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Shimao Property ADD (No Change) HIGH CONVICTION Company Note Property Devt & Invt │ Hong Kong │ October 25, 2019 Insert Insert Hong Kong Shimao Property ADD (no change) Consensus ratings*: Buy 26 Hold 3 Sell 0 No plans for equity financing Current price: HK$25.85 ■ CEO Jason Hui said Shimao has no plans for equity financing. The stock Target price: HK$30.80 deserves a higher valuation for its strong sales and earnings growth, he said. Previous target: HK$30.80 ■ Mr. Hui also said the spin-off of its property management unit may be brought Up/downside: 19.1% forward to 2020, instead of 2021 as previously mentioned. CGS-CIMB / Consensus: 6.6% ■ Reiterate Add with a TP of HK$30.8. Shimao remains our top sector pick. Reuters: 0813.HK Bloomberg: 813 HK CEO: No plans for equity financing Market cap: US$10,887m We joined Shimao’s reverse roadshow in Guangzhou on 24 Oct which was attended by HK$85,344m its CEO Jason Hui and other senior management. Asked if Shimao, like some of its Average daily turnover: US$14.43m peers, has an equity financing plan, Mr. Hui made clear that the company has no such HK$113.1m plans as he believes it deserves to trade at much higher valuations (currently 6x FY20 Current shares o/s: 3,301m P/E and 7% yield) given its strong contracted sales and earnings growth ahead. Free float: 32.0% *Source: Bloomberg Faster contracted sales growth in Nov and Dec Shimao achieved a single-month record-high contracted sales of Rmb32 in Sep. CEO Key changes in this note Hui expects Oct sales to slow to Rmb22bn-25bn due to fewer project launches. He No change however added that sales should pick up pace in Nov, while it could reach a new high in Dec on the back of more projects launches. Overall, we estimate Shimao’s contracted Price Close Relative to HSI (RHS) sales to be Rmb250bn for 2019 (+42% yoy and 20% above its guidance). For 2020, given its sufficient sellable resources of more than Rmb1tr, CEO Hui believes Shimao 24.0 149 should be able to increase its contracted sales by around 30%. 19.0 121 Gross margin to be maintained at a decent 30-31% 14.0 92 40 Mr. Hui said that he expects gross margins (GPM) for FY19 to be 30-31% and slightly 30 20 lower for FY20 due to the price cap imposed by the government. However, GPM for 10 Vol m Vol FY21-22 could rebound on the back of contributions from the HK project, which should Oct-18 Jan-19 Apr-19 Jul-19 enjoy a very high GP due to low land cost, according to management. Source: Bloomberg More M&As to come Price performance 1M 3M 12M Shimao was quite active in pursuing M&As in 1H19; it acquired two project portfolios in Absolute (%) 13.4 16.2 71.9 the Greater Bay Area from its peers. The total sellable resources of these projects are Relative (%) 11.7 22.5 66.1 about Rmb150bn and it expects net profit margin to be 10-15%, higher than its current Major shareholders % held net margin of about 10%. Management said that Shimao may pursue more M&As ahead Wing Mau Hui 68.0 given its strong cash flow from contracted sales and solid balance sheet. Speeding up the spin-off of its property management unit CEO Hui said Shimao plans to bring forward the spin-off of its property management unit Insert to 2020, instead of 2021 as previously indicated, given strong demand and high valuation from investors. The spin-off date for its hotel will remain unchanged in 2021. The market cap of the property management unit should be about HK$10bn, Mr. Hui said. Reiterate Add with TP of HK$30.8; Shimao remains our top pick Shimao remains our top sector pick for its strong sales growth (30-40% yoy for FY19-20) and attractive valuation of 6x P/E and 7% yield for FY20. Its planned spin-off of its property management unit next year should further help unlock value and act as a re- Analyst(s) rating catalyst. Key risk: weaker-than-expected contracted sales in the next few months. Financial Summary Dec-17A Dec-18A Dec-19F Dec-20F Dec-21F Total Net Revenues (Rmbm) 70,426 85,513 111,032 149,717 184,102 Operating EBITDA (Rmbm) 16,946 21,441 27,254 36,125 44,109 Net Profit (Rmbm) 6,930 8,548 11,020 13,917 17,051 Core EPS (Rmb) 2.04 2.56 3.24 4.07 4.94 Raymond CHENG, CFA Core EPS Growth 13.4% 25.2% 26.7% 25.8% 21.3% T (852) 2539 1324 FD Core P/E (x) 11.66 9.46 7.56 6.01 4.96 E [email protected] DPS (Rmb) 0.82 0.98 1.18 1.42 1.70 Dividend Yield 3.52% 4.22% 5.06% 6.08% 7.29% Will CHU EV/EBITDA (x) 9.94 8.32 6.81 5.25 4.44 T (852) 2539 1327 P/FCFE (x) 8.00 9.83 4.09 5.49 5.48 E [email protected] Net Gearing 56.3% 56.6% 55.7% 49.2% 43.8% Jeffrey MAK P/BV (x) 1.28 1.20 1.04 0.90 0.77 T (852) 2539 1328 ROE 11.7% 13.6% 15.5% 16.8% 17.5% E [email protected] CGS-CIMB/Consensus EPS (x) 0.99 1.01 1.04 SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform Property Devt & Invt │ Hong Kong Shimao Property │ October 25, 2019 Figure 1: China property stocks valuation summary Share Disc. to Bloomberg price TP Mkt cap NAV/sh NAV Upside P/E (x) P/BV(x) Yield (%) Net Gearing (%) Company Ticker (HK$) (HK$) Rating (US$ m) (HK$) (%) (%) 2018 2019 2020F 2021F 2018 2019F 2020F 2018 2019F 2020F 2018 2019F 2020F COLI 688 HK 25.15 33.80 ADD 35,151 37.6 33 34 7.4 6.4 5.8 5.3 1.0 0.9 0.8 3.6 4.0 4.5 32 24 18 CR Land 1109 HK 33.40 40.50 ADD 29,200 45.0 26 21 10.0 8.0 6.8 6.0 1.5 1.3 1.3 3.5 4.4 5.1 34 43 42 China Vanke - H 2202 HK 28.55 36.00 ADD 42,414 40.0 29 26 8.1 7.1 6.3 5.6 1.8 1.6 1.3 4.2 4.7 5.4 31 37 37 CIFI 884 HK 5.37 7.00 ADD 5,402 14.0 62 30 6.7 5.2 4.5 3.9 1.3 1.0 0.8 5.5 6.9 8.1 67 58 57 Country Garden 2007 HK 10.76 9.00 REDUCE 29,681 13.8 22 (16) 6.4 5.5 4.8 4.4 1.7 1.4 1.2 5.0 6.2 7.1 50 51 48 Evergrande 3333 HK 18.16 28.0 ADD 30,413 41.4 56 54 4.4 5.6 4.9 4.4 1.6 1.6 1.3 6.8 8.8 8.2 152 126 108 Greentown 3900 HK 7.43 5.60 REDUCE 2,058 13.9 47 (25) 7.0 6.0 5.7 5.3 0.5 0.5 0.5 3.4 3.9 4.2 105 103 101 Guangzhou R&F 2777 HK 12.22 21.00 ADD 5,023 35.0 65 72 4.1 3.1 2.5 2.1 0.5 0.5 0.4 11.2 12.5 14.2 184 189 168 KWG 1813 HK 7.74 9.60 ADD 3,135 19.2 60 24 6.7 4.6 3.7 3.2 0.7 0.7 0.6 8.0 8.7 10.9 65 59 49 Longfor 960 HK 31.25 40.00 ADD 23,798 40.0 22 28 13.0 10.3 8.3 6.9 2.1 1.9 1.7 3.5 4.4 5.4 53 51 53 Shimao Prop 813 HK 25.85 30.80 ADD 10,887 44.0 41 19 9.1 7.2 5.7 4.7 1.2 1.0 0.9 4.2 5.7 6.9 57 56 49 Sino-Ocean 3377 HK 2.82 3.00 HOLD 2,740 7.5 62 6 10.4 7.4 5.5 5.2 0.4 0.4 0.4 7.4 5.8 7.7 73 66 60 SOHO China 410 HK 2.28 2.12 REDUCE 1,512 4.7 51 (7) 29.3 25.9 21.3 19.1 0.3 0.3 0.3 1.5 1.6 1.9 42 42 41 Sunac 1918 HK 35.65 37.80 HOLD 20,201 54.0 34 6 8.3 5.8 4.2 3.4 2.5 2.0 1.6 2.6 4.3 5.9 170 176 124 Yuzhou 1628 HK 3.31 5.60 ADD 2,125 11.2 70 69 3.8 3.4 2.9 2.5 0.7 0.6 0.5 9.4 13.7 13.2 67 69 68 Greater Bay Area (GBA) plays Agile 3383 HK 10.38 15.30 ADD 5,187 25.5 59 47 5.2 4.6 4.2 3.8 0.7 0.7 0.6 9.3 9.8 10.2 79 78 68 China Aoyuan 3883 HK 9.94 14.20 ADD 3,411 17.8 44 43 10.3 5.6 3.8 3.1 2.0 1.4 1.0 4.0 8.0 12.7 59 61 46 Logan Property 3380 HK 11.84 16.00 ADD 8,282 22.8 48 35 8.4 5.8 4.9 4.3 2.2 1.4 1.1 5.0 8.4 10.1 54 56 55 SZ Investment 604 HK 3.13 3.06 HOLD 3,465 6.8 54 (2) 8.1 8.1 7.9 7.7 0.6 0.6 0.6 5.7 5.8 6.1 41 40 37 Times China 1233 HK 13.78 21.00 ADD 3,413 30.0 54 52 5.4 4.3 3.5 2.8 1.3 0.9 0.7 5.5 6.9 8.7 63 51 37 GBA average 52 35 7.5 5.7 4.8 4.3 1.4 1.0 0.8 5.9 7.8 9.5 59 57 49 HK-listed developers' average 47 27 7.5 6.0 5.0 4.5 1.3 1.1 0.9 5.7 7.0 8.1 76 73 64 China Vanke - A 000002 CH 26.66 32.60 ADD 42,405 33.1 19 22 8.4 7.4 6.5 5.8 1.9 1.6 1.4 4.0 4.6 5.2 31 37 37 CMSK 001979 CH 19.71 23.90 ADD 22,063 33.3 41 21 10.4 8.9 7.3 6.5 2.3 1.9 1.6 4.0 4.5 5.6 55 54 48 Seazen Holdings 601155 CH 33.75 23.40 REDUCE 10,773 39.0 13 (31) 9.6 6.8 5.4 4.9 2.5 2.0 1.6 4.4 4.8 5.9 35 48 43 Gemdale Corp 600383 CH 12.90 15.60 ADD 8,237 15.1 15 21 7.5 6.6 6.2 N/A 1.3 1.1 1.0 4.6 5.3 5.7 66 50 45 Poly Developments 600048 CH 15.38 15.00 HOLD 25,955 19.2 20 (2) 10.2 8.0 6.9 5.9 1.5 1.3 1.2 3.3 3.7 4.4 83 76 64 A-share developers' average* 22 6 9.2 7.5 6.4 5.8 1.9 1.6 1.3 4.1 4.6 5.3 54 53 47 Small and mid-cap average 50 24 7.3 5.6 4.7 4.1 1.1 0.9 0.8 6.3 7.6 8.9 73 70 63 Overall average 42 22 7.9 6.3 5.3 4.7 1.4 1.2 1.0 5.3 6.5 7.6 71 69 61 Share price data as of 24 Oct 2019; * A-share data stated in Rmb SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS 2 Property Devt & Invt │ Hong Kong Shimao Property │ October 25, 2019 BY THE NUMBERS P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core EPS 1.20 18.0% 8.50 Growth 30.0% 1.10 17.1% 8.00 24.4% 1.00 16.3% 7.50 18.9% 0.90 15.4% 7.00 13.3% 6.50 7.8% 0.80 14.5% 6.00 2.2% 0.70 13.6% 5.50 -3.3% 0.60 12.8% 5.00 -8.9% 0.50 11.9% 4.50 -14.4% 0.40 11.0% 4.00 -20.0% Jan-15A Jan-16A Jan-17A Jan-18A Jan-19F Jan-20F Jan-15A Jan-16A Jan-17A Jan-18A Jan-19F Jan-20F Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs) Profit & Loss (Rmbm) Dec-17A Dec-18A Dec-19F Dec-20F Dec-21F Total Net Revenues 70,426 85,513 111,032 149,717 184,102 Gross Profit 21,430 26,949 34,070 45,157 55,017 Operating EBITDA 16,946 21,441 27,254 36,125 44,109 Depreciation And Amortisation 0 0 0 0 0 Operating EBIT 16,946 21,441 27,254 36,125 44,109 Financial Income/(Expense) (150) (337) (236) (161) (31) Pretax Income/(Loss) from Assoc.
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