21 Jun 2018 Securities Analysis Times China (1233 HK) A premium Bay Area player that should not be underestimated A premium Bay Area player that should not be underestimated. Times Not rated China is a Guangzhou-based developer which mainly focuses on Guangzhou and Foshan. With detailed coordinated development plan to be published soon, we Current Price HK$12.9 hold firm to the development value of GD-HK-Macau Bay Area. As at 31 Dec 2017, Times China had total land bank of 16.84 mn sq.m., which is sufficient to Huang Chengyu support the need for the next 3 to 5 years. Average land cost was Tel：(852) 3761 8773 Rmb2,971/sq.m, which is only 17.5% of 5M18 ASP. As 56% of land bank Email：[email protected] located in the Bay Area and 33% in Qingyuan, Times China is classified as a Bay-themed developer. Samson Man, CFA Robust sales growth. For 5M18, Times China recorded contracted sales of Tel：(852) 3900 0853 Email：[email protected] Equity Research Rmb20,465mn, up 69% YoY. Corresponding GFA sold was 1.21mn sq.m, representing ASP of Rmb16,955/sq.m. In terms of 5M18sales growth, Times China outperformed most of the large scale developers. And if compared to China property Sector other major Bay-Area-focused developers, Times China was also above average. Strong redevelopment pipeline. Times China has put a lot of effort into urban Mkt. Cap. (HK$mn) 23,656 Avg. 3mths t/o (HK$mn) 43.0 redevelopment projects in Guangzhou and Foshan. Early involvement in urban 52W High/Low (HK$) 13.88/4.7 redevelopment has given the Company a strong connection and reputation in Total Issued Shares (mn) 1,834 Guangzhou. In the field of urban redevelopment, those who can gain the most Source: Bloomberg trust from local authorities and original landowners will benefit the most. As a Shareholding Structure Guangzhou based developer with rich experience, we believe Times China has Shum Chiu Hung 65.17% advantage over other comparable peers in Guangzhou/Foshan market. Free float 34.83% Currently, 68 urban redevelopment projects with 19.2mn sq.m planned GFA are Source: Bloomberg on track. Of which, 30 projects of land use conversion are likely to be completed Share performance in 2018-20, with planned GFA of 5.6mn sq.m. Absolute Relative 1-mth -1.5% 3.7% Attractive valuation. Currently, the counter is trading at 5.6x 2018E PE, which 3-mth 8.8% 16.0% is lower than the selective peers’ average (6.5x). There is a potential catalyst 6-mth 82.4% 81.0% that the stock will be included in HK-SZ connection in 3Q18. Although its share Source: Bloomberg price rose by 74.5% YTD, we believe its valuation is still undemanding 12-mth price performance compared with peers. HK$ 16.0 14.0 Earnings summary 12.0 10.0 (YE Dec 31) FY15A FY16A FY17A 8.0 Turnover (Rmb mn) 13,638 16,206 23,110 6.0 Net Income (Rmb mn) 1,421 1,955 2,667 4.0 EPS (Rmb) 0.8 1.1 1.5 2.0 EPS CHG (%) 11 38 34 0.0 PE (x) 10.1 7.4 5.5 15-Jun-17 15-Sep-17 15-Dec-17 15-Mar-18 15-Jun-18 PB (x) 2.0 1.6 1.0 Yield (%) 1.9 3.8 5.0 Source: Bloomberg ROE (%) 20.0 21.4 17.3 Net gearing (%) 77 55 58 Auditor: Ernst&Young Source: Bloomberg Web-site: www.timesgroup.cn PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 21 Jun 2018 A premium Bay Area player that should not be underestimated Times China is a Guangzhou-based developer which mainly focuses on Guangzhou and Foshan. With detailed coordinated development plan to be published soon, we hold firm to the development value of GD-HK-Macau Bay Area. As 56% of land bank located in the Bay Area and 33% in Qingyuan, Times China is classified as a Bay-themed developer. Figure 1: Economy of GD-HK-Macau Bay Area. Source: CMBIS As at 31 Dec 2017, Times China had total land bank of 16.84 mn sq.m., which is sufficient to support the need for the next 3 to 5 years. Average land cost was Rmb2,971/sq.m, which is 17.5% of 5M18 ASP. 56.2% of land bank locates in the Bay Area. If we slightly enlarge the coverage of Bay Area to Qingyuan, nearly 90% of the land bank is in core Pearl River Delta. Figure 2: Land bank distribution Figure 3: Land bank City GFA (mn sq.m) % Guangzhou 2.14 12.7% Foshan 2.39 14.2% Dongguan 0.50 3.0% Huizhou 1.11 6.6% Zhuhai 1.09 6.5% Zhongshan 1.13 6.7% Jiangmen 1.09 6.4% Bay Area 9.47 56.2% Qingyuan 5.60 33.2% Changsha 1.77 10.5% Total Landbank 16.84 100.0% Source: Company Source: Company 21 Jun 2018 It is worth noting that 1/3 of the Company’s land bank was in Qingyuan. Although Qingyuan is not included in the Bay Area Initiative, it is within 1-hour-driving distance from Guangzhou downtown. Qingyuan government currently does not pose purchase restriction on commodity housing, but it has increased the mortgage requirement since Apr 2017. Down payment increased from 30% to 40% for non-local buyers. Relatively loose housing restriction and closed distance to Guangzhou have driven the local housing price from Rmb5,428/sq.m in Jan 2017 to Rmb9,033/sq.m in Apr 2018. We believe Times China’s projects in Qingyuan will benefit from the appreciation of housing price and could enjoy a high profit margin even under purchase restriction. Figure 4: Distance between Qingyuan and Figure 5: Average housing price in Qingyuan Guanghzou Source: CRIC Source: Google Figure 6: Average housing price in local markets Average housing City price in lcoal (Rmb/sq.m) Guangzhou 17,079 Foshan 11,025 Dongguan 16,943 Huizhou 10,086 Zhuhai 21,490 Zhongshan 9,977 Jiangmen 8,573 Qingyuan 9,033 Changsha 9,000 Times China's Projects (Rmb/sq.m) 5M18 ASP 16,955 Average Land cost 2,971 Source: As of Apr 2018, CRIC, Anjuke, Company 21 Jun 2018 Robust sales growth For 5M18, Times China recorded a contracted sales of Rmb20,465mn, up 69%. Corresponding GFA sold was 1.21mn sq.m, representing ASP of Rmb16,955/sq.m. In terms of FY18 sales growth, Times China outperformed most of the large scale developer. And if compared to other major Bay-Area-focused developers, Times China was also above average. Figure 7: Sales growth compared to big players Figure 8: Sales growth compared to selective peers Sales growth 2016 2017 1Q18 5M18 Sales growth 2016 2017 1Q18 5M18 Times China 50% 42% 60% 69% Times China 50% 42% 60% 69% Vanke 40% 45% 3% 5% Logan 40% 51% 112% 86% Evergrande 85% 34% 51% 39% Aoyuan 69% 78% 125% 153% CG 120% 78% 25% 37% Yuexiu 22% 35% 11% 25% COLI 17% 10% 15% 16% Agile 19% 70% 0% 17% Longfor 62% 77% 2% 0% Kaisa 222% 50% -1% 12% CR Land 27% 41% 19% 24% Source: Company R&F 12% 35% 51% 42% Sunac 111% 135% 65% 79% Shimao 2% 48% 60% 53% Greentown 33% 8% -6% 4% CIFI 75% 96% 17% 33% Source: Company Strong redevelopment pipeline Times China has put a lot of effort into urban redevelopment projects in Guangzhou and Foshan. Early involvement in urban redevelopment has given the Company a strong connection and reputation in Guangzhou redevelopment market. In the field of urban redevelopment, those who can gain the most trust from local authorities and original landowners will benefit the most. As a Guangzhou based developer with rich experience, we believe Times China has advantage in Guangzhou/Foshan market. Currently, 68 urban redevelopment projects with 19.2mn sq.m planned GFA are on track. Of which, 30 projects of land use conversion are likely to be completed in 2018-20, with planned GFA of 5.6mn sq.m. The remaining 38 projects with letters of intent or cooperation signed are likely to be completed after 2020. Due the tightened market, M&A/ urban redevelopment has become the first option in land acquisition, which is in line with market peers. 21 Jun 2018 Figure 9: Details of 30 projects of land use conversion are likely to be completed in 2018-20 Site Planned GFA No. Project City Progress Area(sq.m) (sq.m) 1 Luogang (Hongwei village project) Guangzhou Conversion in progress 189,900 590,589 2 Tianhe Finance City Project Guangzhou Acquisition compleleted Conversion in progress 30,000 98,900 3 Kuntai Project Guangzhou Acquisition compleleted Conversion in progress 60,000 135,000 4 Zengcheng (Feng Ding Factory) Guangzhou Acquisition partial compleleted Conversion in progress 220,000 495,000 5 Tianxin Village project Guangzhou Conversion in progress 42,900 156,000 6 Huangpu Chemical Factory Project Guangzhou Partial completed 70,000 145,000 7 Luofeng Project Guangzhou Conversion in progress 157,000 353,000 8 Nansha Houji Project Guangzhou Conversion in progress 50,000 125,000 9 Huangshanlu Project Guangzhou Conversion in progress 34,000 79,900 10 Tianhe(Niuligang Factory Project) Guangzhou Acquisition compleleted Conversion in progress 68,100 198,000 11 Zengjun Factory Project Guangzhou Acquisition compleleted Conversion in progress 86,000 193,500 12 Baiyun Factory Project Guangzhou Acquisition compleleted Conversion in progress 35,000 105,000 13 Kaitai Project Guangzhou Conversion in progress 45,000 101,000 14 Shawan Weile Factory Project Guangzhou Acquisition compleleted Conversion in progress 64,200 128,400 15 Datang Project Guangzhou Conversion in progress 90,000 225,000 16 Luogang Xiangxue Project Guangzhou Conversion in progress 37,000 83,700 17 Haizhu Qingchu Factory Project Guangzhou Acquisition compleleted Conversion in progress 47,000 117,500 18 Jinhetian Factory Project Shenzhen Acquisition compleleted Conversion in progress 30,000 90,000 19 Tanghong Factory Project Foshan Acquisition compleleted Conversion in progress 30,000 90,000 20 Taiping Industrial Project Foshan Acquisition compleleted Conversion in progress 47,000 124,600 21 Lishuizhou Village Project Foshan Acquisition compleleted Conversion in progress 97,000 256,700 22 Chancheng Factory Project