20210303-招银国际-祥生控股集团-02599.HK-The_leading_YRD_developer_with_national_print_21页_1mb

Shinsun Holdings (2599 HK) Summary

Core Content

Shinsun Holdings is a leading real estate developer in the Yangtze River Delta (YRD) region and has a strong national expansion strategy. The company has consistently ranked among "China's Top 100 Real Estate Developers" for ten consecutive years, moving from 92nd in 2011 to 27th in 2020. It is headquartered in Shanghai and has a significant presence in Zhejiang, Jiangsu, and Anhui provinces, with a total attributable GFA of 23.04 million square meters as of 31 Mar 2020.

Main Points

• Geographical Focus:

  • 78% of the land bank is located in the YRD region, with 50% in Zhejiang, 15% in Anhui, and 10% in Jiangsu.
  • The company has a strategic "1+1+X" expansion model, focusing on Zhejiang, the Pan-YRD region, and other high-growth areas.

• Sales Growth:

  • Achieved RMB90bn in sales in 2020.
  • Expected to reach RMB105bn in 2021E, with a 15% YoY growth, driven by robust YRD demand, national expansion, and increased joint venture stakes.

• Financial Performance:

  • Revenue from property development accounted for 99.6% of total revenue in 2019.
  • Net profit is expected to grow at a 22% CAGR from 2019 to 2022E, reaching RMB4.2bn.
  • Revenue growth is forecasted at 12% CAGR to RMB49.3bn by 2022E.

• Balance Sheet:

  • Net gearing is expected to drop from 361% in 2019 to below 100% in 2020E due to equity raising, reduced land acquisition (at 30-40% of sales), and increased joint ventures.
  • The company is trading at 4.1x 2021E PE, below the industry average of 5x.

• Target Price and Rating:

  • Initiated with a Buy rating, with a target price of HK$7.75, which is 26.1% above the current price of HK$6.15.
  • The target price is derived from a 40% discount of its NAV per share of HK$12.92, equivalent to a 5.3x 2021E PE.

• Investment Properties:

  • As of 31 Mar 2020, owned 8 completed investment properties with an aggregate GFA of approximately 297,146 sq m.
  • Leasing income was RMB14.0mn, RMB14.6mn, and RMB12.6mn in 2017-19, respectively.

• Hotel Services:

  • Previously operated 3 hotels in Zhejiang and Hubei provinces, generating RMB110mn, RMB112mn, and RMB107mn in revenue in 2017-19.
  • Disposed of hotel services in 2020, reclassifying hotels as investment properties and expecting no further operational revenue from them.

• Property Management Services:

  • Provided property management services to 4 residential properties during the Track Record Period.
  • Revenue from these services was RMB3.5mn, RMB2.7mn, and RMB3.8mn in 2017-19, respectively.
  • Disposed of property management subsidiaries in 2018 and 2020, expecting no further revenue from these services.

• Product Portfolio:

  • Offers four series of residential properties: Arbor, Mansion, Cloud, and Top, each targeting different customer segments.
  • Develops mid- to high-end residential properties, focusing on quality, functionality, and design.

• Market Position:

  • Ranked third in contracted sales among residential property developers in Zhejiang Province in 2019.
  • Positioned well in the Pan-YRD region, which contributed to 27.3% of China's nominal GDP in 2019.

• COVID-19 Impact:

  • Construction and sales activities have resumed with minimal disruption.
  • Some projects in Hubei Province may face a one- to three-month delay in delivery, but the company is allowed to extend the delivery date under government policies.

• Suppliers and Customers:

  • Major suppliers include construction contractors and equipment suppliers, with Xiangsheng Construction being the largest.
  • Revenue from the top five suppliers accounted for 43.9% to 57.5% of total purchases.
  • Top five customers accounted for 1.7% to 0.2% of total revenue, with all being independent third parties.

Key Investment Risks

• Sales slowdown in the YRD region.
• Potential challenges in maintaining growth momentum due to market conditions.
• Regulatory changes impacting the real estate sector.

Financial Summary

Conclusion

Shinsun Holdings is a well-established, fast-growing real estate developer with a strong focus on the YRD region and strategic national expansion. Its diverse product portfolio, strong brand recognition, and efficient cost control have contributed to its growth and profitability. Despite the challenges posed by the pandemic, the company has managed to resume operations with minimal disruption. The Buy rating is based on its strong fundamentals, growth potential, and attractive valuation.