We recently went to Zhengzhou, Henan Province to meet with the management of Jinyi Group (565 HK) and visited a number of high-quality commercial real estate projects developed by the Group and its strategic alliance there. We believe that many of the commercial projects in which the Group and its strategic alliances are currently involved in development, management, operation and strategic planning are in good operation, have bright prospects for future development and are expected to have a positive cash flow status in the future. In the future, the Group will gradually incorporate some of the Zhengzhou projects held by strategic alliances into the assets of listed companies through mergers and acquisitions.
A rapidly developing ancient city. Zhengzhou is located in the Central Plains, and it is also the intersection of the land bridge channel and the Beijing-Guangzhou channel in the national "two horizontal and three vertical" urbanization strategic pattern. it is an important comprehensive transportation hub in the country and plays an important role in connecting the north and south. In addition, the construction of the "meter" high-speed railway and the development of the airport have laid a solid foundation for the development of Zhengzhou. At present, Zhengzhou, with aviation economy as the core, makes every effort to build an integrated multimodal transport hub of "aviation + high-speed rail + intercity railway + subway + highway", which will quickly integrate into the world economic pattern.
The quality of the field visit project is excellent. Jinyi International Textile City project is a key project in Henan Province, and it is also one of the core projects in the regional planning of Zhongyuan livable Trade City in Zhengzhou. It is located at the intersection of Zhengshang Road on the fourth Ring Road of West Zhengzhou, including large-scale theme commercial complex, noble residence and five-star hotel. Jinyi City is located in the central area of the city with a large flow of people. it is a regional commercial center with great potential for shopping, leisure, catering and entertainment.
The level of profitability has increased significantly. The company maintained a relatively stable profit level: gross profit margin in 2016 was 65.1%, down 16.7 percentage points from a year earlier, while net profit margin soared to 315.1% in 2016.
Valuations are relatively low. At HK $0.17 per share in 2016, the corresponding price-to-earnings ratio is 4.9 times earnings. At present, the average price-to-earnings ratio of small Chinese property developers (with a market capitalization of less than 10 billion yuan) is 5.5 times forward earnings in 2016, so we believe that the company is undervalued compared with its peers.
The main risk. 1) Zhengzhou City, Henan Province, where the company is located, is a relatively weak second-tier city. If the future urban development is not as rapid as expected, it will cause great losses to the profitability of the company's commercial real estate projects. 2) with the continuous downward pressure on China's macro economy, the real estate development industry may not be able to maintain its existing profit margins in the future, and the corresponding investment property income will also be reduced. the company's future income level is likely to decline; 3) the commercial real estate projects involved in the planning, operation and strategic development coordination of the company and its strategic alliances may not be able to create stable cash flow in the short term.