20181217-招商证券_香港_-中国奥园-03883.HK-Well-positioned_for_2019_6页_1mb

China Aoyuan (3883 HK) Summary

Core Content

China Aoyuan is positioned well for 2019, supported by policy relaxation in the property market. The Chairman expressed optimism about the sector, citing the removal of HPR (housing price ratio) and price caps in sub-T1 cities, and the potential for supportive measures in T3/4/5 cities. These policy changes are expected to boost the company's performance.

Main Points

• Sales Growth and Earnings Visibility:
  Aoyuan aims to grow its contracted sales by 25-30% in 2019 to RMB100-110 billion, following a >80% YoY increase in 2018. The sales target is based on RMB170 billion in saleable resources and a sell-through rate of 60-65%.
  Revenue is expected to reach RMB30 billion in 2018 and RMB45 billion in 2019, with a YoY growth of +55% and +50%, respectively. By the end of 2018, unrecognised sales may reach RMB100 billion, with 84% of 2019E revenue already secured.
  Gross margin is expected to be around 27-28% for 2019.

• Land Banking Strategy:
  Aoyuan has a consistent land banking strategy, with a focus on tier 2 cities. In the first half of 2018, the company spent RMB26 billion to acquire ~60 projects, totaling 10.4 million square meters of GFA (attributable GFA: 8.7 million sqm).
  The company expects land costs to not exceed RMB30 billion in 2018, which is ~37% of contracted sales. Management also reiterated its land banking budget as around one-third of contracted sales.
  Urban renewal projects are a core competency, and 4 such projects are expected to be included in the land bank in 2019. Partial disposal of these projects may serve as a catalyst for earnings.

• Financial Position:
  Aoyuan completed an offshore bond issuance in August 2018, avoiding refinancing issues in 4Q18. The next offshore bond will expire in April 2019 with a value of USD250 million and a rate of 6.525%.
  In total, the company has less than RMB8 billion in bonds/ABS to expire in 2019.
  The average finance cost is expected to increase from 7.3% in June 2018 to 7.5% in December 2018 and may reach ~8% in 2019E.
  Net gearing is expected to improve slightly from 73% in June 2018 to 70% in December 2018 and will not exceed 80% in the long run.

Key Information

• Valuation:
  The current valuation is 59% discount to NAV, with a P/E ratio of 3.3x. The target price (TP) is HK$7.2, which represents a 45% upside from the current price of HK$4.96.

• Price Performance:

  • 3883 HK: +6.4% in 1 month, -34.8% in 6 months, +19.5% in 12 months.
  • HSI: +1.7% in 1 month, -14.3% in 6 months, -10.5% in 12 months.

• Shareholding and Market Data:

  • Market cap: HK$13.282 billion.
  • Average daily volume: 13.1 million shares.
  • BVPS (Book Value Per Share): HK$4.02.
  • Shareholding structure: GUO ZIWEN holds 55.32%.
  • Free float: 44.68%.

• Financial Ratios:

  • Discount to NAV: -59% in 2018E, -64% in 2019E.
  • P/E: 11.59 (2016), 9.26 (2017), 4.69 (2018E), 3.31 (2019E), 2.36 (2020E).
  • P/B: 1.29 (2016), 1.02 (2017), 0.77 (2018E), 0.44 (2019E), 0.40 (2020E).
  • Dividend Yield: 3.5% (2016), 6.3% (2017), 9.0% (2018E), 12.3% (2019E), 13.4% (2020E).
  • ROE: 11.3% (2016), 15.8% (2017), 21.9% (2018E), 25.6% (2019E), 31.5% (2020E).

• Investment Rating:
  Aoyuan is re-rated as a Top BUY among GBA plays with a TP of HK$7.2. Key risks include further policy tightening and economic recession.

Financial Summary

Profit & Loss Statement (RMB mn)

Balance Sheet (RMB mn)

Financial Ratios

Conclusion

China Aoyuan is well-positioned for 2019 due to its strong sales growth, high earnings visibility, and attractive valuation. The company's land banking strategy and potential urban renewal project disposals could provide additional earnings catalysts. Despite the risks of further policy tightening and economic recession, Aoyuan remains a Top BUY with a target price of HK$7.2, reflecting a 45% upside from its current price.