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CIFI Financial Summary and Analysis

Core Content

China International Financial Investment (CIFI) has implemented strategies to improve its financial structure, primarily through refinancing and managing its debt profile. The company has focused on reducing its reliance on expensive offshore loans and perpetual capital bonds by repaying nearly US$200 million in 2015, leading to a reduction in its weighted average cost of debts from 8.3% in FY14 to 7.2% in FY15. This move helped strengthen its cash and net gearing position.

Main Financial Highlights (FY15)

• Revenue: Increased by 12.7% YoY to RMB18,231 million.
• Cost of Goods Sold (COGS): Rose by 15.4% YoY to RMB13,844 million.
• Gross Profit: Grew by 4.8% YoY to RMB4,387 million.
• Gross Margin: Declined slightly to 24.1% from 25.9%.
• Finance Cost: Decreased by 47.4% YoY to RMB203 million.
• JCEs & Associates: Increased by 173 million to RMB173 million.
• Net Profit Before Tax and MI: Increased by 14.4% YoY to RMB3,804 million.
• Tax: Slightly increased to RMB1,334 million.
• Minority Interests: Rose by 169.8% YoY to RMB375 million.
• Reported Net Profit: Increased by 12.6% YoY to RMB2,095 million.
• Core Net Profit: Increased by 14.0% YoY to RMB2,210 million.
• Core Net Profit Margin: Declined by 1.5ppts to 11.2%.
• GFA Delivered: Decreased by 6.6% YoY to 1,324,000 sqm.
• Booked ASP: Fell by 17.8% YoY to RMB12,873 per sqm.
• Net Debts: Increased to RMB9,049 million.
• Net Gearing: Improved to 59.2% from 66.6%.
• Presales Deposits Received: Rose by 107.3% YoY to RMB10,396 million.
• Dividend per Share (HK$): Increased by 27.3% to HK$0.140.

Earnings Revisions (FY16E and FY17E)

• Revenue: Forecasted to increase by 21% in FY16E to RMB16,776 million, with a small 2% increase in FY17E.
• COGS: Expected to rise by 23% in FY16E to RMB12,206 million, with a slight decrease in FY17E.
• Gross Profit: Projected to increase by 18% in FY16E to RMB4,570 million, and by 9% in FY17E to RMB4,701 million.
• General & Admin Expenses: Remained constant at RMB440 million in FY16E, with a 0% increase in FY17E.
• Selling Expenses: Increased by 0% in FY16E to RMB677 million, with a 0% increase in FY17E.
• Interest Expense: Reduced by 23% in FY16E to RMB307 million, and by 25% in FY17E to RMB330 million.
• Pre-Tax Profit: Forecasted to increase by 16% in FY16E to RMB4,374 million, and by 11% in FY17E to RMB4,615 million.
• Income Tax: Increased by 25% in FY16E to RMB1,433 million, and by 42% in FY17E to RMB1,466 million.
• Minority Interests: Rose significantly to RMB335 million in FY16E and RMB142 million in FY17E.
• Reported Net Profit: Slight decrease of 0% in FY16E to RMB2,607 million, and a small decrease of 2% in FY17E to RMB3,007 million.
• Core Net Profit: Slight decrease of 0% in FY16E to RMB2,607 million, and a small decrease of 2% in FY17E to RMB3,007 million.
• Gross Profit Margin: Declined by 0.8ppts to 27.2% in FY16E, and increased by 1.9ppts to 28.9% in FY17E.
• Reported Net Profit Margin: Declined by 3.4ppts to 15.5% in FY16E, and increased by 0.9ppts to 18.5% in FY17E.
• Core Net Profit Margin: Declined by 3.4ppts to 15.5% in FY16E, and increased by 0.9ppts to 18.5% in FY17E.

Key Financials

• Total GFA Delivered: Declined by 6.6% YoY to 1,324,000 sqm in FY15.
• Average Selling Price Booked: Fell by 17.8% YoY to RMB12,873 per sqm.
• Property Sales Revenue: Increased by 12.7% YoY to RMB18,231 million.
• Net Debts: Increased to RMB9,049 million.
• Net Gearing: Improved to 59.2% from 66.6%.
• Presales Deposits Received: Rose by 107.3% YoY to RMB10,396 million.
• Dividend (HK$): Increased to HK$0.140, with a higher payout ratio.

RMB Sensitivity Analysis

• RMB Appreciation: Positively impacts profits, with an increase of 13.7% in FY16E and 13.6% in FY17E for a +10% appreciation.
• RMB Depreciation: Negatively impacts profits, with a decrease of -2.7% in FY16E and -2.6% in FY17E for a -2% depreciation.
• Translation Risk: RMB depreciation leads to losses when translated into HKD.

New Land Purchases in 2015

CIFI acquired land in various cities, including Tianjin, Shanghai, Beijing, Suzhou, Hangzhou, and Nanjing, with the highest land cost per sqm in Beijing's Daxing District Huangcun Town Project at RMB8,049 per sqm. Total attributable GFA was 2,014,000 sqm, and total land cost was RMB12,894 million.

End-FY16E NAV

• Landbank and Properties Under Development: Valued at HK$35,346 million (5.3 HK$ per share), contributing 119% to total NAV.
• Investment Properties: Valued at HK$6,574 million (1.0 HK$ per share), contributing 22%.
• Net Debts: At HK$-12,257 million (-1.8 HK$ per share), contributing -41%.
• Total NAV: HK$29,663 million (4.4 HK$ per share).

Financial Ratios

• Growth:
  • Revenue growth: 13% in FY15, -8% in FY16E, -3% in FY17E.
  • Gross profit growth: 5% in FY15, 4% in FY16E, 3% in FY17E.
  • Core net profit growth: 14% in FY15, 18% in FY16E, 15% in FY17E.
• Profitability:
  • Gross margin: 24.1% in FY15, 27.2% in FY16E, 28.9% in FY17E.
  • Core net profit margin: 12.1% in FY15, 15.5% in FY16E, 18.5% in FY17E.
  • Effective tax rate: 35.1% in FY15, 32.8% in FY16E, 31.8% in FY17E.
  • ROE: 18.2% in FY15, 18.9% in FY16E, 19.0% in FY17E.
  • ROA: 3.8% in FY15, 3.6% in FY16E, 3.6% in FY17E.
  • Dividend Payout: 36% in FY15, 35% in FY16E, 35% in FY17E.
• Liquidity:
  • Free Cash Flows: Negative in FY15, but improved in FY16E and FY17E.
  • Total Debt - Total Equity Ratio: 157% in FY15, 147% in FY16E, 141% in FY17E.
  • Net Debt - Total Equity Ratio: 59% in FY15, 57% in FY16E, 55% in FY17E.
  • Interest Coverage: 2.0 in FY15, 2.2 in FY16E, 2.2 in FY17E.

Investment Ratings

• Industry Rating:
  • OVERWEIGHT: Expect the sector to outperform the market over the next 12 months.
  • NEUTRAL: Expect the sector to perform in-line with the market.
  • UNDERWEIGHT: Expect the sector to underperform the market.
• Company Rating:
  • BUY: Expect the stock to generate 10%+ return over the next 12 months.
  • NEUTRAL: Expect the stock to generate +10% to -10% return.
  • SELL: Expect the stock to generate a loss of 10%+ over the next 12 months.

Analyst and Regulatory Disclosures

• The analysts certifying this report have no direct financial interest in the recommendations.
• The document is for informational purposes only and not an investment advice.
• CMS HK is not a registered broker-dealer in the U.S. and its services are restricted to certain U.S. institutional investors.
• The document is subject to change and is not a recommendation for investment.
• CMS HK may have interests in the securities mentioned and may perform investment banking services for the companies.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior consent.