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Yuexiu Property (123 HK) Summary

Core Content

Yuexiu Property (123 HK) is a Hong Kong-listed real estate company that has shown signs of improvement in its performance and valuation. The current share price is HKD1.56, with a target price of HKD2.00, representing a 28% increase. The company's market capitalization is HKD14.5B, and its average daily trading volume is USD4M. The free float is 50.3%, and the company has issued 9,324 million shares.

Key Information

• Major Shareholders:

  • Yue Xiu Enterprises: 49.7%
  • Mackenzie Financial: 2.5%
  • Vanguard Group: 1.5%

• Performance Metrics:

  • 52-week high/low: HKD2.27 / HKD1.44
  • 1-month return: 4.7%
  • 3-month return: 0.0%
  • 12-month return: -18.3%

• Valuation Metrics:

  • P/BV (2015E): 0.4x
  • Net dividend yield (2015E): 6.7%
  • Core FD P/E (2015E): 6.0x
  • EV/EBITDA (2015E): 7.1x
  • Net debt/equity (2014E): 66.3%

Main Views

• 2014 Performance:

  • The company faced a difficult physical market, leading to a lower GPM forecast.
  • It achieved 48% of its full year CNY22b contract sales target by June, with CNY10.6b in contract sales for the first half of 2014.
  • The June sales were boosted by the disposal of some commercial GFA in Guangzhou.

• 2015 Outlook:

  • The company is expected to show improvement in 2015, with a forecasted profit growth of 26‰.
  • The share price is expected to benefit from recent loosening in Tier 2 and Tier 3 cities, including Wuhan and Hangzhou.
  • The target price of HKD2.00 is based on a 57% discount to NAV estimate of HKD4.70/share.

• Strategic Recommendations:

  • The company should leverage its historical expertise in commercial property sales.
  • It should focus on faster asset churn and consider selling commercial assets to increase cash flow.
  • It should avoid expanding in weak markets such as Yantai and Shenyang, where its track record has been poor.

Recent Developments

• New Project Launches:

  • Yuexiu launched 11 new projects in 2014, an increase from seven in the previous year.
  • The Cullinan residential project in Pearl River New Town in Guangzhou had an ASP of around CNY70k/sq m, but sales were affected by the large lump-sum required per unit.
  • The company expects six new project launches in the second half of 2014.

• Borrowing Costs:

  • The average cost of borrowing is expected to drop slightly from 5.69% in 2013 to 5.65% in 2014 due to the repayment of some trust financing loans.
  • This is a positive trend, especially in an environment where cash collection ratios are lower than expected.

Financial Overview

Key Figures

• Contract Sales:

  • 6M14 Total: CNY10.6b
  • 6M14 YoY: 23%
  • 5M2014 Lock-in vs. Co Target: 34%
  • 6M2014 Lock-in vs. Co Target: 45%

• Underlying Net Profit:

  • 2014E: CNY1,546m
  • 2015E: CNY1,958m
  • 2016E: CNY2,304m

• Earnings Per Share (EPS):

  • 2014E: CNY0.17 (basic), CNY0.17 (diluted)
  • 2015E: CNY0.21 (basic), CNY0.21 (diluted)
  • 2016E: CNY0.25 (basic), CNY0.25 (diluted)

• Dividend Yield:

  • 2014E: 5.8%
  • 2015E: 6.7%
  • 2016E: 7.1%

Conclusion

Despite a challenging 2014, the outlook for Yuexiu Property is positive for 2015. The company is expected to benefit from the loosening of home purchase restrictions in several Tier 2 and Tier 3 cities. The revised target price of HKD2.00 reflects a 57% discount to the NAV estimate. The company is advised to focus on leveraging its commercial property expertise and accelerating asset turnover, while avoiding weak markets. The current valuation, with a P/BV of 0.4x and a 6.7% dividend yield, is seen as constructive, supporting the maintenance of a BUY recommendation.