20181228-招商证券_香港_-中国海外发展-00688.HK-2019_land_banking_opportunity_in_HK_6页_1mb

Summary of Company Report: COLI (688 HK)

Core Content

The report provides an in-depth analysis of COLI (688 HK), a leading Chinese developer in the Hong Kong property market. It highlights the company's strategic advantages in the current market environment, its financial performance, and its position relative to peers.

Main Points

1. Market Outlook for 2019

• The Hong Kong property market is expected to remain sluggish in 2019, with home prices projected to decline by 15% and a significant number of failed land tenders.
• Despite the downturn, the market is backed by mainland China due to strong long-term (LT) demand driven by population growth and capital inflows.

2. Land Banking Opportunity

• COLI has secured the Kai Tak 4B2 site at a bargain price of HK$13.5k/sf, which is 7% below market expectation and 13% below the neighboring site.
• The report reiterates a BUY rating on COLI, emphasizing its land banking opportunity in Hong Kong, especially as local developers retreat and weaker Chinese peers struggle.

3. Historical Performance and Projects

• COLI was the first developer in Kai Tak and launched two phases of One Kai Tak at HK$16-18k/sf in 2016-2017, which were well-received by local homebuyers.
• The company is expected to launch the new project in 2021 with an ASP of HK$27k/sf and a net margin of ~15% upon completion in 2022.

4. Financial Performance

• COLI's revenue and core profit have shown consistent growth over the years, with core profit increasing from HK$31,371 mn (2016) to HK$59,725 mn (2020E).
• Core EPS has increased from HK$3.08 (2016) to HK$5.45 (2020E), indicating strong earnings performance.
• The P/E ratio has decreased from 8.5 (2016) to 4.5 (2020E), suggesting a potential undervaluation.
• ROE has steadily improved from 15% (2016) to 17% (2020E), reflecting better returns on equity.

5. Valuation and Dividend Yield

• DPS has grown from HK$0.77 (2016) to HK$1.53 (2020E).
• Dividend yield is expected to rise from 2.9% (2016) to 6.3% (2020E).
• Discount to NAV is currently at -25%, indicating that the stock is trading below its net asset value.

6. Peer Comparison

• COLI is compared with other developers such as Vanke, Poly, Evergrande, and Country Garden, among others.
• COLI has a lower P/E and P/B ratio compared to peers, which could indicate a better value proposition.
• The dividend payout ratio remains consistent at 30%, showing stable shareholder returns.

7. Key Risks

• The report highlights potential risks such as overly aggressive land banking, economic recession in Hong Kong, and market volatility.

Key Information

• Kai Tak 4B2 site acquisition is a significant milestone for COLI, showcasing its strategic positioning.
• Financials suggest that COLI is in a strong position to benefit from the land banking opportunity in a weak property market.
• Shareholding structure is dominated by China State Construction Engineering Corporation (55.99%), indicating strong backing from a major mainland player.
• Market capitalization is HK$287,600 mn, and the free float is 44.01%.
• The 12-month target price is HK$32, with a potential upside of 22% from the previous price of HK$26.25.

Conclusion

COLI is well-positioned to capitalize on the land banking opportunity in Hong Kong due to its bargain site acquisition and strong financial fundamentals. Despite the sluggish property market and failed tenders, the long-term demand and mainland China support are expected to drive future growth. The report reiterates a BUY rating on COLI, citing its strong earnings, stable dividend yields, and potential for long-term value appreciation.