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Xinming China Holdings (2699 HK) - Company Report Summary

Core Content

Xinming China Holdings Limited is an integrated residential and commercial property developer based in the People's Republic of China (PRC), with headquarters in Hangzhou. The company has expanded from its origin in Taizhou, Zhejiang, to other fast-developing cities with population growth potential, including Hangzhou, Shanghai, Chongqing, and Tengzhou. As of 31 March 2015, Xinming China has 16 property projects across five cities, covering a total site area of 984,653 sq.m. and a total GFA of 2,169,824 sq.m.

Main Business Segments

Xinming China operates in three main areas:

• Property Development (96% of 2014 revenue): Focuses on residential and commercial properties for sale.
• Property Leasing (3% of 2014 revenue): Involves leasing commercial properties, both its own and third-party owned.
• Property Management (1% of 2014 revenue): Provides property management services to residential customers.

Key Projects

The company has several notable projects, including:

• Shanghai Xinming • Children's World
• Hangzhou Xinming • Children's World
• Xinming International Household Products Mall
• Wenshang Times • Red Star Macalline Household Products Market
• Wenshang Times • Xinming Household Decorations and Fittings City
• Xinming Lijiang Garden
• Xingmeng International Commercial City

These projects are designed to offer a range of services and goods, such as household products, and are strategically positioned to generate both rental income and capital appreciation.

Financial Performance

Growth Outlook

• 2015E: Estimated total sales to decrease slightly by 3% y/y to Rmb2,079m. The company expects to book sales for:

  • Chongqing Xinming • China South-western City Phase 1 (280,186 sq.m.)
  • Shanghai Xinming • Children's World (186,261 sq.m.)
  • Xingmeng International Commercial City (65,507 sq.m.)
  • Existing projects like Xinming Lijiang Garden, Wenshang Times • Xinming Apartment, and Wenshang Times • Xinming Household Decorations and Fittings City will continue to contribute.

• 2016E: Hangzhou Xinming • Children's World is expected to generate new revenue contributions. The total attributable GFA is estimated to increase slightly by 2% y/y to 174,766 sq.m.

• 2017E: Phase 2 and 3 of Chongqing Xinming • China South-western City will contribute to revenue. The total attributable GFA is estimated to decline by 5% y/y to 165,780 sq.m.

Valuation and Investment Rating

• Target Price: HK$1.50
• Upside: 15.4% from the current share price of HK$1.30
• Discount Rate Applied to NAV: 55%
• 52-Week Range: HK$1.01–HK$1.57
• Dividend Yield: 0.00%

Competitive Strengths

• Proven Track Record: Xinming China has a successful history of delivering quality residential and commercial projects. It has been recognized with awards such as the 2011 Zhejiang Province Construction Qianjiang Cup and the Gold Award for Best Landscape Gardening Engineering.

• Multi-phase Development Strategy: The company focuses on large-scale, multi-phase projects to better manage customer acceptance and market demand.

• Cash Management: It strategically sells part of commercial properties to generate capital while retaining others for long-term rental income and appreciation.

• Diversified Land Bank: The company has a well-diversified land bank across multiple cities and uses various acquisition methods, including public tenders and auctions.

• Experienced Management Team: The management team has over 10 years of experience in the PRC real estate industry. The chairman, Mr. Chen Chengshou, has extensive connections in the business community, which is a key asset for attracting tenants and customers.

Strategic Focus

Xinming China is seeking strategic growth by focusing on the children's theme in its projects, which is seen as a promising area for future development. This strategy is aimed at diversifying revenue streams and reducing the risk associated with the residential property market.

Conclusion

Xinming China Holdings is positioned for growth through its diversified portfolio, strategic focus on the children's theme, and experienced management. The company's valuation and investment rating indicate a potential Buy recommendation, based on its projected earnings growth and strong pipeline of development projects.