20131101-巴黎银行证券-Another_step_closer_the_spin_off_13页_633kb

SHUI ON LAND (272 HK) Summary

Core Content

Shui On Land (272 HK) is a property development company in Mainland China, listed on the Hong Kong Stock Exchange. It focuses on residential, office, retail, entertainment, and cultural properties. The company is part of the Shui On Group, which holds a 48% stake in it. The report outlines a BUY rating with a target price of HKD3.45, implying a 31% upside from the current price of HKD2.64.

Main Points

• Pre-IPO Investment: Brookfield Property Partners (BPY) has agreed to invest up to USD750 million in China Xintiandi, a wholly-owned subsidiary of Shui On Land. The initial investment is USD500 million in the form of convertible perpetual subordinated securities (CPS) with an 8.3% yield and 415 million warrants in Shui On Land with an exercise price of HKD2.85.

• Valuation Impact: The investment helps establish a valuation benchmark for the company's commercial assets, valued at HKD26.3 billion. It also lowers net gearing to 63% in 2014E from 70%, improves cash position, and supports the spin-off of China Xintiandi assets.

• Stock Performance: The stock is currently trading at a 58% discount to NAV, which is below the historical average of 43% and at -1 standard deviation of 60%. This discount presents a buying opportunity.

• Sales Performance: Sales have improved significantly to RMB8.1 billion (90% of full year target) as of the year-to-date, with potential for more upside if the company sells one of its en bloc office buildings in Chongqing or Wuhan.

• Recurring Income Growth: Recurring rental income from China Xintiandi assets is steadily increasing, with an estimated RMB811 million in 2013E, RMB963 million in 2014E, and RMB1.3 billion in 2015E. This growth is expected to be driven by the completion of two under-construction projects.

• Key Risks: The main risks include a hard landing in China, a larger-than-expected capex plan, and any disagreement with Brookfield Property Group regarding the pre-IPO investment.

Key Information

Investment Highlights

• Target Price: HKD3.45
• Upside Potential: 31%
• Discount to NAV: 58%
• EPS Growth: 148.3% in 2013E, 11.5% in 2014E, 41.7% in 2015E
• Recurring P/E: 24.0 (2013E), 21.5 (2014E), 15.2 (2015E)
• Dividend Yield: 2.9% (2013E), 3.9% (2014E), 5.5% (2015E)

Financial Metrics

China Xintiandi Portfolio

• Total Assets: 6 key properties (4 completed, 2 under construction)
• Total GFA: 663,000 sqm
• Fair Value (Surveyor): RMB26.3 billion
• BNPP Estimate: RMB20.081 billion
• Implied ASP (Surveyor): RMB39,668/sqm
• Implied ASP (BNPP): RMB30,288/sqm
• Rental Income (1H13): RMB389 million
• Rental Income (2013E): RMB811 million
• Rental Income (2014E): RMB963 million
• Rental Income (2015E): RMB1.3 billion

Catalysts

• Stronger-than-expected sales from en bloc office buildings
• Faster delivery schedule
• Accelerated spin-off of China Xintiandi commercial portfolio

Risks

• Hard landing in China
• Larger-than-expected capex plan
• Disagreement with Brookfield Property Group on the pre-IPO investment

Conclusion

The report reiterates a BUY rating on Shui On Land due to the positive impact of the Brookfield investment, the potential spin-off, and the improved sales performance. The stock is currently undervalued, trading at a 58% discount to NAV, and presents a good buying opportunity. The investment is expected to enhance financial stability, support asset valuation, and boost the company's long-term growth prospects.