20181210-高盛-信和置业-00083.HK-Launch_of_Grand_Central__Reiterate_Buy_8页_624kb

Sino Land (0083.HK) Summary

Core Content

Sino Land (0083.HK) is set to launch the pre-sale for its Grand Central project in Phase 1, a 1.5 million square foot residential development with ~2,000 units to be released in two phases. The project was acquired through a tender from the Urban Renewal Authority (URA) in 2014 and is located in urban Kowloon, adjacent to the Kwun Tong MTR station. The first batch of 205 units is priced at HK$17,388 per sq ft (on maximum discount), which is ~2% lower than the estimated HK$17,468 per sq ft for the second batch. The project is seen as a key development for the company, with the potential to drive sales and improve margins.

Key Points

Project Launch

• Pre-sale launch imminent with price lists and show flats already open.
• Units in Phase 1 are relatively large in size, with 1-bedroom, 2-bedroom, and 3-bedroom units having lump sum prices ranging from HK$8m to HK$15m.
• 2,000+ cashier orders received within 2 days of registration, indicating strong investor interest.
• Despite a slow secondary home market, the project has attracted significant attention.

Financials and Valuation

• Current price: HK$13.72
• 12m price target: HK$17.00, implying a 23.9% upside.
• Market cap: HK$81.6bn / $10.4bn
• Enterprise value: HK$64.3bn / $8.2bn
• 3m ADTV: HK$65.5mn / $8.4mn
• Valuation metrics:
  • P/E (6/18): 6.2, 6/19E: 18.7, 6/20E: 17.4, 6/21E: 12.4
  • P/B: 0.6 across all periods
  • Dividend yield (FY19E): 3.9%
  • Net debt/EBITDA: -4.3 (6/18), -4.3 (6/19E), -5.3 (6/20E), -5.0 (6/21E)
  • FCF yield (6/19E): 1.3%, 6/20E: 7.0%, 6/21E: 21.0%

Earnings and Margins

• EPS (6/18): 2.18, 6/19E: 0.73, 6/20E: 0.79, 6/21E: 1.11
• EBITDA growth: -36.9% (6/18), -8.2% (6/19E), -1.5% (6/20E), +84.2% (6/21E)
• EBITDA margin: 42.9% (6/18), 50.3% (6/19E), 49.1% (6/20E), 55.0% (6/21E)
• Net income margin: 130.4% (6/18), 57.6% (6/19E), 61.2% (6/20E), 52.4% (6/21E)
• Project gross margin: Expected to sustain at ~40% with HK$22bn attr. sales proceeds if units are fully sold.

Balance Sheet and Cash Flow

• Net cash: ~HK$24.6bn as of June 2018
• Strong balance sheet supports land banking activities and asset recycling
• Free cash flow yield: -13.5% (6/18), +1.3% (6/19E), +7.0% (6/20E), +21.0% (6/21E)
• Cash flow from operations: -HK$928.3m (6/18), +HK$3,919.9m (6/19E), +HK$6,443.9m (6/20E), +HK$19,306.0m (6/21E)

Key Viewpoints

• Buy rating reiterates due to strong fundamentals, solid balance sheet, and potential for growth from asset recycling and project sales.
• Discounted valuation: Shares trade at a 43% discount to FY19E NAV, 0.65X PBR, and 3.9% dividend yield.
• Recurring rental earnings are expected to support DPS growth, enhancing shareholder returns.
• Land banking activities are a key strategy, with HK$16bn spent on land banking in the past 12 months.

Key Risks

• Slower-than-expected rental growth and economic slowdown could impact performance.
• Government policy changes might affect the competitive landscape, especially with potential favourable policies for farm land owners, which Sino Land does not possess.
• Weaker physical market sentiment could hinder sales performance of the project.

Investment Highlights

• Strong balance sheet and recurring rental income support DPS growth and dividend sustainability.
• Active asset recycling and land banking are expected to drive revenue and EBITDA growth.
• Project potential: With a 40% gross margin and HK$22bn attr. sales proceeds, Grand Central could significantly boost earnings.
• Valuation discount: Shares currently trade at a 30% discount to FY19E NAV, indicating potential for value appreciation.

M&A and Factor Profile

• M&A Rank: 3 (low probability of acquisition)
• GS Factor Profile:
  • Growth: 15% (based on forward-looking sales, EBITDA, and EPS growth)
  • Financial Returns: 3.5% (based on ROE, ROCE, and CROCI)
  • Multiple: 18.7 (P/E ratio for 6/19E)
  • Integrated: Average of Growth, Financial Returns, and (100% - Multiple) percentiles.

Sector Comparison

• Sino Land is compared with other developers and REITs in the Hong Kong Property sector, with SHKP and Sino Land both rated Buy.
• The company is positioned as a strong performer in terms of recurring rental earnings and dividend yield.
• Market cap: HK$81.6bn, which is relatively low compared to other developers like SHKP (HK$39bn) and HKLD (HK$15bn).

Conclusion

Sino Land is a high-quality developer with a strong balance sheet, steady DPS growth, and a promising new project. The company is currently undervalued and offers attractive upside potential. Despite market risks and potential policy changes, the Buy rating is reiterated based on its solid financial position and project potential.