20230206-招银国际-华润置地-01109.HK-Outperforming_FY22E,_promising_FY23E_and_not-far-fetching_FY25E_target_6页_1mb

CR Land (1109 HK) Company Update Summary

Core Content

CR Land is a real estate developer that has shown resilience in the challenging property market environment. The company's performance and future outlook are analyzed with a focus on earnings growth, sales performance, and the potential impact of policy changes in Tier 1 cities. The report suggests that investors should consider accumulating CR Land shares following a recent pullback, citing strong fundamentals and growth prospects.

Main Thesis and Key Growth Drivers

• Earnings Growth Outlook:

  • FY22E: Flattish growth due to margin decline and rental relief.
  • FY23E: Expected double-digit growth driven by rental income normalization.
  • FY24E: High-teens growth with further normalization of DP bookings and rental growth.

• Sales Growth:

  • CR Land ended FY22 with only a 5% YoY decline in sales, second best among major developers.
  • The company has a strong presence in Tier 1-2 cities, contributing to its resilience.
  • Expected 10-15% YoY gross sales growth in FY23E, reaching RMB330-350bn.

• Rental Income:

  • Rental income is expected to grow by 43% YoY in FY23E and 20% in FY24E.
  • The company has already opened 12 shopping malls in 2022, reaching 66 malls (up 19% YoY), which has helped offset rental relief impacts.
  • It is on track to open 100 malls by 2025E, with 12 malls per year.

• Valuation and Target Price:

  • Current valuation is at 7.5x 2023E PE, slightly below its 5-year historical average of 8x.
  • The target price is HK$45.10, up 1% from the previous target of HK$44.79.
  • The company is expected to reach an 8-10x long-term PE range if policy relaxation in Tier 1 cities materializes.

Key Risks

• Balance Sheet Risk:

  • The company's net gearing ratio is estimated at 36.3% for FY24E, which may exceed SASAC's red line of 70%.
  • To deleverage, CR Land may need to limit land acquisitions or increase equity through issuance.

• Luxury Mall Sales Risk:

  • Overseas travel and Daigou (imported goods) may impact local luxury sales.
  • Japan and some European countries offer attractive price discounts due to currency depreciation, potentially affecting CR Land's luxury mall sales.

Reiterate Buy Recommendation

• The report maintains a BUY rating for CR Land.
• The target price has been adjusted to reflect a revised net asset value (NAV) calculation and a higher target discount.
• The company is positioned as a clear winner in the current crisis, with strong growth potential and a solid balance sheet.

Financial Highlights

Sales and Rental Performance

• Sales Mix:

  • Property sales dominate the revenue mix, with a decreasing share over time.
  • Rental income is increasing, expected to reach 11.3% of total revenue in FY24E.

• Sales Performance:

  • CR Land outperformed most developers in 2022 and Jan 2023 sales growth.
  • The company has a high land/sales ratio of 42%, one of the highest in the industry, providing a strong base for future sales.

• Rental Income Growth:

  • Rental income is expected to grow by 43% YoY in FY23E and 20% in FY24E.
  • The company's rental income is projected to reach RMB25.6bn by 2025E.

Shareholding and Performance

• Shareholding Structure:

  • China Resources Group: 59.6%
  • Free Float: 40.4%

• Share Performance:

  • 1-Month: 3.8% (Absolute), -6.5% (Relative)
  • 3-Months: 42.1% (Absolute), 2.5% (Relative)
  • 6-Months: 17.4% (Absolute), 5.3% (Relative)

• 12-Month Price Performance:

  • Chart available (Source: Bloomberg)

Key Ratios

Catalysts and Outlook

• Catalyst: Policy relaxation in Tier 1 cities is expected to drive further growth in rental income and sales.
• Outlook: The company is on track to meet its 14th Five Year target for contracted sales growth and mall expansion.
• Valuation: The company's valuation is expected to rise to 8-10x long-term PE range if the catalysts materialize.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months.

Disclaimer

• The report is for informational purposes only and does not constitute investment advice.
• Past performance is not indicative of future results.
• The value of investments may fluctuate and is not guaranteed.
• CMBIGM is not a registered broker-dealer in the United States or Singapore and may have conflicts of interest.