Investment advice: A state-owned real estate enterprise in Xi'an, with asset consolidation expectations: The company is a listed real estate company controlled by a state-owned company in Xi'an. It has first-level real estate development qualifications, and is the target of a relatively scarce listed real estate enterprise in the northwest region. The majority shareholder of the company is the Xi'an High-tech Industrial Development Zone Company, which has a holding ratio of 56.52%. It belongs to the Xi'an Hi-Tech Group and is the main force in the development and construction of the Xi'an High-tech Zone. Currently, the large Dongxian Hi-Tech Group has reserves in various industries such as real estate, manufacturing, and service industries. Among them, there are 8 real estate companies under it. Tiandiyuan is the only listing platform for major shareholders. According to the company's 2014 semi-annual report, the majority shareholders of the company promised to gradually resolve competition issues in the industry by 2020, and the possibility of integrating relevant business resources into listed companies will not be ruled out in the future.
Companies with the same market capitalization have more land reserves, concentrated in second-tier cities such as Xi'an: the company's main business income currently comes from real estate development and sales revenue. We expect the company's total project reserves to reach 3.47 million square meters. Among the current A-share real estate companies with a market capitalization of around 5 billion yuan, it is an enterprise with relatively large land reserves. Relevant acquisition of land prices is relatively reasonable, and there is a strong guarantee for the company's later sales and profit release. Looking at the regional distribution, the total land reserve area of Xi'an and Suzhou accounts for about 64% of the company's total land reserves. Judging from the scale of the project, the company's large and medium-sized projects (projects of 200,000 square meters or more) account for the vast majority. At present, the company has adopted a deep strategy to gradually enjoy price dividends in the later stages of the market.
The regional market is stable and orderly. Currently, inventory pressure in second-tier cities as a whole is slightly higher than that of first-tier cities, but compared to the previous high inventory pressure, it has been greatly mitigated. The overall inventory pressure in the two cities of Xi'an and Suzhou, where the company's projects are focused, is at a moderate level among second-tier cities. Considering the sharp decline in land purchase area in the industry in 2014, it is expected that a good recovery situation will occur in the later stages under the pattern of contraction in the overall supply of the industry.
The company operates steadily and financial risks are low: the company's annual revenue is basically maintained at 2 billion yuan to 3 billion yuan, and the growth rate remains around 10%; gross margin is basically maintained at around 30%. The above indicators have remained stable year after year. From the perspective of debt, on the one hand, companies are actively increasing the proportion of long-term debt and reducing short-term debt; on the other hand, the company's current cash on hand can better cover short-term debt. Currently, there is no short-term debt pressure on the company. Overall, the prudent style also continued in terms of debt.
It may later benefit from the construction of an inland free trade zone in Xi'an: According to a report by Sina Finance on November 28, 2014, the National Development and Reform Commission proposed when “soliciting opinions from national ministries and departments” on the free trade zone, in order to comprehensively consider the balanced development of the East, Central, and West regions, it was proposed that inland free trade parks also be taken into consideration. Currently, Xi'an is a key consideration for establishing an inland free trade zone. When it competes for the first inland free trade zone with cities such as Chongqing and Wuhan, it has many leading advantages, such as a strong industrial base and inland port experience, a large pool of scientific and technological talents, and deep history and culture. Once the policy is formed, the company is expected to benefit later.
Investment advice: Give an “increase in holdings” rating for the first time. The company's EPS is expected to be 0.40 yuan and 0.49 yuan per share in 2014 and 2015. According to the closing price of 5.09 yuan on February 2, the company's PE valuation in 2014 and 2015 was 12.7 times and 10.4 times. We are optimistic about the company's future development space, giving the company 15 times PE valuation in 2015, with a target price of 7.35 yuan, covering the first “increase in holdings” rating.
