5 4 6 yum cha 飲 茶 3 - chinastock.com.hk1 23 may, 2017 with abundant net cash of hk$23bn (27% of...
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Yum Cha 飲 茶 May 23, 2017
INDICES Closing DoD%
Hang Seng Index 25391.3 0.9
HSCEI 10374.3 1.0
Shanghai COMP 3075.7 (0.5)
Shenzhen COMP 1828.2 (1.4)
Gold 1260.6 0.4
BDIY 954.0 (0.2)
Crude Oil, WTI(US$/BBL) 51.1 0.9
Crude Oil, BRENT(US$/BBL) 53.9 0.5
HIBOR, 3-M 0.8 (0.05)
SHIBOR, 3-M 4.5 0.2
RMB/USD 6.9 0.02
DATA RELEASES DUE THIS WEEK
May 24 Swift Global Payment CNY
May 26 Industrial Profit YoY
Source: Bloomberg
TALKING POINT - POTENTIAL SHAREHOLDER CHANGE OF VALUE PARNTERS
Value Partners (0806.HK) confirmed that its two founders, Cheah Cheng Hye and
Yeh V-Nee have been approached by third parties and are in discussions with a po-
tential offeror. They signed a non-binding MOU on 24 January 2017 in respect of a
possible transaction involving an acquisition of interests in the Company by the po-
tential offeror. No definitive agreement has been signed so far. Cheah and Yeh own
24.9% and 16.14% stakes in the Company, respectively. Value Partners was trading
at 3.93x PBR before trading was suspended. Excluding the super bull market in 2015,
the high end of the PBR range has been about 4.4x in the past five years. Therefore
further upside may be limited. However, we don’t rule out the possibility that investors
may revisit other local financial institutions, as the potential acquisition of Value Part-
ners shows that Mainland companies are still interested in setting up a financial plat-
form in Hong Kong. Currently, local financial institutions with a meaningful market cap
include Bright Smart (1428.HK; 1.93x PBR), Emperor Securities (0717.HK; 0.89x
PBR) and Get Nice Financial (1469.HK; 0.9x PBR).
RESEARCH NOTES
SINO LAND [0083.HK; HK$13.34; NOT RATED] - With abundant net cash of
HK$23bn (27% of market cap), Sino Land is well-positioned to replenish its land bank
for future growth, in particular, after the recent tightening measures regarding loan to
value ratios launched by the HKMA. On the back of a good track record of dividend
payments, management targets maintaining a stable DPS of HK$0.51, implying a
3.8% dividend yield, slightly below its 5-year average of 4%. As the low-end of the
range is about 3.6% since 2013, we believe HK$12.30 is a better entry point, which
offers 15% upside if we set 3.6% dividend yield as the target.
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PBR of Value Partners (0806.HK)
Sources: Bloomberg, CGIS Research
Analyst: Wong Chi-man, CFA
SNIPPETS
MSCI ANNUAL REVIEW - MSCI announced that it will conduct the annual market
classification review on June 20. The review will include whether the A-share market
will be included in the MSCI index series.
1
23 May, 2017
With abundant net cash of HK$23bn (27% of market cap), Sino Land is well
-positioned to replenish its land bank for future growth, in particular, after
the recent tightening measures regarding loan to value ratios launched by
the HKMA. On the back of a good track record of dividend payments, man-
agement targets maintaining a stable DPS of HK$0.51, implying a 3.8%
dividend yield, slightly below its 5-year average of 4%. As the low-end of the
range is about 3.6% since 2013, we believe HK$12.30 is a better entry
point, which offers 15% upside if we set 3.6% dividend yield as the target.
Business strategy
Management has adopted a steady and conservative approach to property
development. Sino Land has been active in land bidding within the range of
its gross profit margin target of 20%. As can be seen from its bidding rec-
ord, Sino Land is comfortable cooperating with other developers, including
PRC ones, as long as the investment concept and expected return are
consistent.
Successful urban residential redevelopment projects
In general, 3 types of development approaches are commonly seen in the
HK residential market: 1. tenders and auctions of government and MTRC
lots; 2. changing the use of agricultural land; and 3. urban redevelopment.
In the current circumstances, PRC developers have been aggressive in the
first approach. Therefore, in order to remain competitive, local HK property
developers focus on the latter two approaches.
The entry barrier for urban redevelopment projects for PRC developers is
relatively high, as local knowledge and practices are essential in project
planning and sales to secure an attractive profit margin.
Sino Land has partnered well with the Urban Renewal Authority (URA) on
many urban redevelopment projects, including The Avenue in Wan Chai
(attributable plot ratio area: 0.61m sq.ft), a very successful large-scale pro-
ject launched in recent years, demonstrating sustainability.
The upcoming Kwun Tong project to be the key growth driver
An upcoming project – Kwun Tong Town Center Development Areas 2 & 3
(attributable plot ratio area: 1.35m sq.ft, land cost HK$~ 5,000/sq ft) – is
going to be the highlight of Sino Land’s future sales. The project is expected
to be launched in 2018. Conservatively assuming an ASP of HK$15,000,
with land cost of ~HK$5,000 and construction cost of ~HK$4,500, the unit
gross profit will be HK$ 5,500 (not yet deducting profit sharing with URA).
Sino Land acquired another two small-scale URA projects during FY2017:
NKIL 6558 Sham Shui Po (attributable plot ratio area: 0.05m sq.ft) and the
Peel Street/Graham Street Project in Central (attributable plot ratio area:
0.08m sq.ft). On top of these urban redevelopment projects, another new lot
from government tender was added in FY17 – TPTL 228, Pak She Kok
(attributable plot ratio area: 0.41m sq.ft, land cost HK$ 3,931/sq ft)
Strong defensive business
Sino Land’s rental business has experienced moderate growth in recent
Company Visit SINO LAND COMPANY LIMITED [0083.HK; HK$13.34; NOT RATED] - STEADY THE BUFFS IN THE NEW CHALLENGING
ENVIRONMENT. SOLID DEFENSIVE BUSINESS AND EYE ON KWUN TONG RESIDENTIAL DEVELOPMENT.
Market Cap: US$10.8bn; Free Float: 40%; 3-months Average Daily Turnover: US$8.9m Analyst: Rachel Chui Tel: 3698 6391 Email: [email protected]
[Sino Land Company Limited]
years, providing strong operating cash flow to further facilitate the
Company’s property development business. Consequently, Sino Land
is able to maintain its DPS regardless of the fluctuation of profit booked
from property sales (Figure 2 and 5).
As shown in Figure 4, Sino Land’s rental portfolio is dominated mainly
by retail (mass and local market), but also includes office, industrial,
carpark and residential. As its malls are located mainly in local residen-
tial development areas, they are less dependent on tourist spending.
As for office leasing, most of its offices are in non-central areas. There-
fore, it is expected to see single-digit growth in rental rates this year.
Apart from the rental business, income from hotels has performed
steadily.
In FY17, non-residential land replenishment includes AIL 462, Wong
Chuk Hang (commercial, attributable plot ratio area: 0.17m sq.ft, land
cost HK$ 10,313/sq ft), Kwai Chung Town Lot No. 524 (industrial, at-
tributable plot ratio area: 0.18m sq.ft, land cost HK$ 2,543/sq ft), and
The Fullerton Hotel Ocean Park Hong Kong (hotel, attributable plot
ratio area: 0.26m sq.ft).
Future outlook depends on land bank replenishment progress
We estimate Sino Land's residential saleable resources in Hong Kong
should be enough for about 3 years of development. Since the Compa-
ny is not very active in accumulating agricultural land, its future outlook
will depend on whether it can use its strong balance sheet (net cash of
HK$23bn) to replenish land bank.
Risk factors: Rate hikes, residential price drop, and policy risks.
0
50,000
100,000
150,000
200,000
250,000
300,000
0
2
4
6
8
10
12
14
16
Trading value (HK$ 000) - RHS Price (HK$)
Key Financials FY15 FY16 FY17E FY18E
Revenue (HK$ m) 21,839 10,804 14,929 13,614
Underlying net profit (HK$ m) 5,301 5,351 5,216 5,150
PER (x) 15.89 15.74 16.15 16.36
PBR (x) 0.68 0.67 0.65 0.64
Dividend yield 3.75% 3.82% 3.82% 3.82%
Note: financial year end June
Source: Bloomberg, Company Data, CGIS Research
2
Figure 1: Company financials (June year-end)
Source: Company data, CGIS Research
Figure 2: Dividend per share and payout ratio
Source: Bloomberg, Company data, CGIS Research
0.36 0.36 0.36
0.41
0.46
0.50 0.50 0.50 0.51 0.51
0.00
0.10
0.20
0.30
0.40
0.50
0.60
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E
Dividend per share (HK$)
57%54% 56%
52% 51%
45%
59%57% 58%
0%
10%
20%
30%
40%
50%
60%
70%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Payout ratio based on Underlying profit
3
Figure 3: Dividend yield
Source: Bloomberg, Company data, CGIS Research
Figure 4: Rental business portfolio
Source: Bloomberg, Company data, CGIS Research
7%
8%
3%
24%58%
Breakdown by rental revenue
Carpark
Industrial
Residential
Office
Retail
14%
16%
2%
29%
39%
Breakdown by floor area
Carpark
Industrial
Residential
Office
Retail
2,254
2,558 2,791
3,055 3,235 3,312
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY11 FY12 FY13 FY14 FY15 FY16
Rental business segment resultHK$m
2,642
2,936 3,185
3,451 3,684
3,834
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY11 FY12 FY13 FY14 FY15 FY16
Gross rental incomeHK$m
2.6
2.8
3
3.2
3.4
3.6
3.8
4
4.2
4.4
4.6
4.8
5
5.2
5.4
5.6
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Dividend yield since 1 July 2012 (%)
Dividendyield (%)
Averagesince 1 July2012(4.03%)
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Figure 5: Segment results breakdown
Source: Company data, CGIS Research
Figure 6: Projects launched and to be booked in 2017/2018
Source: Company data, CGIS Research
1,790,904,011 46%
1,633,733,268 42%
133,601,129 4%
268,207,691 7%
32,622,576 1%
Segment Result 1HFY16 (HK$)
Property Sales
Property Rental
Property Managementand other services
Hotel Operations
Investments in Securities& Financing
2,427,687,477 53%
1,704,329,298 37%
145,601,063 3%
271,987,755 6%
62,891,240 1%
Segment Result 1HFY17 (HK$)
Property Sales
Property Rental
Property Managementand other services
Hotel Operations
Investments in Securities& Financing
2,629,029,772 38%
3,311,631,337 49%
279,962,836 4%
525,722,447 8%
68,705,370 1%
Segment Result FY16 (HK$)
Property Sales
Property Rental
Property Managementand other services
Hotel Operations
Investments in Securities& Financing
3,236,746,052 45%
3,234,544,559 44%
258,278,445 4%
473,323,731 6%
62,186,394 1%
Segment Result FY15 (HK$)
Property Sales
Property Rental
Property Managementand other services
Hotel Operations
Investments in Securities& Financing
1,854,571,445 32%
3,054,537,524 53%
230,395,986 4%
495,412,051 9%
108,229,835 2%
Segment Result FY14 (HK$)
Property Sales
Property Rental
Property Managementand other services
Hotel Operations
Investments in Securities& Financing
4,511,334,260 56%
2,790,520,018 34%
221,696,639 3%
490,565,929 6%
63,034,628 1%
Segment Result FY13 (HK$)
Property Sales
Property Rental
Property Managementand other services
Hotel Operations
Investments in Securities& Financing
Project Name/Site Location Usage Stake (%) Attributable Plot Ratio Area (Sq ft)
The Mediterranean Sai Kung Residential 100 249,133
The Spectra Long Ping (North) Residential 40 209,575
Commune Modern Fanling Residential 100 209,907
Park Mediterranean Sai Kung Residential 100 173,796
5
Figure 8: Projects acquired during FY17
Source: Company data, CGIS Research
Figure 7: Projects to be launched in 2017/2018
Source: Company data, CGIS Research
Source: Bloomberg, Company data, CGIS Research
Figure 9: Peers comparison
Project Name/Site Location Usage Stake (%) Attributable Plot Ratio Area (Sq ft)
NKIL 6313 Kowloon Bay Commercial 30 147,058
Lot 1181 in DD 215 Sai Kung Residential 100 51,592
TPTL 228 Pak Shek Kok Residential 100 412,530
Kwun Tong Town Center
Development Areas 2 & 3Kwun Tong Residential 90 1,346,383
Project Name/Site Location Usage Stake (%) Attributable Plot Ratio Area (Sq ft)
TPTL 228 Pak Shek Kok Residential 100 412,530
AIL 462 Wong Chuk Hang Commercial 60 170,967
NKIL 6558 Sham Shui Po Residential/Retail JV with URA 52,571
The Fullerton Hotel Ocean
Park Hong KongOcean Park Hotel 60 262,017
Peel Street/Graham Street
Project (Site A)Central Residential JV with URA 84,260
Kwai Chung Town Lot No. 524 Kwai Chung Industrial 100% 176,905
Ticker Company Market cap PB (x) EV/EBITDA (x) Dividend yield (%)
(US$ m) 2016A 2017E 2018E 2016A 2017E2018E 2016A 2017E 2018E 2016A 2017E
16 HK Equity SHK Properties 113.80 42,327 8.5 12.9 11.9 0.7 0.7 0.7 8.3 11.9 10.7 3.4 3.5
17 HK Equity New World Development 9.66 12,163 9.3 12.4 11.8 0.5 0.5 0.4 10.5 16.7 15.0 4.6 4.5
12 HK Equity Henderson Land 49.20 22,985 8.2 14.9 15.2 0.7 0.7 0.7 12.9 22.3 22.9 3.2 3.2
101 HK Equity Hang Lung Properties 19.50 11,264 14.2 16.2 18.0 0.7 0.7 0.7 11.6 12.8 13.8 3.8 3.9
14 HK Equity Hysan Development 36.25 4,867 31.2 14.7 15.6 0.6 0.6 0.5 15.4 15.4 14.9 3.7 3.8
1113 HK Equity Cheung Kong Property 57.60 27,622 11.4 11.7 10.7 0.8 0.8 0.8 8.5 8.0 7.5 4.0 2.9
1972 HK Equity Swire Properties 25.80 19,385 10.0 18.2 20.1 0.7 0.7 0.6 10.7 17.2 19.4 2.8 2.8
41 HK Equity Great Eagle 38.15 3,335 9.3 12.1 12.6 0.5 0.4 0.4 18.6 29.2 28.7 2.0 2.5
83 HK Equity Sino Land 13.34 10,821 12.3 15.9 16.0 0.7 0.7 0.6 10.2 12.2 14.0 3.8 3.8
Note: Year end June for Sino Land, SHK Properties and New World Development. Year end Dec for others
Price
(local currency)
PE (x)
6
Source: Company data, CGIS Research
Figure 10: Hong Kong residential projects presale area over the year
Source: Bloomberg, Company data, CGIS Research
Figure 11: Saleable resources of Hong Kong residential projects
Saleable resourcesSino Land's
stake
GFA
Attributable
to Sino Land
(Sq ft)
Lot 1181 in DD215 100% 51,592
TPTL 228, Pak Shek Kok 100% 412,530
Kwun Tong Town Center Development Areas 2&3 *** 90% 1,346,383
NKIL 6558, Sham Shui Po *** 100% 52,571
Peel Street/Graham Street Project (Site A), Central *** 100% 84,260
Residual units from project launched and completed (approximate) 800,000
Total: 2,747,336
*** URA projects.
Presale since
launched till
financial year
end
Sino Land's
stake
Project Total
GFA (Sq ft)
GFA
Attributable
to Sino Land
(Sq ft)
GFA sold
during FY
(Sq ft)
FY16 The Mediterranean 逸瓏園 54% 100% 249,133 249,133 134,532
Commune Modern 囍逸 98% 100% 135,894 135,894 133,176
The Spectra 朗屏8號 * 30% 40% 523,938 209,575 62,873
FY16 Total 330,581
FY15 Corinthia By The Sea 帝景灣 97% 60% 417,047 250,228 242,721
Dragons Range 玖瓏山 81% 40% 1,031,470 412,588 334,196
FY15 Total 576,918
FY14 The Graces • Providence Bay 海鑽.天賦海灣 71% 50% 323,824 161,912 114,958
Park Metropolitan 觀月.樺峯 79% 100% 232,825 232,825 183,932
The Avenue 囍匯 ** 92% 50% 731,393 365,697 336,441
Mayfair by the Sea I 逸瓏灣I 73% 85% 675,710 574,354 419,278
Mayfair by the Sea II 逸瓏灣II 65% 100% 675,710 675,710 439,212
FY14 Total 1,493,820
* K. Wah [hk.173] was in charge of this project's development and sales. Sino Land holds 40% stake.
** Joint venture with Hopewell, assume 50-50 structure.
Note: Some small-scale luxury projects like Cluny Park, Botanica Bay are not included.
Presale area over the year
7
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BUY share price will increase by >20% within 12 months in absolute terms :
SELL share price will decrease by >20% within 12 months in absolute terms :
HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :