20180328-申万宏源研究_香港_-禹洲地产-01628.HK-Acquired_growth_11页_1mb

Summary of Yuzhou Properties (1628 HK) Analysis

Core Content

Yuzhou Properties is a Fujian-based property developer that reported strong financial performance in 2017. The company's core earnings increased by 43% YoY to Rmb2.9bn, slightly exceeding expectations. The full-year dividend reached HK$0.30 per share, 7% above the forecast, with a pay-out ratio of 36%. The company also expanded its land reserves and entered new markets, contributing to its growth strategy and future development plans.

Main Points

• Financial Performance:

  • Revenue in 2017 increased by 59% YoY to Rmb21.7bn, with property sales revenue rising to Rmb21.2bn (98% of total revenue).
  • Gross margin slightly declined from 36.3% to 35.4%, but remained at a leading level among peers.
  • Core earnings rose to Rmb2.9bn (+43% YoY), with core EPS at Rmb0.74 (+38% YoY).
  • Dividends increased by 36% YoY to HK$0.30 per share.

• Balance Sheet:

  • Cash on hand remained stable at Rmb17.5bn, while total interest-bearing debt increased to Rmb29.5bn.
  • Net gearing rose to 77% from 72% in 2016, with average borrowing cost decreasing to 6.02% from 6.08%.
  • The company's net asset value (NAV) was raised from HK$7.90 to HK$8.40.

• Contract Sales:

  • Contracted sales in 2017 amounted to Rmb40.3bn (+74% YoY) and 2.4msqm (+30% YoY).
  • The average selling price increased by 33% YoY to Rmb16,929/sqm.
  • Key cities contributing to sales: Xiamen (20%), Shanghai (17%), Nanjing (17%), and Hefei (13%), totaling 68% of sales.
  • Over the past five years, the company achieved a contract sales CAGR of 44%, outperforming the sector average of 33%.
  • The company set a long-term sales target of Rmb120bn by 2020E, with a CAGR of 44% for 2018-2020E.

• Land Acquisition:

  • The company acquired 23 projects in 2017 and expanded into five new cities, adding 2.2msqm of attributable GFA.
  • The average land cost was Rmb6,787/sqm, and the attributable land cost declined to Rmb15bn from Rmb17bn in 2016.
  • As of end-2017, the company had 11.8msqm of land reserves, sufficient for 3-4 years of development, with an average cost of Rmb5,697/sqm, accounting for 33.7% of ASP in 2017.
  • In January 2018, the company acquired seven projects with attributable land reserves of over 3.0msqm from Coastal Greenland for Rmb3.8bn.

• Valuation and Recommendations:

  • The stock currently trades at 4.9x 18E PE and 1.1x 18E PB, representing a 37% discount to NAV.
  • The target price was raised from HK$5.53 to HK$5.88, with a 12% upside.
  • The company maintains its Outperform rating, with a target NAV discount of 30%.

Key Information

• Company Overview: Yuzhou Properties is a private developer based in Fujian, with a focus on property development and sales.
• Performance Highlights: Strong revenue and earnings growth in 2017, exceeding expectations in both core earnings and dividends.
• Growth Strategy: Continuous expansion into new cities and projects, along with a long-term sales target of Rmb120bn by 2020.
• Valuation Metrics: The stock is currently undervalued relative to its NAV, with a target price increase.
• Future Outlook: Continued focus on land replenishment, cost control, and maintaining high margins.

Figures and Data

• Figure 1: Breakdown of revenue by key cities.
• Figure 2: Gross margin, net profit margin, and expenses ratio.
• Figure 3: Revenue and core earnings with YoY growth.
• Figure 4: DPS, core EPS, and pay-out ratio.
• Figure 5: Cash, debt, and net gearing ratio.
• Figure 6: Average borrowing cost.
• Figure 7: Yuzhou's semi-annual contract sales with ASP, 2011-2017.
• Figure 8: Yuzhou's annual contract sales with YoY growth, 2009-2017.
• Figure 9: Breakdown of contract sales by key listed Chinese developers, 2012-2017.
• Figure 10: Geographical footprints of city market expansion.
• Figure 11: GFA replenished and floor cost thereof, 2009-2017.
• Figure 12: Land expenditure as % of contracted sales, 2009-2017.
• Figure 13: Breakdown by city in terms of projects newly acquired by Yuzhou during 2009-2017.
• Figure 14: Valuation and target price comparison with other developers.

Conclusion

Yuzhou Properties continues to show strong growth in revenue and core earnings, supported by its expansion strategy and effective cost management. The company's valuation remains attractive, with a target price increase and a 12% upside potential, leading to the maintenance of an Outperform recommendation.