20171024-中国银河国际证券-COMPANY_UPDATE__Lai_Sun_Group_–_Post-Results_Update_6页_945kb

Lai Sun Group FY17 Update Summary

Core Content

Lai Sun Group (LSEG) reported a substantial increase in profits for FY17, primarily driven by fair value gains on its investment properties. The group comprises five listed companies, with Lai Sun Development (LSD) being the flagship. Despite the non-cash nature of the fair value gains, the results highlight the strong underlying asset base of the group. The group's valuation is considered undemanding, with a price-to-book ratio ranging from 0.25x to 0.35x, suggesting potential for value appreciation.

Main Companies and Performance

Key Highlights

• Lai Sun Development (LSD):

  • Net profit of HK$2.094bn (+82% YoY).
  • EPS of HK$3.465 (+53% YoY).
  • Gross assets of HK$38.4bn and net assets of HK$26.6bn as of end-January 2017.
  • Rental portfolio valued at over HK$25bn, including high-quality properties in Hong Kong and London.
  • Fair value gains on investment properties contributed significantly to the profit, amounting to HK$2.097bn, compared to HK$826m in FY16.

• Other Key Projects:

  • Alto Residences: 50% owned by LSD, with over 283,000 sq. ft. sold at $15,200 psf.
  • 93 Pau Chung Street Project: 71,000 sq. ft. sold at $16,100 psf.
  • Leadenhall UK: LSD is seeking approval to consolidate into a 1.1 million sq. ft. office tower, with nearby property purchased by CCLand for GBP1.13bn.
  • Ocean Park Hotel: Managed by Marriott, with 470 rooms and a GFA of 366,000 sq. ft., expected to start operations in Q3 2018.
  • Hengqin Novotown: 80% owned by Lai Fung Holdings, a 4.2m sq. ft. multi-purpose project to be completed by end-2018.

Restructuring Progress

• The group has undergone significant restructuring, improving transparency and reducing gearing.
• LSD has a net debt-to-equity ratio of 15%, with HK$2.6bn in cash and HK$8.8bn in total borrowings as of end-July 2017.
• Cross-holdings have been eliminated, and there is clearer business separation.
• Lai Sun Garment reduced its stake in LSD from 70% to 53%.
• Corporate and PE interest in the group has increased, with notable stakes from SAIF, CapitaLand, Third Avenue, and RRJ Capital.

Valuation Analysis

• LSD's share price lags behind other small local developers, trading at a price-to-book ratio of 0.32x.
• Major Hong Kong property companies have seen price appreciation of 30%–50% YTD, while smaller companies have trailed.
• The group's companies are trading at steep discounts to their asset values, with LSD being the most undervalued among them.

Financial Position

• Non-current assets increased from HK$29.5bn in FY2016 to HK$34.7bn in FY2017.
• Current assets rose from HK$2.08bn to HK$3.69bn.
• Total assets reached HK$38.4bn.
• Liabilities increased to HK$11.3bn, with total current liabilities at HK$3.46bn and non-current liabilities at HK$7.88bn.
• Shareholders' equity was HK$26.6bn, with reserves increasing to HK$22.55bn.

Investment Outlook

• The analyst believes LSD is ripe for restructuring and has several catalysts in 2018.
• The group's undemanding valuation and low gearing provide a safety margin for investors.
• The analyst recommends a BUY rating, indicating the share price is expected to increase by more than 20% in the next 12 months.

Disclaimer

• The report is issued to institutional clients and is not directed at individuals in jurisdictions where it may be illegal.
• The report is based on reliable information but does not guarantee accuracy.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• The report is not an offer or invitation to buy or sell securities.

Interest Disclosure

• China Galaxy International may have financial interests in the subject companies.
• The analyst confirms no direct or indirect compensation related to the views expressed.
• No trading or dealing in the securities within 30 days prior to the report's issue date.

Equity Rating Explanation

• BUY: Expected share price increase of >20% within 12 months.
• SELL: Expected share price decrease of >20% within 12 months.
• HOLD: No clear catalyst, and downgraded from BUY pending further signals.