Incident: Sunac China announced that it intends to place shares of the company and shares of Sunac Services
The placement of Property+Services shares raised $952 million. According to Sunac China's announcement on November 14, the company plans to place 335 million shares of Sunac China at HK$1,518 per share, accounting for 7.19% of the company's current shares and 6.7% of the expanded issued share capital. It is expected to receive approximately HK$5.085 billion (US$653 million). In addition, Sunac Services plans to place 158 million shares of Sunac Services at a price of HK$1,475 per share, accounting for 5.10% of Sunac Services' existing shares. It is expected to receive approximately HK$2,331 million (US$299 million).
If this placement is successful, Sunac China and Sunac Services will receive a total of US$952 million.
The actual controller provided Sunac China with an interest-free loan of 450 million US dollars. Mr. Sun Hongbin, the holding shareholder of Sunac China and chairman of the board of directors, plans to use his own funds to provide the company with an interest-free loan of 450 million US dollars to support the company's business development. With the addition of financing from Sunac China and Sunac Services Placement, Sunac received a total of US$1.4 billion in capital this time.
Commercial management was sold to Sunac Services for RMB 1.8 billion. On November 8, Sunac Services announced that it intends to acquire Sunac China's commercial management and asset light operation segment, at a total cost of about 1.8 billion yuan (about 280 million US dollars). Sunac Commercial Management has signed 28 projects with a contract area of 3.73 million square meters, 21 projects under management, and a management area of 3.05 million square meters. Among them, Sunac China owns 3,435 million square meters of land, accounting for 92%. According to the seller's transaction performance promise, Sunac Business Management's target net profit for 2022 is no less than 140 million yuan (net profit after tax of 78.81 million yuan from January to October 2021). If it falls below the target, Sunac China will make up 12.86 times the difference.
The cumulative financing reached 1.7 billion US dollars in half a month, with sufficient reserves to withstand the harsh winter. According to our rough calculations, Sunac China raised a total of about 1,682 billion US dollars (about 10.8 billion yuan) in the first half of November through the sale of commercial management, allotment of shares, and interest-free loans from controlling shareholders. Combining the industry environment and the company's operating goals, we believe that the company's current financing has the following significance: 1) In line with the trend of reducing leverage: in an environment of continuous industry regulation plus three red lines of supervision, it is necessary for the company to actively remove returned funds to reduce leverage, and continue to reduce leverage actions through equity financing when necessary, retain strength in line with risk mitigation trends, and maintain survival when poor production capacity is removed from the industry's supply side. 2) Maintain the yellow level and take the initiative when credit is selectively relaxed: As of 202H1, the company's three red lines meet the yellow tier standards, and continuous optimization of the company's asset structure will help the company maintain the current level of the three red lines. We believe that the recent housing enterprise credit bond default incident has caused damage to the overall credit of the industry, and it will take time to repair it. During this period, housing enterprise credit will further diverge, and housing enterprises with higher ranks will enjoy more initiative in financing. Focusing on the long-term strategy proposed by the company in the medium term, we believe that the company is gradually moving towards “safer, more relaxed, more long-term, and more valuable.”
Investment advice: “better than the market” rating. We expect the company's EPS in 2021 to be $649 per share, giving the company 3-3.5 times its PE valuation in 2021. The corresponding reasonable market value is HK$1031-120.3 billion, and the corresponding reasonable value range is HK$22.12-25.81. (Unless otherwise specified in this article, prices are in RMB. The exchange rate is averaged for 12 months, 1 HKD = 0.88 RMB)
Risk warning: Regulatory policies continue, and the company's gross margin is under pressure.