Deutsche Bank Markets Research Rating Company Date 20 May 2015 Buy Joy City Property Initiation of Coverage Asia Hong Kong Reuters Bloomberg Exchange Ticker Price at 19 May 2015 (HKD) 2.08 Property 0207.HK 0207 HK HKG 0207 Price target - 12mth (HKD) 4.50 Property 52-week range (HKD) 2.09 - 1.33 HANG SENG INDEX 27,591 Strong recurrent income, upsides Tony Tsang Jason Ching, CFA from SOE reform; initiating with Buy Research Analyst Research Analyst (+852) 2203 6256 (+852) 2203 6205 A fast-growing state-owned landlord; TP HK$4.50; implied upside 116%
[email protected] [email protected] Joy City is a 66.8%-owned property flagship of COFCO. Our positive call on Joy City is based on its quality recurrent income base, strong state-owned background (well below-peer interest cost), strong balance sheet, strong Price/price relative organic growth (we expect core net profit growth of 39-66% p.a. in 2015-17 on 5.0 strong revenue growth with improving margins), and strong additional NAV 4.0 and earnings upsides from expected further asset injections from COFCO. 3.0 High-quality IP portfolio providing solid recurrent income with solid growth 2.0 In contrast to most listed Chinese developers (which focus on property sales), 1.0 Joy City focuses primarily on prime-location investment properties that 5/13 11/13 5/14 11/14 generate recurrent income, which in our view should command higher Joy City Property valuation multiples. We see the following unique characteristics: 1) recurrent HANG SENG INDEX (Rebased) income makes up a high % of Joy City’s total revenue; 2) the IPs of Joy City Performance (%) 1m 3m 12m are all located in Tier-1 and major Tier-2 cities, where consumption power is relatively strong, consumers are more mature and oversupply of new Absolute 33.3 41.5 9.5 properties is less serious; and 3) it has a clear IP focus and positioning – Joy HANG SENG INDEX -0.2 11.1 21.5 City Shopping Malls makes up the bulk of Joy City’s IP portfolio (ex hotels).