20170614-招商证券_香港_-禹洲地产-01628.HK-The_developer_with_high_growth_earnings_visibility_12页_2mb_2mb

Yuzhou Property (1628 HK) Summary Report

Core Content

Yuzhou Property is highlighted as a developer with high growth and earnings visibility. The company's fast churn-and-turn model and sufficient landbank enable it to maintain a faster sales growth rate compared to its mid-cap peers.

Main Points

• Churn & Turn Model:
  Yuzhou's ability to convert land into presale properties quickly (11.2 months vs. 13 months for peers) allows it to capture market opportunities effectively.
  The company's land sites are smaller in GFA, leading to quicker sales and higher sell-through rates (65% vs. 59% for peers).
  In 2016, 79% of the company's saleable resources were new, compared to 63% for its peers.

• Sales Growth:
  Yuzhou achieved a 29% CAGR in contracted sales from 2013 to 2016, significantly outperforming its mid-cap peers (11%).
  The company is expected to deliver a 29% YoY growth in contracted sales for 2017E, continuing to outpace peers at 13% YoY.
  Core profit is projected to grow at a 20% CAGR from 2017 to 2019, compared to 14% for mid-cap peers.

• Landbank:
  Yuzhou has a landbank of 9.54 million square meters, sufficient for the next 4-5 years of development.
  This allows the company to be selective in land acquisition and maintain profitability.

• Financial Position:
  The company maintains a healthy balance sheet with a net gearing ratio of 78% as of Dec 2016, expected to remain stable at 79%/69%/71% for 2017-2019E.
  Operating expenses are kept low, with SG&A expenses as a percentage of contracted sales at 3.5% in 2014, 4.2% in 2015, and 3.0% in 2016, and expected to stay low in future years.

• Dividend Policy:
  The company is expected to maintain an absolute DPS policy with annual increases of HK$0.02-0.04 per share.
  Dividend payout ratios are projected to be 35% in 2017E, 31% in 2018E, and 31% in 2019E.

• Valuation & Target Price:
  The stock is currently trading at a 10% P/E discount to peers.
  The target price of HK$4.89 is based on a 6x FY17-18E P/E, which is higher than the historical average of 3.8x.
  The target price implies a 25% return (including a 6% dividend yield) and a 54% discount to the estimated FY17E NAV of HK$10.6.

Key Information

• Sales Target for 2017E: RMB30bn, or 29% YoY growth.
• Contracted Sales Forecast (Total Basis):
  • 2017E: RMB31.2bn
  • 2018E: RMB40.1bn
  • 2019E: RMB49.1bn
• Core Profit Growth (2017-2019E):
  • 2017E: RMB2.39bn
  • 2018E: RMB3.03bn
  • 2019E: RMB3.40bn
• Core Profit CAGR: 20% for Yuzhou vs. 14% for mid-cap peers.
• Dividend per Share (HK$):
  • 2017E: HK$0.25
  • 2018E: HK$0.28
  • 2019E: HK$0.31
• Net Gearing Ratios (2017-2019E):
  • 2017E: 79%
  • 2018E: 69%
  • 2019E: 71%
• P/E Ratios (2017-2019E):
  • 2017E: 5.7x
  • 2018E: 4.5x
  • 2019E: 4.0x
• Dividend Yield (2017E): 6.1%
• NAV per Share (HK$): HK$10.6 (estimated for FY17E), with a current price discount of -61% to NAV.

Key Figures

Valuation Comparison

Conclusion

Yuzhou Property is expected to maintain its superior growth performance due to its efficient churn-and-turn model and strong landbank. The company is currently undervalued relative to its peers, with a target price of HK$4.89 that reflects a 6x P/E multiple on FY17-18E average EPS. This implies a 25% return (including 6% dividend yield) and a re-rating opportunity as the company's financial position improves. The report recommends a BUY rating with a target price that reflects a 54% discount to the estimated FY17E NAV.