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Profitability Recovering Under Strong Contracted Sales, Maintain "Accumulate"

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Profitability Recovering Under Strong Contracted Sales, Maintain 股 票 Research 研 究 Company Report: Evergrande (03333 HK) Van Liu 刘斐凡 Equity 公司报告：中国恒大 (03333 HK) +86 755 23976672 [email protected] 12 April 2017 Profitability Recovering under Strong Contracted Sales, Maintain "Accumulate" 强劲合约销售下的盈利能力恢复，维持“收集” 公 司 Rating: Accumulate 2016 underlying net profit missed our expectation. Top line increased by Maintained 报 58.8% YoY to RMB211,444 mn in 2016. Underlying net profit decreased 评级： 收集 维持 ( ) 告 29.0% YoY to RMB5,061 mn. Company Report Contracted sales will extend strong growth. Sales target and saleable 6-18m TP 目标价: HK$9.66 resources in 2017 are RMB450.0 bn (indicating 20.5% YoY growth) and Revised from 原目标价: HK$5.17 RMB802.0 bn (indicating 56.1% target sale-through rate), respectively. Share price 股价： HK$8.500 We expect profitability to recover. The Company's gross margins are expected to remain at around 28.3% between 2017 and 2019. Debt replacement and perpetual instruments repayment will dramatically promote Stock performance the Company's profitability. 股价表现 The real estate business spinoff can be a catalyst for Evergrande's valuation. However, the leverage ratio is likely to remain at a high level, which should 证 still justify a high NAV discount. Overall, as we revise up underlying net profit, we revise up its target price from HK$5.17 to HK$9.66, which represents a 券 告 58% discount to the Company’s revised 2017E NAV of HK$22.99 per share, 研 报 7.0x underlying 2017 PER and 1.9x 2017 PBR. We maintain "Accumulate". 究 究 Key risk factors include: lower-than-expected house sales, debt replacement 报 missing expectations, perpetual instruments repayment missing and potential 研 liquidity risk. 告 券 2016 年核心净利低于我们预期。总收入同比增长 58.8%到人民币 2,114.44 亿元。核心净利 Equity Research Report 同比下降 29.0%到人民币 50.61 亿元。 证 合约销售将延续强劲增长。2017 年的销售目标和可售资源分别为人民币 4,500 亿元（预示 Change in Share Price 1 M 3 M 1 Y 同比 20.5%的增长）和人民币 8,020 亿元（预示 56.1%的去化率）。 股价变动 1 个月 3 个月 1 年 Abs. % 35.1 62.8 48.3 我们预期盈利能力的恢复。公司毛利率将在 2017 到 2019 年维持在 28.3%左右。另外，债 绝对变动 % Rel. % to HS index 务置换和永续债工具的偿还将显著提高公司盈利能力。 32.9 57.8 30.5 相对恒指变动 % 房 Avg. share price(HK$) 地产业务的分拆是中国恒大估值的一个催化剂。然而，杠杆率很有可能保持在高水平，这 平均股价（港元） 4.8 5.1 4.9 地 仍应适用一个高每股净资产折让。总体而言，我们上调了核心净利，我们将目标价从 5.17 Source: Bloomberg, Guotai Junan International. 产 港元上调至 9.66 港元，相当于较 22.99 港元的 2017 年每股净资产有 58%的折让，也分别 相当于 7.0 倍 2017 年核心市盈率和 1.9 倍 2017 年市净率。我们维持“收集”。风险：低 行 于预期的房屋销售，未完成债务置换，未完成永续债工具的偿还以及潜在的流动性风险。 业 SectorProperty Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) (△%) (x) (RMB) (x) (RMB) (%) (%) 2015A 133,130 7,128 0.479 (22.8) 14.9 3.478 2.0 0.380 5.3 20.5 2016A 211,444 5,061 0.364 (23.9) 20.8 3.233 2.3 0.000 0.0 10.7 2017F 288,015 17,000 1.224 235.9 6.2 4.523 1.7 0.666 8.8 34.7 HK) HK) 中 2018F 351,712 23,085 1.662 35.8 4.6 5.698 1.3 0.917 12.1 36.0 国 2019F 379,098 24,572 1.769 6.4 4.3 6.768 1.1 0.991 13.1 31.9 3333 (0 恒 Shares in issue (m) 总股数 (m) 13,731.7 Major shareholder 大股东 Hui Ka Yan 74.3% Market cap. (HK$ m) 市值 (HK$ m) 116,719.5 Free float (%) 自由流通比率 (%) 25.7 大 3 month average vol. 3 个月平均成交股数 (‘000) 43,089.3 FY17 Net gearing (%) FY17 净负债/股东资金 (%) 252.7 52 Weeks high/low (HK$) 52 周高/低 8.500 / 4.620 FY17 Est. NAV (HK$) FY17 每股估值（港元） 22.99 Source: the Company, Guotai Junan International. Evergrande See the last page for disclaimer Page 1 of 9 Evergrande (03333 HK) House sales growth has continued to slow down, but investment growth rebounded. During Jan.-Feb. 2017, the YoY increase in commodity house sales continued to decrease compared to that during Jan.-Dec. 2016. In order to replenish inventories, growth in investment and land area sold rebounded in Jan.-Feb. 2017. In addition, saleable areas extended downside momentum. Figure 1: Cumulative House Sales Amount in China Figure 2: Cumulative House Sales GFA in China 2017 14,000 70.0% 1,800 50.0% 60.0% 1,600 40.0% 12,000 April 50.0% 1,400 30.0% 12 10,000 40.0% 1,200 30.0% 20.0% 8,000 1,000 20.0% 10.0% 6,000 800 10.0% 0.0% 600 0.0% 4,000 -10.0% -10.0% 400 2,000 -20.0% 200 -20.0% 0 -30.0% 0 -30.0% Amount Sold of Commodity Houses (LHS)(RMB bn) GFA Sold of Commodity Houses (LHS)(sq.m. mn) Amount Sold of Residential Houses (LHS) (RMB bn) GFA Sold of Residential Houses (LHS) (sq.m. mn) Amount Sold YTD YoY of Commodity Houses (RHS) GFA Sold of Commodity Houses (RHS) Amount Sold YTD YoY of Residential Houses (RHS) GFA Sold of Residential Houses (RHS) Source: National Bureau of Statistics of China, Guotai Junan International. Source: National Bureau of Statistics of China, Guotai Junan International. Targeted policies will be maintained to promote steady and sound development of the property sector. According to China Real Estate Information Corp, the stocks-to-sales ratio decreased to 8.7 months in Feb. 2017, which means that stock levels are relatively low. As a result, the government's level of tolerance towards soaring ASP has decreased. We think that soaring ASP, especially in the second-hand house market, triggered the most recent round of policy tightening measures in Mar. 2017. These related policies have mainly involved an increase in minimum down payment, HPR upgrading and mortgage restrictions. Policy tightening could curb investment demand and delay rigid demand, thus cooling the property market. With high ASP and low stock levels in tier-1, tier-2 and select tier-3 cities, policy tightening measures in these related cities will be maintained. On the other hand, lower-tier cities with high stock levels will be under a policy easing environment. Figure 3: Stocks-to-Sales Ratio by City Tier Between Jan. Figure 4: Monthly Land Acquisition Amount in 100 ) 2011- Feb. 2017 Cities Between Jan. 2011- Mar. 2017 Months 300 120.0% 03333 HK 30 ( 100.0% 250 80.0% 25 200 60.0% 20 40.0% 中国恒大 150 20.0% 15 0.0% 100 -20.0% 10 50 -40.0% -60.0% 5 0 -80.0% Evergrande 11 11 12 12 14 15 15 16 16 13 13 14 11 12 13 15 16 14 12 13 15 16 11 14 17 - - - - - - - - - - - - - - - - - - - - - - - - 0 - Feb Feb Feb Feb Feb Feb Feb Aug Aug Aug Aug Aug Aug Nov Nov Nov Nov Nov Nov May May May May May May 10 11 12 13 14 15 16 12 13 14 15 16 10 11 12 13 14 15 16 10 11 10 11 12 13 14 15 16 17 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Jul Jul Jul Jul Jul Jul Jul Monthly Land Acquisition GFA(LHS)(mn sq.m.) Jan Jan Jan Jan Jan Jan Jan Jan Oct Oct Oct Oct Oct Oct Oct Apr Apr Apr Apr Apr Apr Apr Monthly Land Acquisition GFA YoY(RHS) Tier-1 Cities Tier-2 Cities Tier-3 Cities Tier-4 Cities Land Acquisition Premium Rate(RHS) Source: China Real Estate Information Corp, Guotai Junan International. Source: Wind, Guotai Junan International. 2016 underlying net profit was in line with our expectation. Top line increased by 58.8% YoY to RMB211,444 mn in 2016 due to strong contracted sales growth. Gross profit amounted to RMB59,422 mn, up 58.8% YoY. Given more financial costs, land appreciation tax paid and net profit attributed to perpetual capital instruments, net profit decreased 51.3% YoY to RMB5,091 mn, which missed our expectation. Moreover, underlying net profit decreased 29.0% YoY to RMB5,061 mn, which was also missed our expectation. The Company recorded flat gross margins. Underlying net profit margin declined 3.0 ppts YoY to 5.4%. Net gearing ratio surged by 261.0 ppts YoY riding on soaring debt scales for aggressive land replenishment initiatives during 2017. Cash balance also dramatically increased 85.5% YoY to RMB304,329 mn. Company Report See the last page for disclaimer Page 2 of 9 Evergrande (03333 HK) Table 1: Comparison of the Company’s Balance Sheet and Income Statement in 2015 and 2016 RMB mn 2015 2016 Change Total revenue 133,130 211,444 58.8% Gross profit 37,413 59,422 58.8% GPM 28.1% 28.1% 0.0 ppts NP (Inc. after-tax fair value gains on IP and exchange losses) 10,460 5,091 -51.3% 2017 NP (Ex. after-tax fair value gains on IP and exchange losses) 7,128 5,061 -29.0% April NPM (Inc. after-tax fair value gains on IP and exchange losses) 7.9% 2.4% -5.4 ppts 12 NPM (Ex. after-tax fair value gains on IP and exchange losses) 5.4% 2.4% -3.0 ppts DPS (RMB cent) 38.0 0.0 -100.0% Underlying EPS (RMB cent) 71.3 37.2 -47.8% Land appreciation tax 4,453 8,359 87.7% Cash and cash equivalents 164,022 304,329 85.5% Total asset 757,035 1,350,868 78.4% Stocks of properties 383,976 658,627 71.5% Advanced proceeds received from customers 83,061 194,961 134.7% Trade and other payables 191,309 299,905 56.8% Total debt 296,906 535,070 80.2% Shareholders' equity 51,006 44,240 -13.3% ROE 20.5% 11.5% -9.0 ppts Net gearing ratio 260.5% 521.6% 261.0 ppts Source: the Company, Guotai Junan International.
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