20170713-招商证券_香港_-中国奥园-03883.HK-Progressing_and_prospering_22页_3mb_3mb

China Aoyuan (3883 HK) Summary

Core Content

China Aoyuan (3883 HK) is a property developer that has demonstrated strong sales growth and strategic expansion in both domestic and international markets. The report highlights its performance in 2017, as well as its growth prospects through 2019.

Main Points

Sales Growth

• Contracted Sales in 6M17: Achieved a +57% YoY growth, significantly outperforming +32% of its small-mid-cap peers.
• Sales Forecast for 2017E: Expected to grow +26% YoY to RMB32.3bn, driven by a +20% YoY increase in ASP and +5% YoY increase in GFA sold.
• Sales Target for FY17E: Set at RMB32.2bn, with RMB16.5bn secured in 6M17, indicating a 60% sell-through rate.
• Sales Growth from New Cities: The company has expanded into new cities, increasing its city count from 13 in 2013 to 28 by May 2017, which is expected to support continued sales growth in 2018-19E.

Profit Growth

• Core Profit CAGR: Expected to grow at a 32% CAGR from 2016 to 2019, outperforming the 20% CAGR of its peers.
• Core EPS Forecast: The company's core EPS is forecasted to reach 0.47 in 2017E, 0.71 in 2018E, and 0.88 in 2019E, representing 97%, 117%, and 117% of the consensus for those years.

Valuation

• Current P/E Ratio: Trading at 4.2x forward P/E, which is 43% below the average of small-mid-cap peers at 5.9x.
• Target Price: HK$3.67, set at 4.5x P/E on 2018E EPS, which is 1 SD above its historical average of 3.6x and 2 SD below the average of small-mid-cap peers at 6.9x.
• Potential Upside: The target price implies a 23% potential upside from the current price.
• NAV Discount: The target price also implies a 56% discount to the estimated FY17E NAV of HK$8.3.

Strategic Expansion

• Top-Tier Cities: The company has expanded into Shenzhen, Guangzhou, and Foshan, with Shenzhen Aoyuan Jade Bay achieving RMB1.6bn in contracted sales in the first two months of its launch.
• Overseas Markets: Aoyuan has also made progress in Australia with projects such as Altessa 888 Gordon Sydney and Mirabell Turramurra Sydney, which help diversify its exposure and reduce risk from China's housing market uncertainties.

Project Highlights

• Shenzhen Aoyuan Jade Bay: Located in Pingshan New District, it has a total GFA of 218,000 sqm and achieved a sell-through rate of over 80%. It is expected to be completed in June 2019.
• Guangzhou Aoyuan Lianfeng State: A luxury residential project in Pangyu District, with a total GFA of 280,800 sqm and ASP of ~RMB18,000psm. It was awarded Best International Residential Project in 2017.
• Guangzhou Aoyuan International Center: Located in Wanbo CBD, this project includes grade-A offices, boutique apartments, and a hotel, with a GFA of ~250k sqm.
• Zhuhai Aoyuan Plaza: Features a shopping mall, themed street, office buildings, and a hotel, with a GFA of ~270k sqm.
• Guangzhou Luogang Aoyuan Plaza: Located near Xiangxue Station, it is expected to provide convenient access to Huangpu and Baiyun International Airport.

Financials

• Revenue Growth: From RMB9,572m in 2015 to RMB35,263m in 2019E, with a CAGR of 26% for 2017E.
• Core Profit Growth: From RMB823m in 2015 to RMB2,356m in 2019E, with a CAGR of 32%.
• Net Gearing: Expected to remain below 80% for the next three years, with a forecast of 71-74% for 2017E-2019E.
• Cash Collection Ratio: Expected to remain at 88% for 2017E-2019E, following 90% in 2016.

Dividends

• Dividend Payout: The company has historically paid no less than 35% of core net profit as dividends.
• DPS Forecast: Expected to be RMB0.16, RMB0.25, and RMB0.31 for FY17E, FY18E, and FY19E respectively, with a 35% payout ratio.

Key Information

• Recommendation: BUY with a target price of HK$3.67.
• Dividend Yield: Expected to increase from 4.1% in 2015 to 11.9% in 2019E.
• Market Cap: HK$7,988m, with an average daily volume of 4.28m shares.
• 52-Week Range: HK$1.6 - HK$3.08.
• Shareholding Structure: Guo's Family holds 54.11%, and Cathay Capital holds 6.82%.

Conclusion

China Aoyuan has shown strong performance in contracted sales and profit growth, supported by expansion into new cities and overseas markets. The company is currently undervalued relative to its peers, with a 4.2x forward P/E, and the BUY recommendation is based on its superior growth track record and strategic diversification. The target price of HK$3.67 implies a 23% potential upside and a 56% discount to estimated FY17E NAV. Its dividend yield is also expected to rise, making it an attractive investment for income-focused investors.