Yuexiu Property (123 HK)

Transcription

1 Mizuho Securities Asia Ltd Yuexiu Property (123 HK) 1H12 results review Yuexiu property reported 1H results yesterday after market close. Total revenue of CNY4.8bn was 10% lower than 1H11. However, thanks to margin expansion, its core earnings (excl. revaluation gain of investment properties) came in at CNY903mn, 16% higher than 1H11, which is decent compared to its peers. Yuexiu has achieved 85% of its 2012 full-year contracted sales in January-July, which is ahead of the sector average of 61%. The company is set to exceed its contracted sales target by a wide margin. Overall, we view Yuexiu s interim results as solid and maintain our BUY rating. High earnings visibility Yuexiu s core earnings of CNY0.9bn represents around 47% of our full-year earnings estimate, much higher than the average of ~35% for the sector, indicating higher earnings visibility. Meanwhile, with its strong sales performance it is set to beat its 2012 target by a wide margin and its FY13 earnings would likely beat current consensus estimates. Beefing up its balance sheet Completion of the proposed injection of Guangzhou IFC into Yuexiu REIT (405 HK, NR) will significantly improve Yuexiu Property s balance sheet, with net gearing ratio declining by 27.8ppts to 33.5%, which would be among the lowest in the sector, and give the company greater flexibility to develop faster going forward. Valuations Our PO of HKD2.28 is derived by applying a 45% discount to its NAV. Yuexiu is trading at 7.5x FY12E normalized earnings and at 37% below FY12E book value, which is inexpensive, in our view. NAV accretive acquisitions would be positive catalysts. Synergy between Yuexiu Property (123 HK) and Yuexiu REIT (405 HK) will be a long-term positive. Over concentration of land in Guangzhou and execution capability outside Guangzhou are key concerns. BUY (Unchanged) Equity Research 22 August 2012 Price at 21 Aug 2012 Price objective at 19 Jul 2012 HKD1.88 HKD2.28 Sector Upside / downside Real Estate Investment +21% & Services Market cap HKD17bn (USD2.3bn) Avg daily turnover (3M / 12M) USD6.0mn / USD3.8mn Share price performance Volume mn /11 10/11 Source: Bloomberg 52 week high low HKD Alan Jin alan.jin@hk.mizuho-sc.com Yuexiu Property Ord HK (123 HK) Price Close 12/11 2/12 Relative to HSI (rhs) 4/12 6/ Share price (%) -1 mth -3 mth -12 mth Ordinary shares Relative to Index Source: Bloomberg China Valuation YE: Dec 10 Dec 11 Dec 12E Dec 13E Dec 14E Revenue (CNYmn) 5,634 9,569 11,101 13,580 17,712 Net profit (CNYmn) 919 5,137 2,892 3,037 2,964 Normalised net profit (CNYmn) 181 1,339 1,898 2,051 2,374 Norm. net profit margin 3.2% 14.0% 17.1% 15.1% 13.4% Normalised EPS (CNY) Net debt to equity 64.7% 77.2% 76.0% 53.6% 76.8% Normalised P/E (x) P/B (x) EV/EBITDA (x) ROE 1.26% 7.22% 8.63% 8.38% 8.89% Dividend yield 0.00% 4.53% 3.66% 5.19% 5.60% Please refer to pages 6 7 of this report for important disclosure and analyst certification information. The MHSC Group either does or seeks to do business with companies covered in its research reports. As a result, investors should be aware that a MHSC Group company may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making an investment decision.

2 Fig 1 Key financials P&L figures 1H12 1H11 Change Total Revenue 1 (CNYmn) 4,840 5,402-10% Gross Profit (CNYmn) 2,733 2,359 16% Gross Profit Margin 56% 44% +13 ppts Core Operating Profit 2 (CNYmn) 2,388 1,990 20% Core Net Profit 2 (CNYmn) % Core Net Profit Margin 2 19% 14% +5 ppts Core EPS 2 CNY cents % Dividend Per Share CNY cents % Balance sheet figures 1H12 1H11 Change Cash (CNYmn) 6,800 6,128 11% Total Bank Borrowings (CNYmn) 22,427 21,782 3% Net Gearing Ratio 71.30% 75.90% -4.6 ppts Total Asset (CNYmn) 66,457 61,213 9% Share holders Equity (CNYmn) 21,434 20,187 6% Book Value Per Share HKD % Note: 1- including the sales of investment properties; 2 Excluding the fair value gain of investment properties Source: Mizuho research Fig 2 Jan-Jul 2012 contracted sales vs. full-year 2012 target Fig 3 Jan-Jul 2012 contracted sales vs. full-year 2012 target CNYbn COLI Shimao Yuexiu Poly-A Poly HK CR Land Vanke BJ Capital Fantasia Franshion Longfor KWG Property Greentown Guangzhou Agile Evergrande CC Land Country Kaisa Glorious SZ Investment Soho China 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CNYbn Longfor Agile Yuexiu KWG COLI Vanke Sino Ocean Guangzhou R&F CRLand SOHO China 70% 60% 50% 40% 30% 20% 10% 0% 1H12 sales (LHS) 1H12A core earnings (LHS) 2012 contract sales target (LHS) FY12E core earnings (LHS) % of sales target achieved in 1H12 (RHS) % of core earnings realised in 1H12 (RHS) Source: Company data, Mizuho research Source: Company data, Bloomberg Valuation Our NAV is based on a sum-of-the-parts (SOTP) valuation. For its 35.6% stake in Yuexiu REIT (405 HK, NR), we have used its market cap as fair value. For the firm s property business, we use a DCF model that assumes a WACC of 11.4%. We estimate Yuexiu s FY12E NAV at CNY32bn, or HKD4.14/share, 77% of which is attributable to its Guangzhou assets. We use a discount of 45% to NAV to derive our PO of HKD2.28. Yuexiu is trading at 7.5x FY12E normalized earnings and at 37% below FY12E BV. Risks Execution risk. Despite sector-wide risks such as uncertainties in policy and liquidity conditions, execution risks are higher for Yuexiu than its peers, in our view. Transformed from a former SOE conglomerate, Yuexiu reports slow asset turnover, although we have seen some signs of improvement over the last several years. This is a significant concern for Yuexiu but it also allows for upside potential for its share price performance. 2

3 Over concentration in Guangzhou. Guangzhou accounts for 51% of Yuexiu s existing land bank but only contributed 88% of total sales in Jan-Jul In order to grow faster, Yuexiu will need to put more effort into other markets outside Guangzhou, which is a challenge for management. Refinancing risk. Compared to its peers, Yuexiu s current debt profile is not favourable, as 46% of its bank borrowings are short-term loans. However, in our view, the risk should be low for Yuexiu thanks to its SOE background and good relationship with both onshore and offshore banks. Fig 4 NAV breakdown by region Fig 5 NAV breakdown by asset type Jiangmen 3% Wuhan 4% Shenyang 4% Foshan 2% Yantai 0% Hong Kong 2% IP 33% GZI Reit 3% Residential development 34% Hangzhou 2% Zhongshan 6% Guangzhou 77% Commercial development 30% Fig 6 NAV breakdown Residential developments Value (CNYmn) Value per share (CNY) % of gross asset value Guangzhou 20, % Zhongshan 2, % Hangzhou % Wuhan 2, % Jiangmen 1, % Shenyang 2, % Foshan % Yantai % Hong Kong % Development Properties 31, % Gross investment assets 16, % 35.58% stake in Yuexiu REITS (CNY) 1,252-0% Gross asset value (CNY) 49, % Less net debt (CNY) (15,655) (1.69) Less MSHI (CNY) (450) (0.05) Less Land premium outstanding@fy11 end (1,100) (0.12) Net asset value (CNY) 32, Shares outstanding 9, Net asset value per share (CNY) FY HKD/CNY 1.20 FY12E fair value 4.14 Discount to NAV 45% Price objective (HKD) 2.28 Source: Mizuho research 3

4 Fig 7 Summary income statement (CNYmn) Dec 10 Dec 11 Dec 12E Dec 13E Dec 14E Investment properties revenue ,003 1,212 Property development revenue 4,301 8,477 9,589 11,745 15,551 Hotel/serviced apartments revenue Other revenue 1, Revenue 5,634 9,569 11,101 13,580 17,712 Investment properties EBIT Property development EBIT 935 2,679 4,039 3,310 4,298 Hotels/serviced apartments EBIT - - (108) Other EBIT 69 (8) Management expenses (808) (985) (1,221) (1,562) (1,860) Operating EBITDA 408 2,109 3,114 2,288 3,110 Depreciation and amortisation (64) (16) (18) (20) (22) Operating EBIT 344 2,093 3,096 2,268 3,088 Net interest income/(expense) (177) (420) (449) (419) (1,467) Associates and jvs Other income 840 2, ,597 2,391 Pre-tax profit 1,263 4,567 3,907 4,027 4,651 Taxation (1,021) (3,108) (1,941) (1,926) (2,226) Post-tax profit 242 1,459 1,966 2,101 2,425 Minorities (61) (120) (68) (50) (51) Preferred dividends Normalised net profit 181 1,339 1,898 2,051 2,374 Extraordinary & other adjustments 738 3, Net profit 919 5,137 2,892 3,037 2,964 Dividends - (648) (402) (569) (615) Appropriation to reserve Fig 8 Key ratios Dec 10 Dec 11 Dec 12E Dec 13E Dec 14E Revenue growth 20.6% 69.8% 16.0% 22.3% 30.4% Op EBITDA growth (YoY) 16% 417% 48% (27%) 36% Operating profit growth 17% 508% 48% (27%) 36% EPS growth n.a. 351% (44%) 37% (2%) Normalised EPS growth 44% 496% 42% 41% 16% P/CF (x) n.a n.a. P/B (x) EV/EBITDA (x) EV/EBIT (x) Interest cover Dividend yield 0.00% 4.53% 3.66% 5.19% 5.60% Dividend payout ratio 0.0% 12.6% 13.9% 18.8% 20.8% EBIT/sales 25.6% 52.1% 39.2% 32.7% 34.5% Tax rate 80.9% 68.1% 49.7% 47.8% 47.9% Leverage Net debt/ebitda Net debt to equity 64.7% 77.2% 76.0% 53.6% 76.8% Net profit margin 16.3% 53.7% 26.1% 22.4% 16.7% Dupont decomposition Sales/avg assets ROAA 2.09% 9.17% 4.47% 4.17% 3.66% Avg assets/avg equity ROAE 6.6% 28.4% 13.4% 12.7% 11.3% Per share EPS (CNY) Normalised EPS (CNY) FDEPS (CNY) BVPS (CNY) DPS (CNY)

5 Fig 9 Summary balance sheet (CNYmn) Dec 10 Dec 11 Dec 12E Dec 13E Dec 14E Cash and equivalents 7,473 6,128 7,503 14,325 9,935 Properties held for sale 26,229 34,609 38,490 40,643 50,965 Accounts receivable 3, ,025 1,128 Other current assets Total current assets 37,484 42,090 47,374 56,540 62,741 Investment property 7,632 11,923 13,353 13,339 13,840 Associates: share of net assets 1,609 2,008 2,008 2,008 2,008 Joint-control cos: share of net assets Other fixed assets Other LT assets 1,746 2,450 2,432 2,412 2,390 Total assets 50,781 61,196 68,095 77,445 84,357 Total short term debt 6,034 10,591 10,591 10,591 10,591 Accounts payable 4,633 6,109 7,330 8,796 10,556 Other current liabilities 8,118 5,889 5,774 8,006 7,641 Total current liabilities 19,322 23,359 24,805 28,751 30,559 Total long-term debt 11,703 11,191 14,191 17,191 20,191 Convertible debt Other long-term liabilities 3,410 5,908 5,840 5,840 5,840 Total liabilities 34,435 40,458 44,836 51,783 56,590 Minority interests Preferred shares Shareholders' funds 15,860 20,288 22,741 25,095 27,149 Total equity 16,346 20,738 23,259 25,662 27,768 Total liabilities & equity 50,781 61,196 68,095 77,445 84,357 Fig 10 Summary cashflow statement (CNYmn) Dec 10 Dec 11 Dec 12E Dec 13E Dec 14E Operating ebitda 408 2,109 3,114 2,288 3,110 Decrease in working capital (7,498) (6,471) (2,463) 1,602 (8,783) Other operating cashflow 1,563 (936) (1,119) (357) 268 Cashflow from operations (5,527) (5,297) (468) 3,532 (5,406) Capital expenditure (735) 240 (203) (217) (232) Free cashflow (6,262) (5,057) (670) 3,315 (5,638) Net acquisitions (104) 1, Decrease in other assets (70) (704) Increase in other liabilities 677 2,497 (68) 0 (0) Other new investments Adjustments 491 (1,698) Cashflow after investing activities (4,547) (4,854) (713) 4,718 (5,210) Dividends paid (31) (305) (402) (402) (569) Equity issue 2, Debt issued 5,270 4,046 3,000 3,000 3,000 Convertible bonds issued Other financing cashflow (2,275) (188) (510) (494) (1,611) Cashflow from financing activities 5,891 3,553 2,088 2, Total cash generated 1,344 (1,301) 1,375 6,822 (4,390) Cash at beginning of period 6,173 7,473 6,128 7,503 14,325 Implied cash at end of year 7,473 6,128 7,503 14,325 9,935 Net debt 10,264 15,655 17,279 13,458 20,847 5

6 Recommendation History Fig 11 History of recommendations and targets Yuexiu Property Ord HK (123 HK) Price Close Recommendations & Target Price na Not Rated Buy Hold Neutral Sell Underperform 8/11 10/11 12/11 2/12 4/12 6/12 Source: Bloomberg, Mizuho research Important Disclosure Information Note 1: Where disclosure date appears below, this means the day prior to the report date for securities listed on the Hong Kong Stock Exchange. For all other securities, it means the end of the month preceding the date of this report, unless that month end is within 10 calendar days of the report date in which case the disclosure date is the end of the preceding month. All share prices quoted are the closing price for the business day prior to the date of the report, unless otherwise stated. As at the disclosure date, the following applies :- Company Disclosures Mizuho Securities Co., Ltd. and its affiliates (collectively, the MHSC Group ) have verified that there are no relevant disclosures for the securities mentioned in this report. Distribution of rating of companies covered by Mizuho Securities Asia Ltd. Rating matrix Distribution of ratings*(%) Investment banking relationship**(%) BUY NEUTRAL UNDERPERFORM Note *: Distribution of rating on all companies covered by Mizuho Securities Asia Ltd. Note **: Percentage of companies within each rating category receiving investment banking services from Mizuho Securities Asia Ltd in the past 12 months. BUY NEUTRAL UNDERPERFORM RS NR Mizuho Securities Asia Limited Ratings for Fundamental Research Mizuho Securities Asia Limited ratings are based on the following definitions. Ratings and price objectives are based on returns expected over the next 6-12 months. Stocks for which our price objective, as of the date it is set, exceeds the share price by 10% or more as of the date of the rating. Stocks for which our price objective, as of the date it is set, is within 10% of the share price as of the date of the rating. Stocks for which our price objective, as of the date it is set, is below the share price by 10% or more as of the date of the rating, and/or which are expected to be among the stocks that provide lower investment returns than stocks within their respective coverage groups that have BUY or NEUTRAL ratings. RATING SUSPENDED rating and price objective temporarily suspended. No Rating not covered, and therefore not assigned a rating. Guidelines for ratings Mizuho Securities Asia Limited is using an absolute performance rating system, based on capital returns of share prices compared to price objectives with an investment horizon of six-to-twelve months. Stocks are classified into coverage groups, with the proviso that Underperform ratings must apply to at least 10% of any coverage group equal to or greater than 10 companies. However this ratings dispersion may be varied from time to time if we believe that different ratings better reflect the prospective investment returns from a given coverage group. Prior to 4 October 2011, Mizuho Securities Asia Limited had a Buy/Hold/Sell rating system with definitions that correspond with the Buy/Neutral/Underperform recommendations outlined above. Investors should be aware that share prices are prone to volatility. An investor s decision should depend on individual circumstances and other considerations. Recommendations should not be the only factor in making an investment decision. Should you require additional information on the valuation methodologies used to derive the price objective(s), please contact the author(s) of this report. THIS RESEARCH HAS BEEN PRODUCED BY MIZUHO SECURITIES ASIA LIMITED IN HONG KONG. IT HAS NOT BEEN PRODUCED IN THE UNITED STATES For the purposes of disclosure under FINRA rules, our ratings correspond to Buy, Hold/Neutral, and Sell, respectively. Analyst Certification Each research analyst listed on the cover page of this report certifies that the views expressed in this research report accurately reflect the analyst's personal views about the subject security(ies) and issuer(s) and that no part of his/her compensation was, is, or will be, directly or indirectly, related to any specific recommendation or view expressed in this research report. As of the date of this report, the research analyst listed on the cover page of this report, or his/her associate(s), does not have any interest (including any direct or indirect ownership of securities, arrangement for financial accommodation or serving as an officer) in any company mentioned in this report, knows or has reason to know of any conflict of interest at the time of publication of this research report that could influence the research analyst s views in the report. 6

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