20170727-招商证券_香港_-众安房产-00672.HK-Property_developer_in_v-shaped_recovery_17页_2mb_2mb

Zhong An Property (672 HK) Summary

Core Content

Zhong An Property is a Hangzhou-based property developer with a significant focus on residential properties. The company has experienced a strong recovery in its financial performance, driven by a rebound in contracted sales and improving gross profit margins. Zhong An has also raised equity through share placements, which have enhanced its financial position and enabled it to accelerate landbank replenishment and sales growth.

Main Points

• Sales Growth: Zhong An reported contracted sales of RMB5.03bn in 2016, up 47% YoY, outperforming small-mid cap peers. Management expects a 39% YoY increase to RMB7bn in 2017E and a 41% CAGR from 2016 to 2018E.
• Profitability Recovery: The company turned a net loss of RMB207m in 2015 into a core profit of RMB67m in 2016, due to increased GFA delivery and improved gross profit margins. Current ASPs of major projects are 5-88% higher than in 2016, which is expected to drive further margin recovery.
• Landbank and Cost Advantages: Zhong An has a substantial landbank with a total GFA of about 5.9mn sqm, primarily located in Hangzhou (53.7%) and Anhui (19.0%). The company has low land costs, with an average of RMB1,183psm, and has the potential to further improve margins by selling properties at higher prices.
• Equity Financing: Zhong An completed two share placements in 2017, raising HK$411m, which reduced its net gearing ratio to 46% from 51% by end-Dec16. The company may pursue further equity financing to optimize its capital structure.
• Valuation: The stock is currently trading at a 66% discount to management's estimated NAV of HK$7.84/share, wider than the 58% discount of its peers. It trades at 78.8x FY16 P/E and 3.2x P/B, which is significantly higher than the sector average P/B of 0.7x.
• Shareholding Structure: Shi Kancheng holds approximately 55.8% of the shares, with a free float of 44%. Institutional investors such as CVP and asset management have been introduced through recent share placements.
• Key Projects: Zhong An has several major projects, including Jade Mansion, Ideal Bay, College Square, and White House Palace, all of which are expected to contribute to sales and profit growth in 2017E and beyond.

Key Information

Financial Highlights

Sales Growth Comparison

• Zhong An's 2017E contracted sales growth is expected to be 39% YoY, outperforming the sector average of 19%.
• The company has secured 50% of its FY17E sales target by 6M17.
• The total saleable pipeline in 2017E is RMB10.6bn, with a 66% sell-through rate expected.

Project Details

• Jade Mansion: Located in Yuyao, Zhejiang, with a total GFA of 292,807sqm, targeting low-density residential properties.
• Ideal Bay: Located in Hangzhou, with a total GFA of 638,856sqm, featuring townhouses and high-rising apartments. 2017 sales target: RMB800mn.
• College Square: Acquired in 2015, located in Hangzhou, with a total GFA of 196,293sqm. Expected to complete in 2H18.
• White House Palace: Located in Xiaoshan District, Hangzhou, with a total GFA of 68,345sqm. Expected to complete in 2Q18.

Valuation and Peers

• Zhong An's stock is trading at a 66% discount to its estimated NAV, wider than the 58% discount of its peers.
• The stock trades at 78.8x FY16 P/E and 3.2x P/B, indicating a high valuation compared to the sector average P/B of 0.7x.
• The company's landbank is valued at a significant discount to its historical cost, with an average book cost of 13% of current market value.

Strategic Overview

Zhong An's strategy involves acquiring and selling properties at fair prices, aiming to realize positive cashflow one year after land acquisition. The company has a strong focus on Hangzhou and Zhejiang Province, benefiting from the region's fast economic development and TMT industry growth. The management's confidence in sales growth is supported by the expansion of its landbank and the increasing ASPs of its projects.

Shareholding and Management

• Shi Kancheng: Chairman, CEO, and Executive Director, with a 55.8% stake.
• Shen Tiaojuan: Executive Director and Vice President, responsible for financial operations.
• Zhang Jiangang: Executive Director and member of the governance committee, in charge of strategy implementation.
• Jin Jianrong: Executive Director and co-president, responsible for engineering management.
• Sun Zhihua: Chief Operating Officer, oversees engineering management.
• Pan Lei: Chief Marketing Officer, responsible for marketing strategies.

Zhong An's share placements have improved its financial standing and enabled it to better capitalize on future land opportunities. The company's focus on Hangzhou and Zhejiang, along with its strategic approach to land acquisition and sales, positions it well for continued growth and profitability.