASP) of Rmb9,080 per square meter, up 10% YoY.

Land Purchase

Country Garden accelerated land purchases in 2017, adding 678 projects (up from 414 in 2016) with attributable GFA of 81 million square meters, up 27% YoY. The average floor cost was Rmb3,299 per square meter, up 62.7% YoY. Total land reserves attributable to the firm increased to 156 million square meters, sufficient for 3.7 years of development, with an average floor cost of Rmb2,458 per square meter, which is 27% of the 2017 ASP.

The land reserves were distributed as follows:

• Tier-1 cities: 3%
• Tier-2 cities: 11%
• Tier-3 cities: 21%
• Lower-tier cities: 65%

Earnings Forecasts

The company's earnings are expected to benefit from the new share placement and convertible bonds, despite the dilution effect. The core earnings forecasts for 2017-2019 were revised upwards:

• 2017E: Rmb18.3 billion (+53% YoY)
• 2018E: Rmb23.0 billion (+26% YoY)
• 2019E: Rmb28.7 billion (+25% YoY)

The core EPS forecasts were also raised:

• 2017E: Rmb0.86 (+59% YoY)
• 2018E: Rmb1.06 (+23% YoY)
• 2019E: Rmb1.32 (+25% YoY)

The net asset value (NAV) was increased from HK$10.74 to HK$14.22 due to new acquisitions.

Valuation and Rating

The company's target price was raised from HK$11.80 to HK$15.60, with a 7% downside. The analyst maintains a Hold rating, citing that the current valuation (14x 18E PE, 3x 18E PB) is at a historical high. Despite the company's strong execution capability and improved ROE (from 15% in 2014-2016 to above 20% in 2017), the analyst is concerned about the potential slowdown in sales growth due to ongoing market cooling measures and credit tightening. The company's land reserves are largely concentrated in lower-tier cities, which may not sustain the same growth as in 2017.

Share Buybacks

Country Garden conducted share buybacks in 2016-2017, totaling 1.3 billion shares or approximately 6% of issued capital. These buybacks helped support the share performance and contributed to the company's valuation.

Related Reports

• "Country Garden (2007 HK) - Construction innovation" (Dec4, 2017)
• "Country Garden (2007 HK)—Fast expansion" (Aug24, 2017)
• "Country Garden (2007 HK)—Greedy acquisitions" (Jul11, 2017)
• "Country Garden (2007 HK)—Scaling the heights" (Mar23, 2017)
• "Country Garden (2007 HK)—Unexpected developments"

Conclusion

Despite the strong performance in 2017 and the revised upward forecasts for core earnings and EPS, the analyst maintains a Hold rating due to concerns about the current valuation and potential slowdown in sales growth. The company's focus on lower-tier cities and the impact of macroeconomic factors are key considerations.