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31 May 2018 Outperform Unchanged Spin-off approved COUNTRY GARDEN HOLDINGS (2007:HK) Market Data: 30 May 2018 Financial summary and valuation Closing Price (HK$) 15.18 2016 2017 2018E 2019E 2020E Price Target (HK$) 17.30 Revenue (Rmbm) 150,729 223,776 313,078 407,888 531,587 YoY (%) 35% 48% 40% 30% 30% HSCEI 11,769 Underlying net income (Rmbm) 11,661 24,288 29,669 37,190 46,225 HSCCI 4,497 YoY (%) 25% 108% 22% 25% 24% 52-week High/Low (HK$) 19.16/8.37 Net income (Rmbm) 11,163 25,614 30,067 37,607 46,663 Basic EPS (Rmb) 0.51 1.21 1.38 1.73 2.15 Market Cap (US$m) 42,063 Core EPS (Rmb) 0.53 1.14 1.36 1.71 2.13 Market Cap (HK$m) 330,027 ROE (%) 16.2% 29.7% 27.7% 27.9% 28.6% Shares Outstanding (m) 21,740 Net gearing (%) 49% 57% 48% 47% 46% Dividend yield (%) 5.4% 3.2% 3.9% 4.9% 6.0% Exchange Rate (Rmb-HK$) 1.22 PE (x) 6.0 10.8 9.0 7.2 5.8 Price Performance Chart: PB (x) 1.0 2.8 2.2 1.8 1.5 100% Note: Core EPS is calculated as if all non-recurring items are excluded.
80% 60% Country Garden’s board has approved the spin-off of Country Garden Services (CG Services). A total 40% 20% of 2.5bn CG Services shares will be distributed to all registered shareholders of Country Garden, 0% representing one CG Services share for every 8.7 Country Garden shares. CG Services recorded total
-20% contracted gross floor area (GFA) of 330msqm and revenue-bearing GFA of 120msqm in 2017, only
17-05 17-07 17-08 17-09 17-10 17-11 17-12 18-01 18-02 18-03 18-04 17-06 second to Colour Life Services (1778:HK – BUY). We revise down our diluted EPS forecasts from Country Garden HSCEI Rmb1.35 to Rmb1.34 in 18E (+11.7% YoY), from Rmb1.69 to Rmb1.67 in 19E (+24.6% YoY), and from Source: Bloomberg Rmb2.10 to Rmb2.07 in 20E (+24.0% YoY). We lower our target price from HK$17.98 to HK$17.30. With 14% upside, we maintain our Outperform recommendation. Analyst Kris Li A0230511040076 Inexpensive valuation. CG Services recorded revenue of Rmb3.1bn in 2017, of which property ARG379 management services contributed Rmb2.5bn (81% of total revenue). Net profit reached Rmb400m, [email protected] ranking first among listed peers. The Hong Kong-listed property management sector surged c.35% (+86) 21 23297818×7223 YTD, with a sector valuation of 22x 18E PE. We highlight Country Garden trades below 10x 18E PE,
vs 31x 18E PE for market leader Greentown Service (2869:HK – Outperform). Related Reports "Country Garden ( 2007 HK )—Open Robust sales expansion. Country Garden became China’s largest developer in 2017, with contract target" Mar21,2018 sales of Rmb550bn (+78% YoY). The firm achieved sales of Rmb257.5bn in the first four months of "Country Garden ( 2007 HK )—Alert 2018 (+30% YoY). Although management didn’t disclose any sales target for 2018, we expect to opportunity" Feb14,2018 full-year sales to exceed Rmb700bn this year (+27% YoY). We note tier-1 and tier-2 cities only "Country Garden ( 2007 HK )—Capital accounted for 3% and 11% of land reserves in 2017, respectively, vs 21% for tier-3 cities and 65% structures" Jan18,2018 for lower-tier cities. We remain confident on the company’s strong execution capability and brand recognition in lower-tier cities, despite the current property tightening measures in place.
Diversified financing channels. We attribute the recent “suspension” of Country Garden’s proposed bond issuance for Rmb20bn to policymakers’ cautious stance on the property sector. The firm’s The company does not hold any equities or derivatives of the listed company mentioned heavy land expenditure in 2016-18 may raise concerns on cash flows among investors, given the in this report (“target”), but then we shall sales outlook and tightened financing. We note the company raised c.HK$23bn in January 2018 by provide financial advisory services subject to the relevant laws and regulations. Any issuing 460m shares at HK$17.13/share, and issued one-year convertible bonds with a conversion affiliates of the company may hold equities price of HK$20.56/share for HK$15.6bn, as well as senior notes with a five-year rate of 4.75% and a of the target, which may exceed 1 percent of issued shares subject to the relevant seven-year rate of 5.125% for US$950m. Moreover, the firm continues to explore other financing laws and regulations. The company may channels, such as home rental real estate investment trusts (REITs) and sales proceeds securitisation. also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact Maintain Outperform. We estimate the contribution from the property management segment at [email protected] for relevant 1% of the company’s total revenue and profit. As a result, we lower our core EPS forecasts by 1.3% disclosure materials or log into www.swsresearch.com under disclosure to Rmb1.36 in 18E (+19% YoY), by 1.4% to Rmb1.71 in 19E (+26% YoY), and by 1.4% to Rmb2.13 in column for further information. The clients 20E (+25% YoY). Taking new acquisitions into account, we raise our net asset value (NAV) estimate shall have a comprehensive understanding of the disclosure and disclaimer upon the from HK$17.98 to HK$18.20. As sector valuation remains under pressure given pessimistic last page. expectations for the real estate industry, we increase the target NAV discount from zero to 5%, and derive a new target price of HK$17.30 (vs HK$17.98 previously). With 14% upside, we maintain our 本研究报告仅通过邮件提供给 国投瑞银 国投瑞银基金管理有限公司([email protected]) 使用。1 Outperform recommendation.
JanuaryOctober31 May 12,2015 12, 2018 2010 BuildingFood,Real MaterialsEstate Beverage | Company | &Company Tobacco Research |Research Company Research
中国最大的物业开发商碧桂园宣布旗下物业管理服务板块将于 6 月 19 日于香港独立上 市并拟以股票派发形式回馈所有碧桂园股东。公司股价近期跟随板块整体持续承压，我 们仍然认可碧桂园的执行力和在三四线城市的竞争优势，且龙头房企在融资上仍占据优 势，维持增持评级。 碧桂园 5 月 29 日（周二）晚间宣布董事会已批准分拆其物业管理分部业务于 6 月 19 日 在香港联交所主板独立挂牌上市，将以特别股息形式向所有碧桂园股东宣派碧桂园服务 股份，每持 8.7 股碧桂园获派 1 股碧桂园服务，股权登记日为 6 月 12 日。创始人杨国 强家族目前持有碧桂园股份约 57%。碧桂园服务于中国管理约 440 项物业及向约 100 万 户业主提供物业管理服务，管理组合遍布中国 28 个省、市及自治区的 240 多个城市， 截止 2017 年底合同管理总面积 3.3 亿平米，收费管理总面积 1.2 亿平米，上市后将位列 物业管理板块管理面积第二位，仅次于彩生活。而在所有收费管理面积中，来自母公司 碧桂园开发的物业项目占比于 2015-2017 年间分别为 97%，96%和 89%，显示其亦开始 致力于拓展来自独立第三方开发商的物业项目管理。 2015-2017 年碧桂园服务的营业收入分别为 16.7 亿、23.6 亿、31.2 亿，其中来自物业管 理基础服务的收入分别为 14.3 亿、19.6 亿、25.4 亿，占比约 86%、83%、81%；同期， 毛利率水平为 30.6%，33.9%和 33.2%，实现归属股东的净利润 2.2 亿、3.2 亿、4.0 亿， 与已上市同业 2017 年净利润规模相比，碧桂园服务位居第一（绿城服务、彩生活、雅 生活、中海物业 2017 年净利分别为 3.9 亿，3.2 亿，2.9 亿，2.5 亿）。碧桂园服务稍早 曾在 A 股递交上市申请，而于去年末撤回，今年 3 月 19 日转向港交所递交上市聆讯材 料。今年以来，物业管理板块在香港上涨 35%，显著跑赢大盘，目前的平均估值水平大 约为 18 年 22 倍市盈率，其中龙头绿城服务的市盈率超过 30 倍。而在 A 股目前仅南都 物业（603506CH）一家主营物业管理服务的上市公司。而碧桂园目前在港股的估值 18 年 PE 仅为个位数。 碧桂园于 2017 年一跃成为中国最大的物业开发商，当年公司实现合约销售额 5500 亿 （+78% YoY），紧随其后第二和第三位分别为万科（5300 亿，+45% YoY）和恒大（5000 亿，+34% YoY）。今年 1-4 月公司实现合约销售额 2575 亿，实现同比增长 30%，同期 万科和恒大分别为 1962 亿（+2% YoY）和 2122 亿（+33% YoY）。碧桂园没有设定 2018 年销售目标，我们预计公司全年的销售额至少突破 7000 亿，较 17 年再增约三成。公司 目前土地储备一线和二线城市仅占 3%和 11%，三线城市 21%，其余更低阶城市则高达 65%。低阶城市受房地产限购限售限价影响小，但也受到按揭贷款利率上行的负面影响， 但碧桂园以其强执行力以及品牌力仍能在区域市场竞争中占据其稳固的优势。 在正式披露物业管理分拆上市时间表的前一天，碧桂园拟发行 200 亿元小公募公司债券 项目状态更新为“中止”，令市场情绪再度受压，我们认为主要也是由于对房地产再融资 政策态度继续严厉所致。过去两年间碧桂园的购地金额分别高达 1280 亿和 3270 亿，今 年前四月继续购地 835 亿，在销售展望谨慎、融资收紧的大环境下令投资者对其现金流 状况有所担心。碧桂园今年初以每股 17.13 港币的价格配股融资 230 亿港币，同时还发 行了 156 亿港币一年期零息可转债（转股价超过 20 元港币），以及 9.5 亿美金高息票 据，五年期和七年期利率分别仅为 4.75%和 5.125%。同时，公司亦继续拓展其他融资渠 道，除了持续的销售尾款资产证券化以外（2016 和 2017 年全年融资金额分别为 118 亿 和 251 亿，今年已发行 16 期累计金额 128 亿，目前的成本大概是略超 6%），公司还于 4 月末发行了第一期 17 亿人民币租赁住房 reits，利率为 5.75%。 物业管理业务对于公司整体的收入和盈利贡献都仅占到略超 1%，我们微减 2018-2020 年每股核心净利预测 1.3%，1.4%和 1.5%至 1.36 元（ +19%YoY）、 1.71 元（ +25%YoY） 、 2.13 元（+24%YoY）。同时纳入今年以来新增储备，将每股净资产值预测从 17.98 更新 到 18.2 港币。考虑到市场对房地产板块整体的悲观预期可能对板块整体的估值进一步 承压，我们将目标净资产值从 0 折价扩展到 5%折价，获得新目标价 17.30 港元（相比 原目标价为 17.98 港元）。考虑到当前股价较目标价有 14%上行空间，我们维持碧桂园 增持评级。
本研究报告仅通过邮件提供给 国投瑞银 国投瑞银基金管理有限公司([email protected]) 使用。2
Please refer to the last page for important disclosures Page 1 JanuaryOctober31 May 12,2015 12, 2018 2010 BuildingFood,Real MaterialsEstate Beverage | Company | &Company Tobacco Research |Research Company Research
Spin-off of CG Services China’s largest developer Country Garden proposed the spin-off and separate listing of Country Garden Services (CG Services) on the main board of the Hong Kong Stock Exchange. Although the stock remains weak under the market’s current downward pressure, we are positive on the firm’s execution capability and competitive advantage in lower-tier cities, and expect it to keep an edge in terms of financing, despite an unfavourable liquidity outlook for the real estate sector. Country Garden’s board has approved the spin-off of Country Garden Services (CG Services). A total of 2.5bn CG Services shares will be distributed to all registered shareholders of Country Garden, representing one CG Services share for every 8.7 Country Garden shares. We note the Yeung Kwok Keung family, who founded the company, holds a 57% stake in Country Garden. In 2017, CG Services provided services to 440 properties, or 1.0m property units, in more than 240 cities across 28 provinces, with total contracted GFA of 330msqm and revenue-bearing GFA of 120msqm. Upon listing of CG Services, the company would rank second in terms of managed area within the sector, only second to Colour Life. Moreover, we highlight properties developed by Country Garden accounted for 89% of its revenue-bearing GFA in 2017, vs 97% in 2015 and 96% in 2016, implying increasing contribution from independent third-party property developers.
Fig 1: Revenue-bearing GFA and total contracted GFA, 2015-17 Fig 2: Breakdown of managed area by source
100% 350 mn sqm 70%
300 60% 80%
250 50% 60% 200 40%
40% 150 30%
100 20% 20%
50 10% 0% Vanke China Country A-Living Greentown Colour Life Zhong Ao 0 0% Property Overseas Garden Services Service Home 2015A 2016A 2017A Property Services Revenue-bearing GFA Total contracted GFA YoY of revenue-bearing GFA (RHS) YoY of total contracted GFA (RHS) % of GFA from group-developed properties % of GFA from external properties Source: Company data, SWS Research Source: Company data, SWS Research
Inexpensive valuation CG Services recorded revenue of Rmb1.7bn in 2015, Rmb2.4bn in 2016, and Rmb3.1bn in 2017, of which property management services contributed Rmb1.4bn in 2015 (86% of the total), Rm2.0bn in 2016 (83%), and Rmb2.5bn in 2017 (81%). Gross margin reached 30.6% in 2015, 33.9% in 2016, and 33.2% in 2017. Net profit arrived at Rmb220m in 2015, Rmb324m in 2016, and Rmb400m in 2017, ranking first among listed peers, vs Rmb387m for Greentown Service (2869:HK – Outperform), Rmb321m for Colour Life, Rmb290m for A-Living Services (3319:HK – Not rated), and Rmb258m for China Overseas Property (2669:HK – BUY). CG Services once submitted a listing application on the A-share market, but withdrew it in end-2017, before proposing to list on the H-share market. The Hong Kong-listed property management sector surged c.35% YTD, significantly outperforming the HSCEI, with a current valuation at 22x 18E PE. Market leader Greentown Service trades at 31x 18E PE, while Nacity Property Service (603506:CH – Not rated) remains the only listed peer on the A-share market. We note Country Garden trades below 10x 18E PE. 本研究报告仅通过邮件提供给 国投瑞银 国投瑞银基金管理有限公司([email protected]) 使用。3
Please refer to the last page for important disclosures Page 2 JanuaryOctober31 May 12,2015 12, 2018 2010 BuildingFood,Real MaterialsEstate Beverage | Company | &Company Tobacco Research |Research Company Research
Fig 3: Revenue and net profit, 2015-17 Fig 4: Gross margin, operating margin, and net profit margin, 2015-17
40% 3,500 Rmb mn 60% 35% 3,000 50% 30% 2,500 40% 25% 2,000 30% 1,500 20%
20% 1,000 15%
10% 500 10%
0 0% 5% 2015A 2016A 2017A
Revenue Net profit 0% YoY of revenue (RHS) YoY of net profit (RHS) 2015A 2016A 2017A Source: Company data, SWS Research Source: Company data, SWS Research
Fig 5: Peer comparison of net profit in 2017 Fig 6: Peer comparison of net profit per sqm in 2017
Rmb mn 450 90% Rmb/sqm 4.0 400 80% 3.5 350 70% 3.0 300 60% 2.5 250 50% 2.0 200 40%
150 30% 1.5
100 20% 1.0
50 10% 0.5
0 0% 0.0 Country Garden Greentown Colour Life A-Living Services China Overseas A-Living Services Greentown Country Garden China Overseas Colour Life Services Service Property Service Services Property
Net profit in 2017A YoY of net profit in 2017A (RHS) Net profit per sqm in 2017A
Source: Company data, SWS Research Source: Company data, SWS Research
Robust sales expansion Country Garden became China’s largest developer in 2017, with contract sales of Rmb550bn (+78% YoY), followed by China Vanke (000002:CH – Outperform; Rmb530bn; +45% YoY) and Evergrande (Rmb500bn; +34% YoY). In the first four months of 2018, the company achieved contract sales of Rmb257.5bn (+30% YoY), vs Rmb196.2bn for Vanke (+2% YoY), and Rmb212.2bn for Evergrande (+33% YoY). Although management didn’t disclose any sales target for 2018, we expect full-year sales to exceed Rmb700bn this year (+27% YoY). We note tier-1 and tier-2 cities only accounted for 3% and 11% of land reserves in 2017, respectively, vs 21% for tier-3 cities and 65% for lower-tier cities. Although lower-tier cities will face limited impact from property tightening measures (such as restrictions on home purchase and re-sale, and price cap measures), while suffering from rising mortgage loan rates, we remain confident on the company’s strong execution capability and brand recognition to maintain its strong position in lower-tier cities.
本研究报告仅通过邮件提供给 国投瑞银 国投瑞银基金管理有限公司([email protected]) 使用。4
Please refer to the last page for important disclosures Page 3 JanuaryOctober31 May 12,2015 12, 2018 2010 BuildingFood,Real MaterialsEstate Beverage | Company | &Company Tobacco Research |Research Company Research
Fig 7: Contract sales of key listed China developers (Rmbm) Monthly Contract Sales % Chg YoY, Monthly % Chg YoY, YTD Companies 2018-1 2018-2 2018-3 2018-4 2018-1 2018-2 2018-3 2018-4 2018-1 2018-2 2018-3 2018-4 China Jinmao 16,652 13,963 8,052 10,020 745% 570% 46% 435% 745% 655% 304% 325% China Aoyuan 4,050 4,056 5,505 7,210 140% 93% 143% 187% 140% 114% 125% 143% KWG 5,560 4,128 5,060 5,260 155% 128% 35% 82% 155% 143% 90% 88% Logan 4,210 4,050 7,640 4,760 108% 100% 120% 22% 108% 104% 111% 81% Sunac 22,180 19,110 30,830 35,180 173% 88% 38% 84% 173% 126% 78% 80% Fantasia 1,620 1,405 1,521 1,798 101% 96% 18% 121% 101% 99% 62% 75% SCE 4,108 3,903 3,612 2,528 123% 95% 23% 49% 123% 108% 71% 67% Times 3,053 3,002 4,725 4,949 172% 83% 19% 80% 172% 119% 60% 66% Future Land 10,284 8,750 18,835 12,704 110% 67% 45% 39% 110% 88% 64% 57% Powerlong 2,068 1,952 2,621 1,967 37% 88% 48% 61% 37% 58% 54% 56% Shimao 10,021 7,102 15,790 8,100 96% 36% 54% 30% 96% 66% 60% 53% Evergrande 64,360 48,140 49,370 50,390 73% 54% 28% 33% 73% 64% 51% 47% Central China 1,673 1,366 2,619 2,778 35% -20% 47% 142% 35% 3% 20% 44% A-share Poly 31,649 21,647 33,636 32,465 106% 61% 18% 24% 106% 85% 51% 43% R&F 6,510 5,840 11,770 8,870 75% 42% 45% 21% 75% 58% 51% 42% Sino-ocean land 3,520 4,500 8,020 7,500 83% 19% 26% 36% 83% 41% 33% 34% Country Garden 69,160 54,680 64,130 69,550 42% 41% 1% 30% 42% 42% 25% 26% CIFI 10,100 6,820 10,200 11,030 17% 24% 12% 49% 17% 19% 17% 24% CR Land 11,170 7,600 17,400 14,170 9% -9% 47% 34% 9% 1% 19% 23% Merchant Shekou 11,760 7,243 12,309 10,396 77% -18% 11% 33% 77% 23% 18% 21% COLI 20,661 13,194 18,810 16,123 30% 10% 5% 6% 30% 22% 15% 13% Yuexiu 3,039 1,651 5,302 4,243 -14% 25% 27% 10% -14% -3% 11% 11% Agile 6,990 5,560 8,850 8,290 51% -13% -14% 38% 51% 14% 1% 9% Yuzhou 2,758 3,053 4,543 4,012 34% 2% -11% 3% 34% 15% 2% 2% Vanke 67,980 35,600 50,680 41,890 41% -8% -20% 0% 41% 20% 3% 2% Greentown 4,800 2,900 7,400 9,400 41% -29% -13% 4% 41% 3% -6% -2% Longfor 16,020 13,250 14,750 14,570 33% 7% -21% -14% 33% 20% 2% -2% Gemdale 8,110 4,590 13,410 10,510 7% -46% -22% 20% 7% -21% -21% -13% BCL 4,060 1,840 2,620 2,500 -35% -2% -42% 24% -35% -28% -33% -25% Total/Average 428,126 310,895 440,009 413,163 60% 31% 10% 29% 60% 46% 30% 30%
Source: Company data, SWS Research
Fig 8: Land reserves breakdown by tier of cities Fig 9: Land reserves in each tier of cities and corresponding land cost mn sqm Rmb/sqm
100 12,000 90 10,000 80 70 8,000 60 50 6,000 40 4,000 30 20 2,000 10 0 0 Tier-1 Tier-2 Tier-3 Lower-tier cities
Tier-1 Tier-2 Tier-3 Lower-tier cities Attributable Land Reserves by GFA (LHS) Averge Floor Cost (RHS)
Source: Company data, SWS Research Source: Company data, SWS Research
Diversified financing channels We attribute the recent “suspension” of Country Garden’s proposed bond issuance for Rmb20bn to policymakers’ cautious stance on the property sector. The firm’s heavy land expenditure in 2016-18 (Rmb128bn in 2016; Rmb327bn in 2017; Rmb83.4bn in January-April 2018) may raise concerns on cash flows among investors, given the sales outlook and tightened financing. We note the company raised c.HK$23bn in January 2018 by issuing 460m shares at HK$17.13/share, and issued one-year convertible bonds with a conversion price of HK$20.56/share for HK$15.6bn, as well as senior notes with a five-year rate of 4.75% and a seven-year rate of 5.125% for US$950m.
本研究报告仅通过邮件提供给 国投瑞银 国投瑞银基金管理有限公司([email protected]) 使用。5
Please refer to the last page for important disclosures Page 4 JanuaryOctober31 May 12,2015 12, 2018 2010 BuildingFood,Real MaterialsEstate Beverage | Company | &Company Tobacco Research |Research Company Research
Moreover, the firm continued to explore other financing channels, and issued the first tranche of its home rental REITs at 5.75% for Rmb1.7bn in end-April 2018, in addition to sales proceeds securitisation (total financing amounting to Rmb11.8bn in 2016 and Rmb25.1bn in 2017, and reaching Rmb12.8bn YTD, with an average cost of 6%-plus).
Fig 10: Cash, debt, and net gearing ratio Fig 11: Average borrowing cost
240,000 Rmb mn 100% 10% 90% 200,000 80%
70% 8% 160,000 60%
120,000 50% 6% 40% 80,000 30% 4% 20% 40,000 10%
0 0% 2%
2011 2012 2013 2014 2015 2017
2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A
Borrowing Cost at end of the period Borrowing Cost on six-month average Cash Debt Net gearing (RHS) Source: Company data, SWS Research Source: Company data, SWS Research
Maintain Outperform We estimate the contribution from the property management segment at 1% of the company’s total revenue and profit. As a result, we lower our core EPS forecasts by 1.3% to Rmb1.36 in 18E (+19% YoY), by 1.4% to Rmb1.71 in 19E (+26% YoY), and by 1.4% to Rmb2.13 in 20E (+25% YoY). Taking new acquisitions in 2018 into account, we raise our net asset value (NAV) estimate from HK$17.98 to HK$18.20. As sector valuation remains under pressure given pessimistic expectations for the real estate industry, we increase the target NAV discount from zero to 5%, and derive a new target price of HK$17.30 (vs HK$17.98 previously). With 14% upside, we maintain our Outperform recommendation.
Fig 12: Valuation and target price of key listed Chinese developers Market TP PE (x) PB (x) 17A Shares NAV Company Code Cap Rating Dividend Performance (HK$bn) (HK$) 17A 18E 19E 17A 18E 19E Disc 2017 YTD yield COLI 688 HK 282 Hold 28.00 8.2 7.3 6.3 1.1 0.9 0.8 -26% 3.1% 25% 2% Country Garden 2007 HK 330 Outperform 17.30 11.1 9.3 7.5 2.9 2.3 1.9 -17% 2.2% 248% 2% CR land 1109 HK 196 Outperform 32.51 10.2 8.1 6.6 1.4 1.2 1.0 -30% 3.4% 36% 23% Longfor 960 HK 134 Outperform 27.50 11.3 9.1 7.2 1.6 1.4 1.2 -17% 2.8% 106% 16% Shimao 813 HK 77 Hold 21.02 9.5 7.8 6.6 1.1 1.0 0.9 -13% 4.4% 73% 34% Sino-ocean 3377 HK 40 Outperform 6.84 8.2 6.6 5.5 0.6 0.5 0.5 -58% 6.1% 60% -3% KWG 1813 HK 34 Hold 10.62 8.1 6.7 6.0 1.0 0.9 0.8 -23% 4.5% 128% 19% Poly Ppty 119 HK 13 Outperform 4.75 9.3 4.9 4.1 0.5 0.4 0.4 -53% 3.7% 58% -10% Yuzhou 1628 HK 23 Outperform 5.88 6.2 5.2 4.1 1.3 1.1 0.9 -34% 4.8% 74% 32%
Average 9.1 7.2 6.0 1.3 1.1 0.9 -30% 3.9% 90% 13%
Source: Bloomberg, Company data, SWS Research
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APPENDIX 1, Share buyback
Fig 1: Country Garden’s share buyback in 2016-2017 Total paid amount, Number of shares Number of shares % of total issued Average purchase Month monthly purchased, monthly purchased, accumulated capital, accumulated price, monthly (HK$m) (m shares) (m shares) (%) (HK$/shr) Jan-16 447 151 151 0.7% 2.96 Feb-16 119 40 191 0.9% 2.96 Mar-16 23 8 198 0.9% 3.02 Apr-16 19 6 205 0.9% 3.00 May-16 174 58 263 1.2% 3.01 Jun-16 177 58 321 1.4% 3.06 Jul-16 184 57 377 1.7% 3.25 Aug-16 ------Sep-16 525 126 503 2.2% 4.16 Oct-16 1,106 274 778 3.5% 4.03 Nov-16 858 203 981 4.4% 4.22 Dec-16 453 105 1,086 4.9% 4.32 Jan-17 587 139 1,225 5.5% 4.23 Feb-17 41 9 1,234 5.5% 4.39 Mar-17 61 9 1,243 5.6% 6.92 Apr-17 31 4 1,247 5.6% 6.96 May-17 ------Jun-17 ------Jul-17 ------Aug-17 164 16 1,263 5.6% 10.22 Sep-17 359 31 1,295 5.8% 11.44 Oct-17 4 0 1,295 5.8% 11.94 Nov-17 155 13 1,308 5.8% 11.93
Source: Company data, SWS Research
Fig 2: Number of shares purchased Fig 3: Total amount paid HK$ mn mn HK$/shr 300 7.0% 1,200 14.0
6.0% 250 1,000 12.0 5.0% 200 800 10.0 4.0% 150 600 8.0 3.0% 100 400 6.0 2.0%
50 1.0% 200 4.0
0 0.0% 0 2.0
Jul-16 Jul-17
Jan-16 Jan-17
Jul-16 Jul-17
Sep-16 Sep-17
Nov-16 Nov-17
Jan-16 Jan-17
Mar-16 Mar-17
Jun-16 Jun-17
Oct-16 Oct-17
May-16 May-17 Apr-16 Apr-17
Feb-16 Sep-16 Feb-17 Sep-17
Dec-16
Aug-16 Aug-17
Nov-16 Nov-17
Mar-16 Mar-17
May-16 May-17
Number of shares purchased, monthly % of total issued capital, accumulated (RHS) Total paid amount, monthly Average purchase price, monthly (RHS)
Source: Company data, SWS Research Source: Company data, SWS Research
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APPENDIX 2, Financials
Figure 1: Forecast Income Statement Rmbm 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E Revenue 62,725 84,549 111,551 150,729 223,776 313,078 407,888 531,587 Property sales 60,043 81,898 109,460 148,180 220,157 309,100 403,500 526,729 Construction business 867 468 746 1,143 2,304 2,650 3,047 3,504 Ppty mgmt 820 1,051 Hotel mgmt 995 1,132 1,344 1,406 1,315 1,328 1,341 1,355 Cost of Sales (43,713) (62,494) (89,198) (119,293) (166,028) (230,549) (308,091) (409,357) Gross Profit 19,012 22,055 22,352 31,436 57,748 82,529 99,797 122,231 Revaluation gains 1,880 810 712 505 530 557 585 Other Income 21 186 424 1,530 2,611 466 513 564 Distribution expenses (4,304) (4,356) (4,689) (7,384) (10,002) (12,002) (13,803) (15,183) Administrative expenses (2,033) (3,160) (3,010) (4,657) (7,881) (9,457) (11,349) (13,618) EBIT 12,696 16,605 15,887 21,637 42,981 62,066 75,716 94,578 Fair value changes Share of loss of an associate (26) (40) (56) 362 (352) 543 570 598 Finance Costs 803 (196) (1,290) (1,095) 3,276 (274) (287) (299) Profit before tax 13,473 16,369 14,542 20,903 45,905 62,334 75,998 94,877 Tax expense (4,625) (5,757) (5,047) (7,594) (17,603) (28,504) (33,122) (40,838) Income tax (2,990) (4,112) (4,010) (4,612) (9,852) (15,584) (18,999) (23,719) LAT (1,635) (1,645) (1,111) (3,115) (8,283) (12,920) (14,122) (17,119) Deferred 74 133 532 Profit for the year 8,848 10,612 9,495 13,309 28,302 33,830 42,876 54,039 -To minority shareholders (334) (176) (79) (737) (2,688) (3,763) (5,268) (7,376) -To perpetual security holders (207) (356) (1,410) --To shareholders 8,514 10,229 9,060 11,163 25,614 30,067 37,607 46,663 Dividends paid (3,106) (3,333) (2,912) (3,734) (8,629) (10,384) (13,016) (16,179) Basic EPS (RMB) 0.46 0.53 0.42 0.51 1.21 1.38 1.73 2.15 Diluted EPS (RMB) 0.46 0.53 0.42 0.51 1.20 1.34 1.67 2.07 DPS (RMB) 0.17 0.17 0.13 0.17 0.40 0.48 0.60 0.74 Core profit to shareholders 8,533 8,819 9,314 11,661 24,288 29,669 37,190 46,225 Core EPS (RMB) 0.46 0.46 0.43 0.53 1.14 1.36 1.71 2.13 Source: Company data, SWS Research
Figure 2: Forecast Balance Sheet Rmbm 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E Land use rights 1,865 2,035 2,052 2,536 2,426 2,668 2,935 3,228 Investment property 112 7,036 8,686 9,773 8,338 9,172 10,089 11,098 PP&E 15,828 18,643 20,020 20,877 21,628 22,709 23,845 25,037 Properties under development 40,080 44,639 52,727 52,342 98,840 103,767 112,014 128,816 Others 2,141 3,063 6,455 21,207 50,522 55,574 61,132 67,245 Non-current assets 60,026 75,415 89,940 106,736 181,754 193,890 210,014 235,424 Properties under development 67,474 105,994 135,107 216,383 360,922 438,046 523,037 618,348 Completed properties for sale 18,920 23,203 34,114 30,885 27,886 30,675 33,742 37,116 Cash and cash equivalents 18,910 18,761 36,241 84,647 137,084 143,883 125,756 118,333 Restricted cash 7,770 8,453 11,637 11,844 11,318 11,884 12,478 13,102 Receivable 26,378 25,371 42,242 117,322 270,541 284,068 298,271 313,185 Others 6,761 10,835 12,675 23,754 60,164 63,172 66,331 69,647 Current assets 146,213 192,617 272,016 484,836 867,915 971,728 1,059,615 1,169,732 Total assets 206,239 268,032 361,956 591,572 1,049,669 1,165,618 1,269,629 1,405,156 Share capital and premiums 20,169 24,262 29,213 25,677 24,461 31,080 31,080 31,080 Retained earnings 21,590 28,181 32,136 39,967 63,267 82,950 107,541 138,025 Other reserves 2,194 4,243 3,942 4,484 5,943 6,537 7,191 7,910 Majority interests 43,953 56,686 65,291 70,128 93,671 120,567 145,812 177,015 Minority interests 2,058 2,666 4,522 11,487 22,941 27,529 33,035 39,642 Perpetual securities 3,090 19,528 0 0 0 0 0 Total equity 46,011 62,442 89,340 81,615 116,612 148,096 178,847 216,657 Borrowings 23,103 26,404 30,829 38,710 87,845 92,845 97,845 102,845 Senior notes 20,711 19,735 20,878 29,264 28,118 30,930 34,023 37,425 Convertible bonds Onshore bonds 15,258 29,502 30,520 33,000 27,830 27,830 Others 1,510 2,828 4,056 7,166 17,037 18,741 20,615 22,676 Non-current liabilities 45,324 48,967 71,021 104,642 163,520 175,516 180,313 190,776 Advanced sales proceeds 63,418 91,792 96,516 192,409 346,747 381,422 419,564 461,520 Trade Payable 30,914 40,925 73,385 151,789 330,884 363,972 400,370 440,407 Tax payable 8,138 8,976 8,905 15,310 21,607 23,768 26,144 28,759 Borrowings 12,434 14,930 22,778 30,513 47,672 49,672 51,672 53,672 Convertible bonds 13,104 Corporate bonds 8,207 20,609 8,000 10,170 10,171 Receipts under securitisation arrangements 7,043 1,805 1,823 1,841 1,860 Others 10 42 213 246 709 1,334 Current liabilities 114,904 156,623 201,595 405,314 769,537 842,007 910,470 997,722 Total liabilities 160,228 205,590 272,616 509,956 933,057 1,017,522 1,090,783 1,188,499 Total equity and liabilities 206,239 268,032 361,956 591,572 1,049,669 1,165,618 1,269,629 1,405,156 Source: Company data, SWS Research
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Figure 3: Forecast Cash Flow Statement Rmbm 2013A 2014A 2015A 2016A 2017A 2018E 2019E 2020E Cash generated from/(used in) operations (535) 6,543 (6,486) 46,154 10,629 25,000 30,000 30,000 Others (8,632) (10,875) (11,101) (13,321) (24,644) (27,109) (29,820) (32,801) Net cash generated from operating activities (9,167) (4,332) (17,587) 32,833 (14,015) (2,109) 180 (2,801) Acquisitions (4,777) (4,769) (3,834) (767) (460) (276) (166) (99) Others (216) 82 (2,832) (2,974) (3,271) (3,435) (3,606) (3,787) Net cash generated from Investing activities (4,993) (4,687) (6,666) (3,740) (3,731) (3,711) (3,772) (3,886) Proceeds from issuance of shares 800 4,093 4,951 (3,535) (1,216) 6,619 0 0 Proceeds from shares placement or perpetual securities issuance 3,090 16,438 (19,528) 0 0 0 0 Proceeds of net borrowing 19,335 4,821 28,674 38,246 73,329 12,805 (5,993) 10,422 Dividends payment 1,207 (3,106) (3,333) (2,912) (3,734) (8,629) (10,384) (13,016) Others 14 (5,063) 7,043 1,805 1,823 1,841 1,860
Net cash generated from financing activities 21,342 8,912 41,667 19,314 70,184 12,618 (14,536) (735) Increase in cash and cash equivalents 7,182 (107) 17,414 48,406 52,437 6,798 (18,127) (7,422) Cash and cash equivalents at beginning of year 11,809 18,910 18,761 36,241 84,647 137,084 143,883 125,756 Exchange losses on cash and cash equivalents (81) (43) 66
Cash and cash equivalents at end of the year 18,910 18,761 36,241 84,647 137,084 143,883 125,756 118,333 Source: Company data, SWS Research
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Information Disclosure： The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed.
Undertakings of the Analyst I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Disclosure with respect to the Company The company is a subsidiary of Shenwan Hongyuan Securities. The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission with the code number ZX0065. Releasing securities research reports is the basic form of the securities investment consulting services. The company may analyze the values or market trends of securities and related products or other relevant affecting factors, provide investment analysis advice on securities valuation/ investment rating, etc. by issuing securities research reports solely to its clients. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact [email protected] for the relevant disclosure materials or log into www.swsresearch.com for the analysts' qualifications，the arrangement of the quiet period and the affiliates’ shareholdings.
Introduction of Share Investment Rating Security Investment Rating： When measuring the difference between the markup of the security and that of the market’s benchmark within six months after the release of this report, we define the terms as follows: Trading BUY: Share price performance is expected to generate more than 20% upside over a 6-month period. BUY: Share price performance is expected to generate more than 20% upside over a 12-month period. Outperform: Share price performance is expected to generate between 10-20% upside over a 12-month period. Hold: Share price performance is expected to generate between 10% downside to 10% upside over a 12-month period. Underperform: Share price performance is expected to generate between 10-20% downside over a 12-month period. SELL: Share price performance is expected to generate more than 20% downside over a 12-month period. Industry Investment Rating: When measuring the difference between the markup of the industry index and that of the market’s benchmark within six months after the release of the report, we define the terms as follows: Overweight：Industry performs better than that of the whole market； Equal weight： Industry performs about the same as that of the whole market； Underweight：Industry performs worse than that of the whole market.
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