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Fantasia Holdings (1777.HK) Summary

Core Content

Fantasia Holdings (1777.HK) is a property development and operation company that reported its 2013 financial results and outlined its strategic direction for 2014. The company is focusing on expanding its operations in tier1 and tier2 cities, diversifying into property operations, and increasing its contracted sales. It is currently trading at a lower valuation compared to the sector average.

Key Takeaways from Company Meeting

• Contracted Sales: Fantasia expects to achieve Rmb15bn in contracted sales for 2014, representing a 50% YoY increase from Rmb10.2bn in 2013.
• Growth Drivers: The increase in contracted sales is attributed to a 35% YoY growth in contracted GFA, with Chengdu, Huizhou, and Guilin contributing 38%, 12%, and 14% respectively.
• Growth Rate: The company achieved a 27% YoY increase in contracted sales in 2013.
• Financial Position: Net gearing increased from 63.4% in 2012 to 106.9% in 2013, but the company has limited debt repayment pressure for 2014. It is expected to reduce net gearing to 70%–80% in the long term.
• Revenue and Profit: Fantasia reported total revenue of Rmb7,280mn in 2013, up 16.9% YoY from Rmb6,230mn in 2012. Core net profit was Rmb928mn, up 13.8% YoY from Rmb816mn in 2012.
• Dividend: The company declared a final dividend of HK$0.07/sh, up 21.5% YoY, with a 25% dividend payout ratio to core EPS.
• Valuation: Fantasia is currently trading at 3.4x/3.1x of 2014F/2015F PE and 0.6x/0.5x of 2014F/2015F PB, which is lower than the sector average.

Financial Highlights

• Gross Margin: Pre-LAT gross margin decreased slightly from 40.5% in 2012 to 38.4% in 2013 due to fewer projects delivered from tier1&2 cities.
• SG&A and Financial Expenses: Both increased by 32.4% and 61.6% respectively in 2013 due to operation expansion and issuance of senior notes.
• Core Net Margin: Stabilized at 10.5% in 2013, down slightly from 13.1% in 2012.
• Cash and Borrowing: Cash increased by 4% YoY to Rmb3,632mn, while total borrowing rose to Rmb12.0bn in 2013 from Rmb7.8bn in 2012.
• Debt Structure: Short-term debt as a percentage of total debt decreased from 32.1% to 17.3%, thanks to the issuance of senior notes.

Strategic Focus

• Landbanking Strategy: Fantasia is focusing on tier1 and tier2 cities, with more than 67% of its landbank located in these areas. The company acquired 12 projects in 2013, of which 67% were in tier1&2 cities.
• Future Landbank: Fantasia expects to acquire more than 2mn sqm landbank in Shenzhen in the future.
• Business Diversification: The company is transitioning from property development to property development and property operations. It aims to become a leader in social community services within 3–5 years.
• Property Operations: Fantasia's property operation business maintains stable growth, and its Colour Life Group is expanding quickly through M&A. By the end of 2013, the group had contracted management area of 100mn sqm in 650 projects across more than 50 cities, and expects to reach 200mn sqm by the end of 2014.
• Listing Plans: Fantasia is in the process of listing Color Life Group in 2014, which would further support its growth in property operations.

Market and Valuation Context

• Stock Market Performance: The Hang Seng Index (HSI) increased by 1.0% to 22,597 on 8 April 2014, with a 28.2% turnover. Fantasia's stock price was HK$1.17, with a 10.7% performance decline over the past month.
• Valuation: Fantasia's valuation is at 3.4x/3.1x of 2014F/2015F PE and 0.6x/0.5x of 2014F/2015F PB, lower than the sector average.
• Peer Comparison: Fantasia's performance is compared with other property companies in the sector, showing its PE and PBR are lower than the average of its peers.
• Market Capitalization: Fantasia's market capitalization is HK$6,736mn, or US$869mn, with a total issued share of 5,757mn.

Summary of Key Data

• Total Revenue: Rmb7,280mn in 2013, up 16.9% YoY.
• Core Net Profit: Rmb928mn in 2013, up 13.8% YoY.
• Dividend: HK$0.07/sh, up 21.5% YoY.
• GFA Sold: 0.78mn sqm in 2013, up 12.2% YoY.
• Net Gearing: 106.9% in 2013, expected to decrease in 2014.
• Landbank: Total landbank of 8.7mn sqm as of end 2013, with tier1&2 cities accounting for over 67% of the landbank.
• Valuation: Lower than sector average, with 3.4x/3.1x of 2014F/2015F PE and 0.6x/0.5x of 2014F/2015F PB.

Conclusion

Fantasia Holdings is poised for steady growth with its focus on tier1&2 cities and diversification into property operations. Despite a rise in net gearing, the company has limited debt repayment pressure for 2014 and expects to reduce it in the long term. The company is trading at a lower valuation compared to the sector, which may present an opportunity for investors. The transition to property operations and the expansion of its Colour Life Group are expected to support further growth.