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Yuexiu Property (123 HK) Summary

Core Content

Yuexiu Property (123 HK) is a Hong Kong-based property developer with a strong presence in Guangzhou and other cities. The report highlights the company's current performance, upcoming projects, and valuation metrics, reinforcing a "BUY" recommendation with a target price of HK$1.36, which is a 46% upside from the previous price of HK$0.93.

Main Points

1. Project Overview

• Yuexiu Financial Tower (越秀金融大厦): A prime-located Grade-A office complex in Zhujiang New Town CBD, reaching 70% occupancy with monthly rent of RMB180-190 psm. The company aims for 85% occupancy by year-end 2016.
• Guangzhou Starry Sky City (广州星汇云城): A residential project in Baiyun District, with a saleable GFA of 450k sqm and an estimated ASP of RMB28,000-34,000 psm. Expected to contribute RMB1.4bn in contracted sales for 2016E.
• Guangzhou Starry Haizhu Bay (广州越秀海珠湾): A redevelopment project on a former industrial site in Haizhu District, with a remaining GFA of 773k sqm and estimated ASP of RMB35,000-38,000 psm. Expected to contribute RMB1.4bn in contracted sales for 2016E.

2. Performance and Sales

• Contracted Sales: In 1H16E, contracted sales reached RMB15.6bn, a 36% YoY increase. The company estimates full-year contracted sales for 2016E at RMB26.5bn (+8% YoY), with the potential to reach RMB30bn (+21% YoY) due to upcoming projects.
• Gross Profit Margin (GPM): Prevailing projects are selling at 30% GPM, up from 22.1% booked for FY16E. The company expects GPM to recover and drive profit growth over the next two years.

3. Financials

• Revenue: RMB22,307mn in 2016E, with a slight growth of 1% YoY. Revenue is expected to grow at 8% in 2017E and 1% in 2018E.
• Core Net Profit: RMB1,267mn in 2016E, with a 11% YoY increase. Core net profit is projected to grow by 46% in 2017E and 22% in 2018E.
• Net Gearing: At 75.7% for 2016E, with a slight decrease to 75.1% in 2018E.
• Dividend Yield: At 4.0% for 2016E, increasing to 7.0% in 2018E.
• P/E Ratio (Core EPS): 7.9x in 2016E, declining to 4.5x in 2018E.
• P/B Ratio: At 0.3x for 2016E, indicating a 70% discount to its 1-year forward NAV.

4. Market Position and Valuation

• Discount to NAV: Yuexiu's current valuation is at 0.3x P/B, representing a 70% discount to its 1-year forward NAV. The company is considered undervalued compared to its peers.
• Sector Comparison: Yuexiu is significantly discounted compared to other property developers, with a 79.3% discount to its NAV. This presents an attractive investment opportunity.

5. Upcoming Projects and Opportunities

• New Projects in Guangzhou: The launch of new projects in 2H16E is expected to boost contracted sales and margins.
• Urban Redevelopment: The company is involved in urban redevelopment projects such as Guangzhou Starry Haizhu Bay, which could become key projects in the next 3-4 years.
• Potential Surprises: With asset injections from the parent company, new engagements in urban redevelopment could provide unexpected growth.

6. Key Financial Figures

• Total Contracted Sales (2016E): RMB26,733mn, with Guangzhou contributing 43%.
• Gross Profit: RMB4,919mn in 2016E, projected to increase to RMB7,156mn in 2018E.
• Net Profit: RMB2,253mn in 2018E, showing a steady growth trend.

Key Information

• NAV Discount: Yuexiu is currently trading at 80% of its NAV, which is considered attractive.
• Market Cap: RMB11,533mn as of the latest data.
• Average Daily Volume: 26.3 million shares.
• 52-Week Range: HK$0.9-1.71.
• Landbank: As of 2015 year-end, the company has a total landbank of 13,686k sqm, with Guangzhou accounting for 39.3% of the total.

Conclusion

Yuexiu Property is a mid-sized developer with a strong presence in Guangzhou, showing signs of recovery in its financial performance. The company's contracted sales are expected to grow, supported by its prime-located projects and redevelopment opportunities. With a significant discount to its NAV and positive outlook, the report reiterates a "BUY" recommendation with a target price of HK$1.36.