20160519-招商证券_香港_-越秀地产-00123.HK-Major_beneficiary_of_Guangzhou_market_rally_20页_2mb_2mb

Summary of Yuexiu Property (123 HK) Report

Core Content

Yuexiu Property (123 HK) is a major developer in Guangzhou with strong ties to the local government, which positions it to benefit significantly from the buoyant property market in the city. The report highlights its strategic advantages, financial performance, and growth prospects in the context of the broader property market trends in China.

Main Points

• Market Position: Yuexiu is a developer under the Guangzhou Municipal Government, giving it a competitive edge in the city's property market.
• Discount to NAV: Trading at a 78% discount to NAV or 1SD below the 7-year mean, compared to mid-sized peers at 62%, making it an attractive investment opportunity.
• Target Price: Initiated with a BUY recommendation and a 12-month target price of HK$1.36, based on a 70% discount to its FY16E NAV (HK$56.1bn or HK$4.5/share).
• Earnings Outlook:
  • FY16E core net profit is expected to grow by 9% YoY to RMB1.24bn.
  • FY17E core net profit is forecasted to grow by 51% YoY to RMB1.9bn, driven by higher sales volume and more high-margin projects.
• Cost Control: Yuexiu's engagement in joint ventures (JVs) with large developers and financial institutions is expected to reduce construction costs by 15-20% compared to self-operated projects.
• Landbank:
  • Total landbank GFA is 13.7mn sqm, with 55% of its gross NAV attributed to Guangzhou.
  • It has a well-established landbank in Guangzhou (5.4mn sqm) and is involved in urban redevelopment projects, which could enhance its NAV.
• Property Sales:
  • In 4M16, contracted sales reached RMB11.4bn, a 100% YoY increase, outperforming peers.
  • Full-year sales are expected to reach RMB26.7bn, with a 8% YoY growth, driven by higher ASPs and strong market sentiment in Guangzhou.
• Inventory Turnover:
  • Guangzhou's inventory turnover was at 9.6 months in April 2016, indicating a healthy balance between supply and demand.
  • Inventory turnover is expected to improve further as the market continues to grow.
• Property Price Outlook:
  • Guangzhou home prices are expected to rise by 10% in 2016E, offering upside potential.
  • The city's affordability is better than other Tier-1 cities, supporting sustained demand.
• Key Projects:
  • Southern Le Sand: A large-scale project in Guangzhou with a remaining GFA of 1.9mn sqm, contracted sales of RMB4.2bn in 2016E.
  • Guangzhou Starry Sky City: A high-margin project in Baiyun District with an estimated GPM of 29%.
  • Wuhan Starry Winking: A mixed-use project with a GFA of 650k sqm, contributing to core profit growth.
  • Guangzhou Yuexiu Starry Haizhu Bay: A flagship project with a competitive land cost and expected GPM of 37% in 2018E.
• Financial Performance:
  • Revenue for FY16E is expected to decline by 18% YoY to RMB18bn, but core net profit is projected to grow by 9% YoY.
  • Core EPS is estimated at HK$0.12 in FY16E and HK$0.17 in FY17E.
  • Net gearing remains stable at 63.1% to 77.7% over the past few years.
• Valuation:
  • P/E ratio (core EPS) is at 5.9x in 2014 and 5.6x in 2017E.
  • P/B ratio is at 0.3x, significantly lower than recent property takeovers priced at above 1x P/B.
• Investment Catalysts:
  • Increase in JV business to improve cost control.
  • Potential surprise from new urban redevelopment land acquisitions.
  • More property M&As could trigger re-rating for mid-small developers like Yuexiu.
• Shareholding Structure:
  • Yuexiu Holdings owns 49.7% of the company, with the rest being free float.
  • Free float is at 50.3%.

Key Information

• Guangzhou Market Rally: Expected to continue with 19% YoY growth in property sales in 2016E.
• Urban Redevelopment: Yuexiu is well-positioned to benefit from urban redevelopment projects in Guangzhou.
• JV Business Model: Expected to reduce construction costs and improve profitability.
• NAV Discount: Current trading at 78% discount to NAV, with a target price of HK$1.36, implying 39% potential upside.
• Earnings Recovery: Earnings are expected to recover from FY15 lows and accelerate in FY17E.

Figures and Data Highlights

• Figure 1: NAV discount vs close peers.
• Figure 2: Yuexiu's NAV band.
• Figure 3: Profit and gross margin to bottom.
• Figure 4: Contracted sales.
• Figure 5: Property sales YoY growth.
• Figure 6: Landbank (GFA) at 2015 year-end.
• Figure 7: Guangzhou property sales.
• Figure 8: Guangzhou inventory movement.
• Figure 9: Guangzhou property price index.
• Figure 10: Land sales.
• Figure 11: Yuexiu Property landbank as of 2015 year-end (by cities).
• Figure 12: Southern Le Sand.
• Figure 13: Southern Le Sand.
• Figure 14: Guangzhou Starry Sky City.
• Figure 15: Guangzhou Starry Sky City.
• Figure 16: Wuhan Starry Winking.
• Figure 17: Wuhan Starry Winking.
• Figure 18: Contracted sales in 2016E (by projects).
• Figure 19: Contracted sales in 2016E (by cities).
• Figure 20: Peers comparison: contracted sales in 4M16.
• Figure 21: FY16E Property sales revenue and gross profit breakdown by projects.

Investment Summary

• Positive Outlook: The report is optimistic about the Guangzhou property market and Yuexiu's ability to capitalize on it.
• Recommendation: BUY recommendation with a target price of HK$1.36.
• Growth Drivers: Urban redevelopment, JV business model, and strong local government relationships.
• Valuation: Undervalued compared to peers and recent property takeovers.

Conclusion

Yuexiu Property is well-positioned to benefit from the continued growth of the Guangzhou property market. With a strong local government relationship, a focused landbank, and a favorable JV business model, the company is expected to see improved earnings and profitability in the coming years. The current discount to NAV and strong sales performance further support its investment potential.