Company Update. Benefiting from using an IP platform. Yuexiu Property (123 HK)

Transcription

1 Company Update Ronney Cheung Analyst Wee Liat Lee Analyst Benefiting from using an IP platform WHAT S THE STORY? Event: We believe Yuexiu is set to benefit from its differentiated strategy of selling its non-core investment properties to buffer its contracted sales, as well as its well-balanced portfolio of investment and residential properties development. Impact: Yuexiu has achieved Rmb8.33bn, or 93% of its full-year target of Rmb9bn for Jan-mid Dec 2011, of which, Rmb1.7bn was related to sales of noncore investment properties. We believe Yuexiu s sales performance will remain relatively stable, as it can always sell its non-core investment properties to make up for any potential sales shortfall. We believe the current market has not under-appreciate the full valuation of Guangzhou IFC given the current office capital value is above Rmb42,000/sq m, implying that its office portion alone is already worth more than Rmb7.3bn, close to Yuexiu s current market cap. Action: We believe its current valuation is attractive given it is trading at a 63% discount to its NAV and a 2012E P/E of 4.1x and a 2013E P/E of 3.5x. We lower our 12-13E EPS by 20%-29% to reflect a more conservative outlook on the China property market. We lower our target price to HK$1.40 from HK$1.77, based on a 50% discount to our NAV of HK$2.80, implying upside potential of 26%. Maintain BUY. AT A GLANCE Target price HK$1.40 (+26%) Current price Bloomberg code Market cap HK$1.11 SAMSUNG vs THE STREET 123 HK US$1,327m Shares out (float) 9.28bn (50%) 52-week high/low ADT (3M) HK$2.14/0.96 US$1.67m One year performance 1M 6M 12M Yuexiu Property -6% -27% -47% Hang Seng Index -2% -18% -21% KEY CHANGES New Old Chg% Recommendation Buy Buy Target price (HK$) % EPS 12-11E (Rmb) % EPS 12-12E (Rmb) % EPS 12-13E (Rmb) % No. of I/B/E/S estimates 9 Target price vs I/B/E/S mean -24% Estimates up/down (4 weeks) 0/1 1yr fwd EPS vs I/B/E/S mean +10% Estimates up/down (4 weeks) 0/1 I/B/E/S recommendation Buy (2.30) THE QUICK VIEW Yuexiu began selling its non-core investment properties in 2008, at Rmb492m. Year to date, it has achieved a total investment properties sales value of Rmb1.4bn, of which Rmb984m is from sales of the Popark Plaza, which was sold to Max Fame Capital, one of its tenants, for Rmb984m in December. We expect Yuexiu to continue to benefit from such a strategy to generate more cash flow for the company, especially when many of the investment properties were bought at a relatively low cost. We also expect its rental income to grow at a 3-year CAGR of 29% to total rental income, from 2011 to 2013e as more investment properties begin operations. Currently, Yuexiu holds ~ 1 million sqm of investment properties with an estimated value of Rmb3.3bn. We expect this to be sold in the next 2 to 3 years. We also believe Yuexiu can benefit from using the Yuexiu REIT (of which, it currently holds 35.58%) as a platform to inject its core investing properties, thus receiving cash to finance operations, while indirectly holding the investment properties at the same time. A key investment property, Guangzhou IFC, is expected to be in full operation by 1H12. Its office portion is currently leasing at an average rent of Rmb200/sqm, with an occupancy rate of around 65%. SUMMARY FINANCIAL DATA Revenue (Rmb m) 5,634 8,151 8,328 10,627 Net profit (adj) (Rmb m) 725 1,877 2,029 2,367 EPS (adj) (Rmb) EPS (adj) growth (%) nm Net margin (%) ROE (%) P/E (adj) (x) P/B (x) Dividend yield (%) Net debt to equity (%) Source: Company data, Samsung Securities estimates This report has been prepared by Samsung Securities (Asia) Limited. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES BEGIN ON PAGE 223

2 Figure 328: Summary of historical disposal of investment properties this is accelerating GFA (sqm) disposed IP sales (Rmb mn) Cost (Rmb mn) , , ,000 1, ,500 1,429 1,281 Figure 329: List of completed investment properties available for potential disposal in the future Project GFA (sqm) Usage Location 1 Guangzhou (IFC portion) 227,100 Office & retail Tianhe, Guangzhou 2 Jin Han Building 45,800 Office Yuexiu, Guangzhou 3 Hong Kong properties 29,700 Office & retail Hong Kong 4 Guan Yuan Cultural Centre 32,000 Retail Yuexiu, Guangzhou 5 Huangshi Garden 34,500 Retail Baiyun, Guangzhou 6 Xiangkang Commercial Plaza 32,200 Office Yuexiu, Guangzhou 7 Victory Plaza 23,000 Office Tianhe, Guangzhou 8 Yuexiu City Plaza 36,400 Office & retail Yuexiu, Guangzhou 9 Hong Da Building 32,300 Office Tianhe, Guangzhou 10 Other projects 291,900 Office & retail 784,900 Figure 330: List of commercial properties currently under construction Project GFA (sqm) Usage Location 1 Guangzhou (IFC portion) 146,000 Hotel & serviced apartments Tianhe, Guangzhou 2 Fortune Center 210,000 Retail and office Tianhe, Guangzhou 3 Fortune World Plaza 210,000 Retail Tianhe, Guangzhou 4 Sport Stadium Building 125,000 Retail and office Tianhe, Guangzhou 5 Zhongshan Bo-ai Land 130,000 Retail and office Zhongshan 6 Wuhan Qiaolkou Land 201,000 Retail and office Wuhan 1,022,000 Guangzhou IFC One of Yuexiu s core investment properties is Guangzhou IFC, which was bought at a relatively low land cost of Rmb2,856/sq m in Its hotel and serviced apartments are set to be completed by 1H2012. The office portion has just started leasing, with a current occupancy rate of around 60% at an average rental of ~Rmb200/sqm. Its retail portion is currently in operation and is 100% leased out to Guangzhou Friendship store with over 10 years of leasing period. Figure 331: Guangzhou IFC structure breakdown Status Type GFA (sqm) NAV (Rmb mn) Floor Key tennants Completed Office & conference centre 174,000 3,344 5, 6-66/F Yuexiu, Agile, Country Garden, Bank of China, China Construction Bank, Agricultural Bank of China, Aon Cofco Completed Retail 44, B1-5/F Guangzhou Friendship store Completed Office (self use by Yuexiu) 17, /F Yuexiu Completed CP 21, Under development Hotel (Four Seasons) 91,000 2, ,67-100/F Four Seasons Hotel Under Serviced apartments 55, /F n.a development Total 402,300 7,249* Implied capital value (Rmb/sqm) 18,019 Note:* Latest appraisal value for IFC is estimated to be around Rmb10.9bn ; 173

3 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q E 2012E 2013E 2014E 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 January 06, 2012 Figure 332: Guangzhou office space both capital value and market rental rates are rising Rmb/sqm Rmb/sqm 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Market rent - RHS Capital value - RHS Source: Jones Lang La Salle Figure 333: Guangzhou office space completion, net absorption and vacancy rates sqm 600, , , , , ,000-30% 25% 20% 15% 10% 5% 0% Completion Net absorption Vacancy rate - RHS Source: Jones Lang La Salle Summary of revisions Figure 334: Summary of revenue, net profit and EPS revisions New Old % change FY11 FY12 FY13 FY11 FY12 FY13 FY11 FY12 FY13 Revenue (Rmb mn) 8,151 8,328 10,627 9,939 12,457 17,449-18% -33% -39% Net profit (Rmb mn) 1,877 2,029 2,367 1,838 2,296 2,998 2% -12% -21% EPS (Rmb) % -19% -29% Figure 335: Summary of contracted sales revisions New Old % change Contracted sales value (Rmb mn) 9,003 8,991 10,834 9,046 14,361 18,891 0% -37% -43% GFA sold ('k sqm) ,120 1,347-23% -32% -26% ASP (Rmb/sqm) 14,332 11,874 10,908 11,018 12,822 14,024 30% -7% -22% We believe main contracted sales project contributors for 2012E would primarily be located in Guangzhou, including new phases of some of its existing residential projects such as Starry Wenhua and Southern Le Sand, as well as other commercial projects such as Fortune Century Square. 174

4 Jan-11 Jan-11 Jan-11 Feb-11 Feb-11 Mar-11 Mar-11 Apr-11 Apr-11 May-11 May-11 Jun-11 Jun-11 Jul-11 Jul-11 Sep-11 Sep-11 Oct-11 Oct-11 Nov-11 Nov-11 Dec-11 January 06, 2012 Figure 336: Summary of NAV breakdown and revisions New Old NAV Rmb mn Rmb/shr Rmb mn Rmb/shr Guangzhou 14, , Zhongshan 1, , Shenyang 1, , Others , Property development 21, , Investment properties 9, , Hotels 2, , Net debt (12,975) (1.40) (16,944 (2.26) 35.58% in GZI REIT 1, , Rmb 20, , HKD 22, , Target discount 50% 50% Target price Figure 337: Cash flow position (2010A-12E) Rmb bn 2010A 2011E 2012E Beginning cash level Cash flow: Cash receipts Rental income New loans & other financing Sub total Cash outflow: Construction costs Land cost paid SG&A Tax & others Debt repayment Sub total Net cash inflow/(outflow) 5.6 (0.3) 1.5 Ending cash Attractive valuation Yuexiu is currently trading at a 64% discount to its NAV and a 2012E P/E of 4.1x and a 2013e P/E of 3.5x. We lower our 11-13E EPS by 3%-29% to reflect a more conservative outlook on the China property market in general. Our increased target price of HK$1.40 is based on a 50% discount to our NAV of HK$2.80, implying an upside potential of 26%. Maintain our BUY rating. Figure 338: Yuexiu s year-to-date performance vs the industry average and MSCI index Samsung China Property share price index (rebased) MSCI China (rebased) Yuexiu share price performance (rebased) Source: DataStream; Samsung Securities 175

5 Jan/95 Jul/95 Jan/96 Jul/96 Jan/97 Jul/97 Jan/98 Jul/98 Jan/99 Jul/99 Jan/00 Jul/00 Jan/01 Jul/01 Jan/02 Jul/02 Jan/03 Jul/03 Jan/04 Jul/04 Jan/05 Jul/05 Jan/06 Jul/06 Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10 Jan/11 Jul/11 Jan/12 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Sep-11 Oct-11 Nov-11 Dec-11 January 06, 2012 Figure 339: Historical P/Es x Source: DataStream; Samsung Securities Figure 340: Historical price-to-book x Source: DataStream; Samsung Securities Key risks Key risks include: 1. Overconcentration in Guangzhou - a continued weak demand in both the residential in Guangzhou would dampen potential homebuyers appetite to buy. 2. Weakening in the Guangzhou office market could lead to a potential increase in vacancy rates and a decline in rents for Yuexiu s investment properties portfolio and 3. Any delays in the company s completion schedule or new launches would, in turn, affect the company s earnings growth and cash flow situation. 176

6 Figure 341: Income statement Income statement (Rmb m) Investment properties Property development 4,301 6,776 6,781 8,911 Hotels/serviced apartments Other revenue Revenue 5,634 8,151 8,328 10,627 EBITDA 1,073 2,551 2,529 3,215 Depreciation and Amortisation EBIT 1,009 2,459 2,458 3,140 Net interest income / (expense) Associates & JCEs Pre-tax exceptional income / (expense) Other income / (expense) Earnings before tax 1,742 3,145 3,293 3,743 Income tax ,226-1,235-1,348 Net profit after tax 785 1,918 2,058 2,396 Minority interests Other items Preferred dividends na na na na Reported NPAT 919 1,877 2,029 2,367 Normalisation adjustments Normalised NPAT 725 1,877 2,029 2,367 Dividends Transfer to reserves 919 1,450 1,250 1,485 Valuation and ratio analysis FD normalised P/E (x) Reported P/E (x) Dividend yield (%) Price/cash flow (x) P/B (x) EV/EBITDA (x) EV/EBIT (x) EBIT margin (%) Effective tax rate (%) Dividend payout (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised FDEPS nm Reported FDEPS nm Per share Normalised FDEPS (Rmb) Reported FDEPS (Rmb) Book value per share (Rmb) DPS (Rmb)

7 Figure 342: Balance sheet Balance sheet Rmb m Cash & equivalents 7,473 9,341 11,676 14,595 Accounts receivable Other current assets 29,569 38,563 47,591 57,689 Total current assets 37,484 48,346 59,709 72,726 Investment properties 7,632 7,110 6,083 6,083 Other LT assets 11,097 10,632 9,666 9,730 Total assets 50,781 61,087 71,413 84,417 Short-term debt -4,633-5,065-8,376-11,771 Accounts payable -6,034-6,758-7,569-8,477 Other current liabilities -8,655-12,296-14,937-18,795 Total current liabilities -19,322-24,119-30,882-39,043 Long-term debt -11,703-14,800-17,083-20,040 Other LT liabilities -3,410-4,372-4,403-4,804 Total liabilities -34,435-43,291-52,367-63,887 Minority interest Total shareholders' equity 16,346 17,796 19,046 20,530 Total equity & liabilities 50,781 61,087 71,413 84,417 Leverage Interest cover (x) nm Gross debt / total assets (%) Net Debt / EBITDA (x) Net Debt / Equity (pre mins) (%) DuPont decomposition Net margin (%) Asset utilisation (x) ROA (%) Leverage (Assets/Equity x) ROE (%) Figure 343: Cash flow statement Cash flow (Rmb m) EBITDA 1,073 2,551 2,529 3,215 Change in working capital -6,833-4,720-3,870-3,798 Other operating cash flow -1, Cash flow from operations -6,750-2, Capital expenditure -1, Free cash flow -8,201-2, Divestment of fixed assets Acquisition of assoc & invest na na na na Divestment of assoc & invest na na na na Other investing cash flow 1, ,027 0 Cash flow from investing ,027 0 activities Cash dividends Share capital issuance / 2, (buyback) Debt issuance / (repayment) 5,269 3,559 3,699 3,626 Other financing cash flow -5,358-3,571-3,708-3,635 Cash flow from financing 2, activities Net cash flow 2,123 1,613 2,016 2,520 Change in net debt -3,843-1,