Research Report

Author

黃恩賜先生 (John Wong)
分析師

畢業於倫敦大學,擁有碩士和學士學位,求學期間主修金融和經濟學,主要負責房地產行業和酒店行業的研究,擅於挖掘上市公司內在價值。

Graduated from Master and Bachelor Degrees in various universities in London and specialized in Finance and Economics throughout his academic study. Currently focus on property and gaming industry in both PRC and Hong Kong.


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Longfor Properties (960.HK) - Strong Contracted Sales Paves Road for Rapid Growth

Friday, July 21, 2017 Views256
Longfor Properties(960)
Recommendation on  21 July 2017
Recommendation Accumulate
Price on Recommendation Date $19.000
Target Price $20.350

Investment Summary

- Achieved very strong sales in 1H2017, completing about 84% of the annual sales target, with a YoY growth of 140%

- Active replenishment of the land in Tier 1 Cities and Tier 2 Cities, which normally have strong demand for properties

Company Overview

Strong acceleration in contracted sales in 1H2017: Longfor Properties continued its strong momentum in sales in 1H2017. Until June 2017, the accumulated contracted sales of FY2017 had a YoY growth of 140%, with a total amount of CNY92.63Bn and total sales area of 5.95Mn square metres, completing 84.2% of the FY2017 annual sales target, which is CNY110Bn. In fact, the contracted sales in FY2017 accelerated so quickly that it exceeded the full year contracted sales of FY2016, which is CNY88.14Bn, in just 6 months. In addition, in FY2017, the aggregate saleable resources worth about CNY170Bn, indicating that Longfor Properties has the ability to meet the strong demand despite the better than expected sales. Given the strong sales and the healthy financial condition of Longfor Properties, we have revised the target price of Longfor Properties to HK$20.35.

Active participant in the land market: Longfor Properties continues to be active in the land market in FY2017. Throughout the first half of FY2017, Longfor Properties obtained more than 30 new projects, and achieved milestones by expanding the coverage of the company from 26 cities in FY2016 to 31 cities in the first half of FY2017. In particular, the company successfully obtained projects in the cities of Guangdong-Hong Kong-Macau Greater Bay Area, i.e. Hong Kong and Shenzhen, allowing the company to take advantage of the national development policy as well as to increase the strategic presence in the Southern China region.

Longfor Properties continued its strategies of mainly targeting at Tier 1 Cities and Tier 2 Cities, both of which usually have strong demand for housing due to the economic development and increase in population, in its land bank replenishment. Selected new projects are as follow:

Investment property segment remains strong: Longfor Properties's investment properties are solely shopping malls assets and had a strong performance. In FY2016, the company's investment property segment had a GFA of 1,938,418 square metres. The investment property business has 3 different business lines targeting at different consumer group. Paradise Walk series, Starry Street series and MOCO series are metropolitan shopping malls, community shopping malls and high end shopping malls respectively and they regularly achieves high occupancy rate, averaging 95.1% in FY2016. The company currently has 6 investment property construction projects, all of which are shopping malls of the Paradise Walk series and are expected to commence business in either FY2017 or FY2018.

Recorded low borrowing cost of new senior note: Longfor Properties's borrowing cost continued its past decreasing trend. In FY2016, the weighted average borrowing cost of Longfor Properties was 4.92%, being the fifth consecutive year of the decreasing borrowing cost.

In July 2017, Longfor Properties took a step further in decreasing borrowing cost by issuing a US$450Mn 3.875% senior notes due in FY2022. The coupon rate of this issue is the lowest borrowing cost in the history of Longfor Properties, indicating the strength of the company's financial position.

Investment Thesis, Valuation and Risk

Our valuation model suggests a target price of HK$20.35: Longfor Properties achieved a very strong sales and completed about 84% of the annual sales target in FY2017. Moreover, Longfor Properties has been active in the land market and actively acquiring land in Tier 1 Cities and Tier 2 Cities, both of which have a strong demand for housing due to both increasing population and economic development. Therefore, a target price of HK$20.35, corresponding to a P/E and P/B of 10.17x and 1.47x respecitvely, has been assigned, with an `Accumulate` rating assigned. (Closing price as at 19 Jul 2017)

Financials

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Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable. However, we do not verify such information. We do not guarantee its accuracy or completeness, nor do we take responsibility for any loss occasioned by reliance placed upon the contents hereof. Any statements nonfactual in nature constitute only current opinions, which are subject to change. Phillip Securities (HK) Ltd (or one of its affiliates) or their officers, directors, analysts, or employees may have positions in securities or commodities referred to herein, and may, as principal or agent, buy and sell such securities or commodities. An employee, analyst, officer, or a director of Phillip Securities (HK) Ltd, or its affiliates, may serve as a director for companies mentioned in this report. Neither the information nor opinion expressed in this report shall constitute a solicitation to buy or sell any securities. There may be instances when fundamental, technical, and quantitative opinions may not be in concert. This firm (or one of its affiliates) may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any company mentioned in this report.
There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange rate fluctuations, and limited availability of information on international securities. We recommend that you obtain the advice of your Financial Advisor regarding this or other investment in order to conform to your financial resources and risk preference
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