Post on 06-Oct-2020
Friday, July 8, 2016
Company Report China Merchants Securities (HK) Co., Ltd.
Hong Kong Equity Research
Please see penultimate page for additional important disclosures. China Merchants Securities (CMS) is a foreign broker-dealer unregistered in the
USA. CMS research is prepared by research analysts who are not registered in the USA. CMS research is distributed in the USA pursuant to Rule
15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer. 1
CIFI Holdings (884 HK) Expanding market share with steady earnings growth
■ CIFI was able to maintain sales momentum despite the mild
slowdown in overall major-city home sales in recent two months. Its 1H16 contracted sales beat against its peers (+1.6x YoY vs c.45%)
■ In FY16/17E, we expect CIFI to deliver 18%/22% profit growth,
backed by better margins and volume growth. Valuation is attractive at 58% discount to NAV (peers: 54%) and FY16E 8.2% yield (peers: 4.7%); reiterate BUY and raised TP to HK$2.3
Proven solid sales under cooling measures Despite Shanghai implemented tightening mortgages and the major-city home sales generally slowed down, CIFI achieved RMB27.6bn contracted sales in 1H16, up 1.6x YoY (Our estimate: attributable +1.2x YoY) or equivalent to 76% of our annual sales estimate. Backed by about RMB35-42bn saleable resources for sale in 2H16E, we revised up our FY16E contracted sales estimate to RMB42.9bn (previous: RMB36.3bn), implying 42% YoY growth vs peers’ 9% YoY growth. We expect a lower 2H16E contracted sales at RMB15.3bn vs RMB27.6bn in 1H16 as CIFI targets higher ASP (blended ASP had been up 15% YTD) and slower sales progress in 2H16E.
Disciplined land purchases to keep 60% net gearing CIFI made RMB5.9bn total land purchases (attributable: RMB3.4bn) in 1H16, -67% YoY (attributable: -52% YoY). CIFI is less active in open land auction amid soaring land costs and it is looking for M&A opportunities. We estimate CIFI will maintain the net gearing at about 60% at Jun-end and further improve to 55% at FY16E y.e.
Outperforming YTD, but valuation still attractive We estimate FY16/17E 18%/22% YoY growth in core profits after fine-tuning FY16/17E earnings forecast by 0%/+2%. The key profit drivers in 2016E will be GPM improvement and sales volume growth, as evidenced by recent robust contracted sales. Our forecasts are broadly in line with Bloomberg consensus. Despite CIFI has been outperforming MSCI China Real Estate Index by 24% YTD, the valuation is still attractive. We reiterate BUY and raised TP to HK$2.3, equivalent to 50% discount to 1-year forward NAV at HK$4.6/share (previous HK$4.5/share), or 1.5SD above historical mean.
Financials
RMB mn 2014 2015 2016E 2017E 2018E
Revenue 16,179 18,231 17,396 17,365 19,077
Revenue growth (%) 36% 13% -5% 0% 10%
Core net profit 1,939 2,210 2,611 3,193 3,309
Core profit growth (%) 28% 14% 18% 22% 4%
Core EPS (HK$) 0.40 0.41 0.44 0.54 0.56
Net gearing (%) 66.6% 59.2% 55.2% 52.8% 53.2%
P/E (core EPS) 4.7x 4.6x 4.3x 3.5x 3.4x
P/B 0.9x 0.9x 0.8x 0.7x 0.6x
Dividend yield (%) 5.8% 7.4% 8.2% 10.0% 10.4%
Sources: Company data, CMS (HK) estimates
John SO, CPA Hayden Zhang
852-3189 6357
johnso@cmschina.com.hk
852-3189 6354
haydenzhang@cmschina.com.hk
WHAT’S NEW
Revised up TP; earnings fine-tuned
BUY
Previous
BUY
Price HK$1.89
12-month Target Price (Potential upside)
HK$2.3 (+22%)
Previous HK$2.0
Price Performance
Source: Capital IQ
% 1m 6m 12m
884 HK 0.5 22.3 17.8 MSCI China/Real Estate
(0.8) (5.8) (6.3)
Property
Hang Seng Index 20,707
HSCEI 8,601
Key Data
52-week range (HK$) 1.32-2.03
Market cap (HK$ mn) 12,676
Avg. daily volume (mn) 7.58
BVPS (HK$) at FY16E y.e. 2.5
Shareholdings Structure
Lin’s Family 54.0%
Free float 46.0%
Related Research
CIFI (884 HK) – April sales growth remained strong, May 11 2016
CIFI (884 HK) –Beneficiary of major-city sales rally in 2016E, Mar 10, 2016
China Property – Property Quantitative Easing – the key driver in 2016, Jan 29, 2016
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CIFI 884 MSCI China/real Estate
Friday, July 8, 2016
To access our research reports on the Bloomberg terminal, type CMHK <GO> 2
Focus charts Figure 1: Discount to NAV Band Figure 2: Contracted sales
Sources: Bloomberg, CMS (HK) Sources: Company data, CMS (HK)
Figure 3: Revenue and profit growth Figure 4: Net gearing
Sources: Company data, CMS (HK) Sources: Company data, CMS (HK)
Figure 5: Interest coverage Figure 6: Attributable landbank (GFA) at 2015 yr end
Sources: Company data, CMS (HK)
Note: Operating profit/total interest (including capitalized portion)
Sources: Company data, CMS (HK)
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Share P
ric
e (H
K$)
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--2SD = 75% discount
+2SD = 46% discount
Mean = 60% discount
-1SD = 67% discount
+1SD = 53% discount
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FY14 FY15 FY16E FY17E FY18E
YoY chgRMB mn
Total YoY change
-10%
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2014 2015 2016E 2017E 2018E
Revenue Core net profit40.0%
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2014 2015 2016E 2017E 2018E
Net gearing (%)
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2014 2015 2016E 2017E 2018E
(x)
Tier-1 city, 18%
Tier-2 city, 67%
Tier-3 city, 15%
Friday, July 8, 2016
To access our research reports on the Bloomberg terminal, type CMHK <GO> 3
Figure 7: Earnings revisions FY16E FY17E FY18E
(RMB mn) Original New chg (%) Original New chg (%) Original New chg (%)
Revenue 16,776 17,396 4% 17,033 17,365 2% 19,888 19,077 -4%
Cost of goods sold (12,206) (12,617) 3% (12,233) (12,451) 2% (14,880) (14,404) -3%
Gross Profit 4,570 4,779 5% 4,800 4,913 2% 5,008 4,673 -7%
General & admin expense (436) (570) 31% (610) (676) 11% (683) (757) 11%
Selling expense (690) (729) 6% (732) (766) 5% (865) (804) -7%
Interest expense (298) (298) 0% (319) (319) 0% (340) (340) 0%
Interest income 80 110 38% 80 110 38% 80 110 38%
JV & Associate items 1,148 1,148 0% 1,533 1,593 4% 1,539 1,732 13%
Others 0 0 n.a. 0 0 n.a. 0 0 n.a.
Pre-tax profit 4,375 4,440 1% 4,753 4,857 2% 4,739 4,614 -3%
Income tax & LAT (1,433) (1,494) 4% (1,479) (1,512) 2% (1,370) (1,231) -10%
Minority Interests (335) (335) 0% (151) (151) 0% (74) (74) 0%
Reported net profit 2,608 2,611 0% 3,122 3,193 2% 3,295 3,309 0%
Core net profit 2,608 2,611 0% 3,122 3,193 2% 3,295 3,309 0%
Gross profit margin (%) 27.2% 27.5% 0.2 ppts 28.2% 28.3% 0.1 ppts 25.2% 24.5% -0.7 ppts
Reported net profit margin (%) 15.5% 15.0% -0.5 ppts 18.3% 18.4% 0.1 ppts 16.6% 17.3% 0.8 ppts
Core net profit margin (%) 15.5% 15.0% -0.5 ppts 18.3% 18.4% 0.1 ppts 16.6% 17.3% 0.8 ppts
Sources: Company, CMS (HK)
Figure 8: Key financials
(RMB mn) FY14 FY15 FY16E FY17E FY18E
Total GFA delivered (k sqm) (1) 1,417 1,324 1,384 1,209 1,347
Average selling price booked (RMB psm) (2) 11,048 12,873 11,611 13,161 12,981
Property sales revenue (1) x (2) 15,654 17,047 16,069 15,912 17,486
Others 525 1,184 1,327 1,453 1,591
Total revenue 16,179 18,231 17,396 17,365 19,077
Gross profit 4,186 4,387 4,779 4,913 4,673
Profits from JCEs /Asso. (119) 173 1,148 1,593 1,732
Reported net profit 1,861 2,095 2,611 3,193 3,309
Core net profit 1,939 2,210 2,611 3,193 3,309
Total contracted sales 21,210 30,209 42,900 45,045 47,297
Property development cost (RMB psm) 8,136 9,806 8,249 9,206 9,615
Core profit per GFA delivered (RMB psm) 1,452 1,539 1,057 1,323 1,171
YoY changes (%)
GFA delivered 14.4% -6.6% 4.5% -12.6% 11.4%
Average selling price 18.2% 16.5% -9.8% 13.4% -1.4%
Total revenue 35.9% 12.7% -4.6% -0.2% 9.9%
Gross profit 36.4% 4.8% 8.9% 2.8% -4.9%
Reported net profit -1.7% 12.6% 24.6% 22.3% 3.6%
Core net profit 27.6% 14.0% 18.2% 22.3% 3.6%
Contracted sales 38.4% 42.4% 42.0% 5.0% 5.0%
Margin ratios (%)
Gross margin 25.9% 24.1% 27.5% 28.3% 24.5%
Reported net profit margin 11.5% 11.5% 15.0% 18.4% 17.3%
Core net profit margin 12.0% 12.1% 15.0% 18.4% 17.3%
Sources: Company, CMS (HK)
Friday, July 8, 2016
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Sector valuation
Figure 9: Peers comparison - valuation (based on closing prices as of 7 Jul 2016)
Company Ticker Price
(HK$)
Mkt Cap (US$ mn)
3-mth avg t/o
(US$ mn)
NAV (HK$)
Discount to NAV
(%)
FY15 P/E (x)
FY16E P/E (x)
FY15E yield (%)
FY16E yield (%)
FY15 P/B (x)
FY16E P/B (x)
Net gearing
FY15 (%)
Net gearing
FY16E (%)
Large peers average 37.8 8.4 7.0 5.1 5.1 1.1 0.9 78.7 78.5
China Overseas 688 HK 25.00 31,775 54.1 31.3 20.1 8.7 7.9 3.7 2.5 1.3 1.1 6.6 6.9
CR Land 1109 HK 18.04 16,117 27.7 30.6 41.0 8.7 7.6 3.2 2.6 1.1 1.0 24.1 26.3
Country Garden 2007 HK 3.24 9,324 5.3 5.1 36.5 6.0 5.8 4.8 5.3 0.9 0.8 87.9 108.0
Evergrande 3333 HK 4.78 8,429 16.8 8.8 45.7 9.7 7.9 9.5 8.3 1.1 0.9 314.2 310.2
*Longfor 960 HK 9.87 7,424 4.6 14.6 32.4 7.1 6.1 4.3 4.6 0.9 0.8 55.0 42.2
Shimao Property 813 HK 9.99 4,472 7.6 28.6 65.1 4.6 4.0 7.0 9.0 0.6 0.5 58.1 55.6
*Wanda 3699 HK 46.50 27,136 16.7 70.0 33.6 14.2 9.2 2.7 3.1 1.0 0.9 64.5 65.0
*China Vanke 2202 HK 15.84 30,067 25.2 22.0 28.0 8.3 7.2 5.4 5.9 1.5 1.3 19.3 14.0
Mid peers average 61.8 11.9 5.5 5.5 4.7 0.5 0.5 75.2 67.8
*Sino Ocean 3377 HK 3.23 3,128 3.2 8.0 59.6 6.8 6.3 3.9 5.4 0.5 0.5 58.5 57.9
*China Jinmao 817 HK 2.19 3,012 1.5 4.5 51.3 7.6 6.5 3.7 4.7 0.7 0.6 60.6 50.2
*Shenzhen Inv. 604 HK 3.07 2,922 3.5 6.0 48.8 7.6 7.1 5.2 5.7 0.7 0.7 45.8 12.5
*SOHO China 410 HK 3.74 2,507 2.9 8.6 56.5 39.8 29.6 22.3 4.2 0.5 0.5 25.1 32.5
*Sunac 1918 HK 4.94 2,165 5.1 12.4 60.2 n.a. 4.3 4.7 4.4 0.8 0.7 75.9 51.6
Agile Property 3383 HK 4.41 2,227 2.3 11.4 61.3 5.9 5.5 9.0 3.9 0.4 0.4 83.7 84.6
*BJ North Star 588 HK 2.34 1,929 0.3 n.a. n.a. 8.9 7.9 3.1 3.2 0.4 0.5 127.7 90.8
CIFI Holdings 884 HK 1.89 1,634 1.3 4.5 58.0 4.6 4.3 7.4 8.2 0.9 0.8 59.2 55.2
Yuexiu Property 123 HK 0.96 1,535 5.7 4.5 78.7 8.7 8.2 5.0 3.8 0.3 0.3 73.1 75.7
Greentown China 3900 HK 5.65 1,575 2.0 16.7 66.2 8.0 4.6 0.0 4.4 0.4 0.4 88.5 88.3
Yuzhou PPT 1628 HK 2.15 1,058 1.8 6.6 67.4 4.5 4.2 8.4 8.9 0.7 0.7 79.4 85.9
*Poly Property 119 HK 2.02 953 2.0 6.0 66.3 N/A N/A 0.0 0.9 0.3 0.3 114.9 97.7
*Gemdale 535 HK 0.44 886 0.2 n.a. n.a. 4.9 4.0 5.5 6.4 0.7 N/A 10.4 N/A
COGO 81 HK 2.27 668 0.3 8.0 71.6 6.0 3.9 0.0 2.6 0.5 0.4 48.0 33.2
CM Land 978 HK 1.09 689 0.3 2.4 54.6 13.3 5.7 0.5 1.4 0.9 0.8 69.3 68.3
*Sino Ocean 3377 HK 3.23 3,128 3.2 8.0 59.6 6.8 6.3 3.9 5.4 0.5 0.5 58.5 57.9
Average 53.7 10.8 6.1 5.4 4.8 0.7 0.6 76.2 71.3
Sources: CMS (HK), * data sourced from Bloomberg
Note: We have excluded outliers (SOHO China & Poly Property) when measuring average P/Es
Company valuation
Figure 10: Discount to NAV Band (from listing onwards)
Sources: CMS (HK), Bloomberg
Note: CIFI has a relatively short listing history compared with its peers. The stock was previously under-researched, resulting in deep valuation discount.
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Share
Price (
HK
$)
-
--2SD = 75% discount
+2SD = 46% discount
Mean = 60% discount
-1SD = 67% discount
+1SD = 53% discount
Friday, July 8, 2016
To access our research reports on the Bloomberg terminal, type CMHK <GO> 5
Figure 11: CIFI’s end-FY16E NAV
Details Total HK$ mn HK$/share % of Total
Landbank and PUD 36,586 5.5 119%
Investment properties 5,225 0.8 17%
Net debts at FY16E year-end (11,176) (1.7) -36%
Total 30,635 4.6 100%
Source: CMS (HK)
Friday, July 8, 2016
To access our research reports on the Bloomberg terminal, type CMHK <GO> 6
Financial Summary Balance Sheet
RMB mn 2014 2015 2016E 2017E 2018E
Current assets 30,052 53,488 60,589 69,544 78,298
Cash 7,094 14,874 16,205 17,335 18,069
Restricted cash 30 32 32 32 32
Current receivables 5,017 8,304 8,304 8,304 8,304
Properties held for sale 5,419 6,917 6,089 6,078 6,677
Properties under development & land prepaid 12,061 21,985 28,584 36,420 43,840
Other current assets 431 1,376 1,376 1,376 1,376
Non-current assets 13,487 13,963 19,111 19,105 18,236
Fixed assets 5,312 5,924 5,924 5,924 5,924
Interests in JCEs/Asso 7,907 7,699 12,847 12,841 11,972
Other non-current assets 268 340 340 340 340
Total assets 43,539 67,451 79,700 88,649 96,534
Current liabilities 20,111 29,733 37,661 42,179 45,797
Bank and other loans 3,035 2,794 2,794 2,794 2,794
Presales receipts in advance 5,016 10,396 17,922 22,281 26,078
Accounts & other payables 10,110 14,214 14,214 14,214 14,214
Other current liabilities 1,950 2,329 2,731 2,890 2,711
Non-current liabilities 12,431 22,435 24,435 26,435 28,435
Bank and other loans 11,411 21,161 23,161 25,161 27,161
Others 1,020 1,274 1,274 1,274 1,274
Total liabilities 32,542 52,168 62,096 68,614 74,232
Shareholders' Equity 10,205 12,827 14,814 17,093 19,285
Minority interests 792 2,456 2,791 2,942 3,016
Total equity & liabilities 43,539 67,451 79,700 88,649 96,534
Note: Total cash includes both cash and restricted cash
Cashflow Statement
RMB mn 2014 2015 2016E 2017E 2018E
Operating cashflow 2,390 11,426 8,345 2,834 1,641
Profit before tax 3,325 3,804 4,440 4,857 4,614
Working capital change 874 11,480 7,942 2,839 2,202
Tax paid (707) (1,882) (1,093) (1,353) (1,410)
Interest paid (1,263) (1,628) (1,984) (2,124) (2,264)
Other operating cashflow 161 (348) (961) (1,385) (1,502)
Investing cashflow (7,166) (12,693) (8,390) (2,790) (1,790)
Fixed assets additions 0 (13) 0 0 0
Deposits paid for land purchase (2,500) (8,800) (4,500) (4,500) (4,500)
Subsidiary acquisitions/disposals 39 2,054 0 0 0
JCE and associates movements (4,504) (4,894) (4,000) 1,600 2,600
Other investing cashflow (201) (1,040) 110 110 110
Financing cashflow 4,809 9,047 1,376 1,086 882
Dividend paid (333) (456) (624) (914) (1,118)
Issuance of shares 0 1,037 0 0 0
Increase/decrease in loans 1,206 5,910 2,000 2,000 2,000
Other financing cashflow 3,936 2,556 0 0 0
Cashflows for the year 33 7,780 1,331 1,130 733
Cash at the beginning 7,061 7,094 14,874 16,205 17,335
Exchange difference 0 0 0 0 0
Cash at the end 7,094 14,874 16,205 17,335 18,069
Profit & Loss Statement RMB mn 2014 2015 2016E 2017E 2018E
Revenue 16,179 18,231 17,396 17,365 19,077
Cost of goods sold (11,993) (13,844) (12,617) (12,451) (14,404)
Gross profit 4,186 4,387 4,779 4,913 4,673
Selling exp (319) (371) (570) (676) (757)
Admin exp (529) (607) (729) (766) (804)
Finance cost (386) (203) (298) (319) (340)
JCE & Associates (119) 173 1,148 1,593 1,732
Others 492 425 110 110 110
Pre-tax profit 3,325 3,804 4,440 4,857 4,614
Income tax (1,325) (1,334) (1,494) (1,512) (1,231)
MI (139) (375) (335) (151) (74)
Reported net profit 1,861 2,095 2,611 3,193 3,309
Core net profit 1,939 2,210 2,611 3,193 3,309
Core EPS (RMB) 0.32 0.34 0.39 0.47 0.49
DPS (RMB) 0.09 0.12 0.14 0.17 0.17
Note: We deduct property revaluations and other exceptional items to arrive at the core net profit
Ratios
% 2014 2015 2016E 2017E 2018E
Growth (%)
Revenue 36% 13% -5% 0% 10%
Gross profit 36% 5% 9% 3% -5%
Core net profit 28% 14% 18% 22% 4%
PUD and inventory growth -8% 65% 20% 23% 19%
Total contracted sales growth 38% 42% 42% 5% 5%
Profitability (%)
Gross margin 25.9% 24.1% 27.5% 28.3% 24.5%
Core net profit margin 12.0% 12.1% 15.0% 18.4% 17.3%
Effective tax rate 39.8% 35.1% 33.7% 31.1% 26.7%
ROE 19.8% 18.2% 18.9% 20.0% 18.2%
ROA 4.5% 3.8% 3.5% 3.8% 3.6%
Dividend payout 30% 36% 35% 35% 35%
Liquidity
Free cash flows (RMB mn) (4,776) (1,267) (45) 44 (149)
Total Debt - Total Equity Ratio 131% 157% 147% 140% 134%
Net Debt - Total Equity Ratio 67% 59% 55% 53% 53%
Interest coverage (x) 2.2 2.0 2.3 2.4 2.1
Note: We reclassify land capex from operating cashflows into investing cashflows, which is different from the company’s financial statements.
Sources: Company data, CMS (HK) estimates
Friday, July 8, 2016
To access our research reports on the Bloomberg terminal, type CMHK <GO> 7
Investment Ratings Industry Rating Definition OVERWEIGHT Expect sector to outperform the market over the next 12 months NEUTRAL Expect sector to perform in-line with the market over the next 12 months
UNDERWEIGHT Expect sector to underperform the market over the next 12 months
Company Rating Definition BUY Expect stock to generate 10%+ return over the next 12 months
NEUTRAL Expect stock to generate +10% to -10% over the next 12 months SELL Expect stock to generate loss of 10%+ over the next 12 months
Analyst Disclosure The analysts primarily responsible for the preparation of all or part of the research report contained herein hereby certify that: (i) the views expressed in this research report accurately reflect the
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recommendations or views expressed in this research report.
Regulatory Disclosure Please refer to the important disclosures on our website http://www.newone.com.hk/cmshk/en/disclosure.html.
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