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Greenland (Hong Kong) Summary

Core Content

Greenland (Hong Kong) is a subsidiary of Greenland Group, operating in the Chinese property development sector. The report highlights its performance and valuation as of 1 September 2014, with a focus on recent results, financial metrics, and future outlook.

Main Points

• Company Overview: Greenland (Hong Kong) is more than a pure business unit, contributing significantly to the group's revenue. It is involved in implementing human resources systems, acquiring new projects, and forming strategies in key markets.

• Recent Performance:

  • 1H14 Results: Greenland (Hong Kong) reported a 58% year-over-year (y-o-y) drop in revenue and a core net loss of Rmb55m, compared to a net profit of Rmb141m in 1H13.
  • Gross Margin: Declined from 28% in 1H13 to 22% in 1H14.
  • Net Debt Ratio: Increased to 150% in 1H14, up from 100% at the end of 2013.
  • Contracted Sales: Improved significantly, with sales exceeding Rmb1bn per month since May 2014, up from Rmb300mn-500mn per month previously.

• Future Outlook:

  • The report maintains a BUY recommendation with a 12-month price target of HK$5.34.
  • It anticipates strong sales in 2015 that will boost earnings starting from the second half of 2015.
  • Sales growth is expected to be the main focus, rather than acquisitions or asset injection.
  • The Shanghai Wuliqiao project may require restructure, as CR Land may exit.

• Valuation Metrics:

  • P/BV (Price to Fully Diluted Book Value): Trading at 1.4x, which is a 33% discount to NAV.
  • EPS Growth: Expected to grow significantly, with a 519.7% increase in 2015 and 194.8% in 2016.
  • Fully Diluted PE (Price to Earnings): Projected to be 12.8x in 2015 and 4.4x in 2016.
  • Dividend Yield: Remains at 1.3%, with no dividend declared in 1H14.

Key Information

• Analysts: Danielle WANG, Carol WU, Andy YEE, Ken HE.
• Stock Details:
  • Bloomberg Code: 337 HK EQUITY
  • Reuters Code: 0337.HK
  • Market Cap: HK$4,284 million (US$553 million)
  • Issued Capital: 1,142 million shares
  • Free Float: 20.7%
  • Average Daily Volume: 2.2 million shares
• Major Shareholders:
  • Greenland Holding Group: 60.0%
  • SPG Investment Holdings: 19.3%

Valuation Comparison

• PE Valuations (2007–2013):
  • The stock is currently trading at 79.5x FY14 PE and 12.8x FY15 PE.
  • Discount to NAV: The stock is trading at a 33% discount to NAV.
  • Average PE: The average PE across peers is 6.9x for FY14 and 6.1x for FY15.
• PE Chart and PB Chart: Both are included to provide visual context of the stock's valuation relative to peers and book value.

Conclusion

Despite the weak 1H14 results, the report remains optimistic about Greenland (Hong Kong)'s future performance, emphasizing the positive impact of integration with Greenland Group and the potential for strong sales to drive earnings growth. The high net debt ratio is a concern, but the analysts maintain a BUY rating due to the expected improvement in sales performance and potential for earnings recovery in 2015. The stock is currently undervalued relative to its NAV and peer valuations, suggesting a potential upside.