20131112-大和证券-How_far_can_it_go__13页_391kb

Country Garden 2007 HK Summary

Core Content

Country Garden is an integrated property development company listed on the Hong Kong Stock Exchange in April 2007. The report provides a forecast for the company's contracted sales and earnings growth, emphasizing its strong performance and future potential.

Main Points

• Contracted Sales Forecast:
  Based on current trends, the company is expected to reach CNY120bn in contracted sales for 2014, catching up with COLI.
  Its key markets (Guangdong, Anhui, Jiangsu, Liaoning, Hubei, Shandong, Hunan) could generate CNY174bn in annual contracted sales, indicating bright mid-to-long term prospects.

• Earnings Growth:
  The report forecasts a 30% increase in 2013 contracted sales to CNY97bn and a 29% increase in 2014 earnings.
  Earnings are expected to grow by 35% in 2015, with a 15% net profit margin assumed for all key markets.

• Valuation and Target Price:
  The target price is raised to HKD6.60 from HKD5.50, with an upside of 23.6%.
  The current share price is HKD5.34, and the company has seen a 32% year-to-date (YTD) rise in share price, outperforming the MSCI China Index's 2% drop.

• Financial Highlights:

  • Revenue is forecasted to increase significantly from CNY58,609m in 2013 to CNY103,565m in 2015.
  • Net profit is expected to rise from CNY8,918m in 2013 to CNY15,471m in 2015.
  • Core EPS is forecasted to grow from 0.489 in 2013 to 0.849 in 2015.

• Share Price Performance:

  • 12-month range: 3.35–5.71
  • Market Cap: USD12.56bn
  • 3m avg daily turnover: USD15.31m
  • Shares outstanding: 18,230m
  • Major shareholder: Huiyan Yang (57.5%)

• Growth Strategy:
  Country Garden focuses on building mid-to-large scale projects for the mass market and selling them quickly.
  It aims to complete projects five months after construction begins, showing a strong asset turnover rate.

• Geographical Expansion:
  The company has expanded beyond Guangdong, building a large landbank in Anhui, Jiangsu, Liaoning, and Hubei.
  It is also ramping up landbank in Shandong and Hunan and plans to expand to Malaysia.

• Risk Factors:
  A big jump in gearing is identified as the main risk.
  The company's expansion outside of Guangdong had early challenges, but recent management changes have improved operational performance and profitability.

Key Markets and Sales Potential

• Guangdong:

  • Population: 106m
  • Current sales: CNY36.2bn
  • Potential sales: CNY36.2bn (assuming no further growth)

• Anhui:

  • Population: 60m
  • Current sales: CNY5.6bn
  • Potential sales: CNY20.4bn

• Jiangsu:

  • Population: 79m
  • Current sales: CNY3.0bn
  • Potential sales: CNY27.0bn

• Liaoning:

  • Population: 44m
  • Current sales: CNY4.9bn
  • Potential sales: CNY15.0bn

• Hubei:

  • Population: 58m
  • Current sales: CNY4.0bn
  • Potential sales: CNY19.7bn

• Shandong:

  • Population: 97m
  • Potential sales: CNY33.1bn

• Hunan:

  • Population: 66m
  • Potential sales: CNY22.7bn

• Malaysia:

  • Current sales: CNY6bn (9M13)
  • Potential sales: Not yet clear, but expected to be significant

Mid-to-Long Term Earnings Potential

• Total Contracted Sales: CNY174bn
• Net Income: CNY26bn
• Net Profit Margin: 15%
• Earnings Potential (2013–2015):
  • 2013: CNY8,918m
  • 2014: CNY11,461m
  • 2015: CNY15,471m

Financial Summary

Key Ratios

Conclusion

The report reiterates a Buy rating for Country Garden, with a target price of HKD6.60, implying a 23.6% upside from the 11 Nov price of HKD5.34. The company's strong sales performance, expansion strategy, and improved operational efficiency support the positive outlook. However, the report notes that the company faces risks such as increased gearing and the challenge of maintaining earnings growth alongside rising sales.