20140313-Maybank_KERPL-Hard_for_margins_to_recover_in_2014_12页_202kb

报告摘要

Country Garden (2007 HK) Summary

Core Content

Country Garden (2007 HK) is a real estate company based in China, with a current share price of HKD3.98 and a target price of HKD4.60, reflecting a 16% increase. The company's market capitalization is USD9.5B, and its average daily trading volume (ADTV) is USD14M. The stock is currently rated as HOLD after being downgraded.

Key Financials

Metric	FY11A	FY12A	FY13E	FY14E	FY15E
Revenue (CNY m)	34,748.3	41,891.0	62,701.9	83,091.0	99,556.9
EBITDA (CNY m)	9,821.1	11,967.8	13,090.0	17,532.8	21,993.0
Core Net Profit (CNY m)	5,769.3	6,720.0	8,129.7	9,951.5	12,215.2
Core FDEPS (CNY)	0.35	0.37	0.45	0.54	0.66
Core FDEPS Growth (%)	37.9	6.9	19.9	21.1	22.7
Net DPS (CNY)	0.10	0.14	0.17	0.19	0.24
Core FD P/E (x)	9.1	8.5	7.1	5.8	4.8
P/BV (x)	1.8	1.5	1.3	1.1	1.0
Net Dividend Yield (%)	3.1	4.4	5.3	6.2	7.6
ROAE (%)	20.8	19.5	19.2	20.0	21.1
ROAA (%)	6.1	5.5	4.7	4.5	5.0
EV/EBITDA (x)	5.8	6.7	6.8	5.4	4.6
Net Debt/Equity (%)	57.2	53.4	67.3	67.3	66.8

Main Points

Margin Disappointment: Country Garden's FY13 gross profit margin (GPM) fell to 30.3%, missing the Bloomberg consensus of 35.1% and the analysts' estimate of 34.7%. This margin miss is attributed to:
- A higher ratio of high-rise apartments in GFA delivery (65% in FY13 vs. 53% in FY12).
- Lower post-LAT GPM for apartments (25.3%) compared to villas (32%).
- A higher portion of non-Guangdong projects delivered, which had a lower GPM (27%) than Guangdong (30%).
Core Profit in Line: Despite the margin miss, FY13 core profit was in line at CNY8.1b, mainly due to stronger-than-expected GFA delivery. The core profit margin for FY13 came in at 13.0%, below expectations of 15.2% and 15.4%.
GFA and Revenue Growth: FY13 GFA delivery reached 9.24m sq m, up 50% YoY. FY14 guidance for GFA delivery is 12m sq m, which is a 32% YoY growth. The company also guided for a 30% YoY growth in FY14, but the actual forecast is slightly lower.
Contract Sales and New Starts: FY14 contract sales target is set at CNY128b, up only 20.8% YoY, which is less than the prior soft guidance of 30% growth. The company's FY14 new start GFA target is 17m sq m, down from FY13's 20.3m sq m. This conservative approach is due to a focus on quality, brand enhancement, and cost control.
Financial Health: The company's net gearing is at 67.3% as of Dec-13, slightly below management guidance of 70%. Outstanding land premium is manageable at CNY10b. The company issued a USD750m 7.5-year note in October 2013, reducing its weighted average cost of borrowing to 8.54% from 9.56% in 2012. Funding costs are expected to rise by around 50bp YoY.
Valuation: The stock trades at a 39% discount to NAV, which is HKD6.6/share. It is valued at 6x FY14 PER, 5x FY15 PER, and 1.0x FY15 P/B, which is considered fair. The downgrade to HOLD is based on the expectation of limited margin recovery and a more challenging operating environment in Tier 3 cities.
Operational Risks: The company's exposure to Tier 3 cities, rising land costs, and difficulty in raising prices are seen as operational risks. Management's strategy to reduce new starts is aimed at avoiding inventory issues, but it also signals a more conservative outlook.
Geographical Diversification: The company has expanded into 39 new cities in China and a new country (Australia) in FY13, increasing its geographical exposure. Guangdong Province represents only 17% of new GFA acquired in FY13, indicating a shift in focus.
Future Outlook: The company's core profit margin for FY14 is estimated to be 12–12.3%, and for FY15, it is expected to recover to 32.4%. The company's core profit is expected to grow by 22% YoY in FY14, which is in line with the overall China property sector.

Key Information

Share Price Performance: Over the past 1 month, the share price declined by 14.4%. Over the past 3 months, it declined by 17.8%. Over the past 12 months, it rose by 3.6%.
Dividend Yield: The net dividend yield is expected to increase from 5.3% in FY13 to 6.2% in FY14 and 7.6% in FY15.
Investor Focus: The company's management is shifting focus from contract sales growth to construction quality, brand enhancement, and cost control.
Valuation Comparison: Country Garden is among the cheaper property stocks in China, with a 39% discount to NAV and a lower P/E and P/B compared to the market average. The company is not expected to outperform others in terms of risk-reward ratio.

Conclusion

Country Garden is facing challenges in margin recovery and operational risks due to its exposure to Tier 3 cities and increased construction costs. Despite these challenges, the company is expected to maintain core profit growth of 22% YoY in FY14, which is in line with the overall China property sector. The stock is currently rated as HOLD due to its fair valuation and the challenges it faces. Investors may consider other property stocks with better risk-reward ratios.

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