Yuexiu REIT (405 HK)

Transcription

1 Equity Research Property Yuexiu REIT (405 HK) Buy (initiation) Target price: HK$5.90 Premium investment property portfolio, attractive dividend yield; initiate at Buy First HK-listed China property REIT, seven premium properties in Guangzhou and Shanghai The company was the first Hong Kong-listed real estate investment trust (REIT) investing solely in property in mainland China. It owns and manages seven premium investment properties in Guangzhou and Shanghai, all located in the CBD. Its properties include White Horse Building, Fortune Plaza, City Development Plaza, Victory Plaza, Yuexiu Neo Metropolis, and Guangzhou International Finance Center (Guangzhou IFC) in Guangzhou, and Hongjia Tower in Shanghai, with a total rentable area of 487,324 sqm. Dennis Yao SFC CE No. ALK994 dennisyao@gfgroup.com.hk GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Guangzhou IFC is the main revenue and earnings driver The 440m tower is a landmark project in Guangzhou that includes a high-end office, luxury retail mall, serviced apartments, and a Four Seasons hotel. It was completed in 2010 and has a total rentable area of 230,267 sqm. In 2015, the tower had an occupancy rate of 95%, with a monthly average rental rate of Rmb211 per sqm. Booked revenue from the project totaled Rmb1.0bn in 2015, accounting for 58% of the company s total revenue. Strong parent Yuexiu REIT is 37%-owned by Yuexiu Property (123 HK, NR), a major state-owned (Guangzhou government) residential developer. According to our discussion with Yuexiu Property s new management, Yuexiu REIT will continue to acquire projects in order to accelerate its earnings growth. Hongjia Tower in Shanghai a new growth driver This project, acquired in 2015, is located in the Pudong district of Shanghai, has a rental area of 46,026 sqm and a monthly average rental rate of Rmb243 per sqm (2015). We expect this project s occupancy rate to remain stable at 99% this year, and contribute revenue of Rmb130m. Stock performance 28,000 HK$ 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 19,000 18,000 17,000 16,000 15,000 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 HSI Yuexiu REIT Source: Bloomberg Dividend payout over 90%; attractive dividend yield of over 7% The company has distributed over 90% of its earnings as annual dividends to shareholders since its listing in Given the earnings contribution from Hongjia Tower, we expect DPS to grow by 5% in , with a dividend yield of over 7%. Undervalued asset play; initiate at Buy Given the limited supply of Grade-A office and high-end commercial properties in Guangzhou and Shanghai, we see solid appreciation potential for the company s premium investment properties going forward. In our view, the company s rational valuation should be equal to its book value, given its recurring rental revenue. The stock is trading at a 30% discount to 2016E NBV (based on our estimate), clearly undervalued, in our view. We initiate coverage with a Buy rating and a target price of HK$5.90, equal to 1.0x 2016E NBV. Key data May 24 close (HK$) 4.24 Shares in issue (m) 2845 Major shareholder Yuexiu Property (37%) Market cap (HK$ bn) M avg.vol. (m) w high/low (US$) 4.52/3.82 Source: Bloomberg Stock valuation Turnover (Rmb m) Net Profit (Rmb m), GF Securities (HK) DPS (Rmb) DPS YoY (% chg) Yield (x) ROE (%) BPS (Rmb) , , E 1, E 1, E 2, P/B (x)

2 First HK-listed China property REIT, seven premium properties in Guangzhou and Shanghai The company was the first Hong Kong-listed real estate investment trust (REIT) investing solely in property in mainland China. It owns and manages seven premium investment properties in Guangzhou and Shanghai, all located in the CBD. Its properties include White Horse Building, Fortune Plaza, City Development Plaza, Victory Plaza, Yuexiu Neo Metropolis, and Guangzhou International Finance Center (Guangzhou IFC) in Guangzhou, and Hongjia Tower in Shanghai, with a total rentable area of 487,324 sqm. Figure 1: Portfolio of seven premium investment properties Property Type Location Area of Year of ownership completion (sqm) Total rentable Occupancy area (sqm) rate Monthly rental rate (Rmb/sqm) White Horse Building Wholesale shopping center Yuexiu district ,199 50, % Fortune Plaza Grade-A office Tianhe district ,355 41, % City Development Plaza Grade-A office Tianhe district ,397 42, % Victory Plaza Retail shopping center Tianhe district ,698 27, % Neo Metropolis Commercial complex Yuexiu district ,964 49, % (2) The Guangzhou International Finance Center (GZIFC) Commercial complex Tianhe district , , % Including: Grade A Office 267, , % Retail shopping mall 46,989 46, % Hotel 91,461 N/A N/A N/A Serviced apartments 51,102 N/A N/A N/A Hongjia Tower Commercial complex Pudong, Shanghai ,139 46, % Sum 743, , % Office 475, , % Retail 74,687 73, % Whosale 50,199 50, % results review 2015 revenue rose 9% YoY to Rmb1.7bn, with an overall occupancy rate of 97% and an average monthly rental rate of Rmb237.5 per sqm. Total distribution to shareholders rose 6% YoY to Rmb704m. DPS was HK$ Guangzhou IFC is the main revenue and earnings driver The 440m tower is a landmark project in Guangzhou that includes a high-end office, luxury retail mall, serviced apartments, and a Four Seasons hotel. It was completed in 2010 and has a total rentable area of 230,267 sqm. In 2015, the tower had an occupancy rate of 95%, with a monthly average rental rate of Rmb211 per sqm. Booked revenue from the project totaled Rmb1.0bn in 2015, accounting for 58% of the company s total revenue. White Horse building also driving revenue and earnings The building is a major wholesale market for more than 1,100 fashion manufacturers, and has a 100% occupancy rate. In 2015, its revenue rose 11% YoY to Rmb407m, accounting for 24% of the company s total revenue. Figure 2: Guangzhou IFC Figure 3: White Horse Building Sources: yuexiureit.com 2

3 Figure 4: Top 10 tenants in Guangzhou IFC office area Hongjia Tower in Shanghai a new growth driver This project, acquired in 2015, is located in the Pudong district of Shanghai, has a rental area of 46,026 sqm and a monthly average rental rate of Rmb243 per sqm (2015). We expect this project s occupancy rate to remain stable at 99% this year, and contribute revenue of Rmb130m. Figure 5: Hongjia Tower in Shanghai Strong parent Yuexiu REIT is 37%-owned by Yuexiu Property (123 HK, NR), a major stateowned (Guangzhou government) residential developer. According to our discussion with Yuexiu Property s new management, Yuexiu REIT will continue to acquire projects in order to accelerate its earnings growth. Dividend payout over 90%; attractive dividend yield of over 7% The company has distributed over 90% of its earnings as annual dividends to shareholders since its listing in Given the earnings contribution from Hongjia Tower, we expect DPS to grow by 5% in , with a dividend yield of over 7%. Undervalued asset play; initiate at Buy Given the limited supply of Grade-A office and high-end commercial properties in Guangzhou and Shanghai, we see solid appreciation potential for the company s premium investment properties going forward. In our view, the company s rational valuation should be equal to its book value, given its recurring rental revenue. The stock is trading at a 30% discount to 2016E NBV (based on our estimate), clearly undervalued, in our view. We initiate coverage with a Buy rating and a target price of HK$5.90, equal to 1.0x 2016E NBV. 3

4 Figure 6: Financial statements Income Statement Balance Sheet Year-end Dec (Rmb m) E 2017E 2018E Year-end Dec (Rmb m) E 2017E 2018E Revenue 1,571 1,710 1,812 1,993 2,193 Cash and Cash Equivalents Operating expenses (922) (1,066) (1,105) (1,216) (1,338) Due from Related Companies Gross profit Other current assets Fair value gains 672 1,075 1,000 1,000 1,000 Total Current Assets 1,663 1,157 1, ,301 Financial expenses (381) (763) (725) (689) (654) Income taxes (177) (260) (267) (296) (326) Property, Plant and Equipment 2,369 2,412 2,557 2,813 3,094 Net profit Investment Properties 19,299 23,194 24,194 25,194 26,194 Dividend distribution paid Goodwill DPS (Rmb) Land Use Rights 1,577 1,528 1,528 1,528 1,528 Deferred Assets Cash Flow Statement Top up Payment Asset Year-end Dec (Rmb m) E 2017E 2018E Total Non Current Assets 23,700 28,178 29,323 30,579 31,860 Cash Flow from Operating Activities Trade Payables Cash Flow from Investing Activities 24 (2,425) (50) (900) (900) Accruals and Other Payables 1, ,119 1,535 1,689 Cash Flow from Financing Activities (405) 1,491 (90) (83) 421 Tax Payables CF at beginning Amounts Due to Related parties Net change 347 (304) (80) (41) 303 Rental Deposits CF at end Borrowings 300 2,842 2,700 2,565 2,436 Receipt in Advance Total Current Liabilities 1,578 3,906 4,037 4,320 4,347 Financial Ratios Year-end Dec E 2017E 2018E Borrowings 7,809 8,136 8,950 9,845 11,322 Deferred Tax Liabilities 2,608 3,611 3,611 3,611 3,611 Revenue growth rate (YoY) 15% 9% 6% 10% 10% Minority Interest Gross margin 41% 38% 39% 39% 39% Receipt in Advance Net profit margin (incl fair value gains) 59% 43% 42% 42% 42% Rental Deposits Net gearing 54% 77% 76% 84% 91% Total Non Current Liabilities 10,643 12,029 12,842 13,737 15,214 ROE 7% 6% 6% 6% 7% Total Shareholders Equity 13,142 13,400 13,461 13,508 13,600, GF Securities (HK) 4

5 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 10% Neutral Expected sector relative performance ranges between -10% and 10% Cautious Sector expected to underperform benchmark by more than 10% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. 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GF Securities (Hong Kong) Brokerage Limited. All rights reserved /F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: Fax: Website: 5