20151022-招商证券_香港_-禹洲地产-01628.HK-Bargain_valuation_with_faster_earnings_growth_17页_1mb

Yuzhou Property Summary

Core Content

Yuzhou Property is a mid-sized property developer with a total aggregate landbank GFA of 7.7 million square meters, spread across 30 projects in 11 cities. The majority of its landbank is concentrated in the Cross Strait Economic Zone (44%) and Hefei (27%). The company maintains a solid market presence in Xiamen, with an 8–10% market share, and has a well-established brand there. Yuzhou's current landbank is sufficient to support development for the next four years.

Main Cities and Projects

Yuzhou focuses on a few cities with established operations, primarily Xiamen, Fuzhou, and Hefei. It targets first-time home buyers and home upgraders, with over 80% of its projects aimed at this segment. Most of its housing products are small and middle-sized units (85–110 sqm/unit), and it also develops commercial properties.

Key projects include:

• Xiamen Yuzhou Riverside City Town: Located in Tong'an District, with GFA of 513k sqm, 410k sqm remaining. It comprises high-rise apartments and villas. Annual contracted sales in 2015 are estimated at RMB600–1,000mn, with a NAV of RMB1.3bn.
• Hefei Yuzhou Central Plaza: Located in Feidong District, with GFA of 919k sqm, 819k sqm remaining. Mainly high-rise residential and shopping malls. NAV at HK$900mn, with annual contracted sales estimated at RMB500–900mn.
• Quanzhou Yuzhou City Plaza: Located in Hui'an County, GFA of 1.5mn sqm, 1mn sqm remaining. Mixed residential and commercial development. NAV at HK$678mn, with annual contracted sales estimated at RMB400–600mn.

Financial Overview

FY15E Earnings Outlook

• Booked GFA: Increased by 25% YoY to 922k sqm.
• Revenue: Estimated at RMB8.7bn, +11% YoY.
• Gross Profit: Estimated at RMB2.9bn, +2% YoY.
• Core Net Profit: Estimated at RMB1.3bn, +8.5% YoY.
• GPM: Decreased to 33.6% from 36.3% due to the inclusion of lower-margin mass-end residential projects.
• Contracted Sales: Expected to reach RMB13bn in FY15E, with a focus on Tier-2 cities.

FY16E Earnings Outlook

• Booked GFA: Expected to increase to 1,206k sqm.
• Revenue: Estimated at RMB9.8bn, +13.6% YoY.
• Gross Profit: Estimated at RMB2.7bn, -6.5% YoY.
• Core Net Profit: Estimated at RMB1.4bn, +10% YoY, driven by increased sales volume and lower land appreciation tax charges.
• GPM: Estimated to decrease to 27.6% due to more mass-end projects.
• Contracted Sales: Expected to reach RMB14.5bn, +11.5% YoY, with a more diversified portfolio across 30 projects.

Contracted Sales Outlook

• In 9M15, Yuzhou achieved RMB8.7bn in contracted sales, +16% YoY.
• For 2016E, it is estimated that Yuzhou will have about 2.7mn sqm of saleable resources, with a large proportion of first-home and home-upgrade products.
• Contracted sales are expected to grow by 10% YoY in 2016E, reaching RMB14.5bn.
• The average selling price is projected to decrease slightly due to the mix of projects and market conditions.

Balance Sheet Highlights

• Total Cash: Estimated at RMB9bn by FY15E year-end.
• Net Debt: Controlled below 70%, with a cash/short-term debt ratio expected to exceed 2x.
• Domestic Corporate Bond: Yuzhou is set to issue a RMB2bn bond in 2015, expanding its funding channels.

Valuation and Peer Comparison

• Discount to NAV: Yuzhou is trading at a discount to its NAV, with a core net profit margin of 15.2% in FY15E.
• NAV Breakdown:
  • Landbank and properties under development: HK$24,607mn (109.7% of total NAV).
  • Investment properties: HK$6,818mn (30.4% of total NAV).
  • Net Debt: HK$8,988mn (-40.1% of total NAV).
• Gross NAV by Cities:
  • Shanghai: HK$7,170mn (23%).
  • Hefei: HK$4,816mn (15%).
  • Xiamen: HK$9,571mn (30%).
  • Fuzhou: HK$2,350mn (7%).
  • Tier-3 cities: HK$2,503mn (8%).
• Peer Comparison:
  • Large peers average FY15 P/E of 29.2, FY16 P/E of 7.8, and P/B of 4.7.
  • Mid-and-small peers average FY15 P/E of 58.3 and P/B of 4.2.
  • Yuzhou's FY15 P/E is 16.2, and FY15 P/B is 1.6.

Summary

Yuzhou Property has a well-established landbank in key cities like Xiamen, Hefei, and Fuzhou, with a strategic focus on Tier-2 cities and a reduction in exposure to Tier-3 cities. It has a strong presence in the residential market, targeting first-time buyers and upgraders with small and middle-sized units. The company is expected to maintain a solid revenue and profit growth trajectory in FY15E and FY16E, supported by its existing landbank and strategic project mix. Its balance sheet remains healthy with a controlled net debt level and a robust cash position. Yuzhou is currently trading at a discount to its NAV, indicating potential value.