Summary

In the first half of 2013, CCRE’s operating revenue and net profits respectively amounted to RMB 3.05 billion and RMB 0.357 billion, up 0.8% and 7.5% from the corresponding period a year earlier. Meanwhile, the company’s booked sales revenue basically maintained unchanged as compared to the same period of last year, and it increased slightly from RMB 3.015 billion in the first half of 2012 to RMB 3.017 billion in the same period of 2013, with rental receipts and hotel operating revenue respectively touching RMB 11 million and RMB 22 million.

Due to increase of the average sales price, the company’s gross profit margin hit 36.3% in the first half of 2013, an increase of 0.5 percentage points from the corresponding period of last year. In addition, CCRE redeemed senior debt in advance and incurred more interest expenses, leading to its financing cost’s increase by 280% (to RMB 440 million). In the first half of 2013, the company’s net profit rate attained 13.1%, up 1.6% from the same period of last year, which should be mostly attributed to reduction of its land income tax.

Over the first 7 months of 2013, CCRE realized sales revenue of RMB 7 billion in property, representing a year-on-year increase of 18% and making up 55.5% of its whole-year sales goal (RMB 12.6 billion), and such a property sales revenue was moderate as compared to other listed real estate companies. In the second half year, the company is set to launch into the market property of up to 1.24 million square meters and newly build 24 projects. Based on 50% of sales rate, the company is estimated to sell property area of 600,000 square meters at the fewest, with newly-launched projects worth more than RMB 3.5 billion. Therefore, it is foreseeable that the company can complete its sales goal of RMB 12.6 billion.

On the whole, CCRE’s medium-term performance is indistinctive and lacks eye-catching points. As for its overall sales strategy, the company still fixes eyes on Zhengzhou market and further develops third-tier cities like Kaifeng, Xinxiang, Jiaozuo, and Zhumadian, etc., in addition to making inroads into prefecture-level cities on a gradual basis. We do think the company has adopted a pragmatic strategy that is tailored to the market of Henan Province. However, the company failed to meet our anticipation in terms of further regional development, and quantity of new projects in third-tier cities should be increased to a large extent. Compared to Henan Province’s overall sales growth rate (50.1%) in the commercial residential building sector, the company’s sales growth rate however reached 18%, lagging far behind the province’s average level. In this context, the company needs to achieve more remarkable sales growth rate, in efforts to seize two-digit market shares in Henan Province.

In the first half of 2013, CCRE, backed by the favorable financing environment, made an active adjustment to its debt structure. As at the end of June, the company’s total debts touched RMB 8.17 billion, up 24% from the end of last year. In addition, the company’s cash flow went up by 32%, hitting RMB 5.22 billion, and its net debts ascended slightly to reach RMB 2.95 billion, with net debt-equity ratio attaining 49.6%, up 4.9 percentage points from the end of last year.

By the end of June, the company’s land reserves had exceeded 17 million square meters, with land cost averaging RMB 717/square meter. Since the whole-year budget for land purchase is RMB 4.7 billion, the company still has land-purchasing budget of RMB 2.4 billion after spending of RMB 2.3 billion in the first half year.

According to our estimation and calculation, CCRE’s NAV per share is HK$ 6.2. In view of the company’s NAV estimated value, as well as the future growth rate and valuation level, we adjuste downwards the company’s 12-month price target to HK$ 3, equivalent to prospective P/E ratio of 5.5 times in 2013 and 3.8 times in 2014. To sum up, we grant the company “buy” rating.

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