Key points of investment
China Merchants Shekou's overseas listing platform: The company was listed by China Merchants Shekou (formerly known as China Merchants Real Estate) in Hong Kong through a reverse acquisition in 2013, with a shareholding ratio of 74.35%. The parent company strongly supported the company's development and injected real estate projects in the four cities of Nanjing, Guangzhou, Foshan and Chongqing. After listing, the company did not expand aggressively. Apart from expanding its land reserves in existing cities, it only entered the two new cities of Xi'an and Jurong. Currently, the company's total land reserves have reached more than 6 million square meters, and annual contract sales have reached 15 billion yuan. It will continue to play the role of China Merchants Shekou as an overseas listing platform in the future.
Contract sales ushered in a major explosion: in the first three quarters of 2016, the company completed contract sales of 13 billion yuan, an increase of 129% over the previous year. The contract sales area and average price were 920,000 square meters and 14,124 yuan per square meter respectively. It is estimated that the annual contract sales will reach 15 billion yuan, a record high since listing. Mainly due to the increase in saleable value brought about by the expansion of the company's land reserves, the company's project reserves in Foshan, Nanjing, Chongqing, Guangzhou and Xi'an can be used for the company's development over the next 3-4 years, and can maintain 10-20% growth. The explosion in contract sales provided a guarantee for subsequent growth in performance.
Our view: China Merchants Land will continue to implement the two major strategies of “focusing on cities” and “asset-light operation”. The focus on cities is to increase the company's market share in the six cities where it does business and further expand and strengthen; asset-light operation leverages the company's brand and capital strength, makes full use of the parent company's resource advantages, and recreates a new company and operating model. As the company's contract sales scale increases and the settlement period gradually enters the settlement period, the company's performance will improve substantially. Furthermore, the company is a Shenzhen-Hong Kong tender. As the only listing platform for China Merchants Shekou overseas, it is very attractive to mainland investors. According to market expectations, the company's net profit for 2016/2017 will be RMB 7/1 billion respectively. The current stock price is HK$1.27, corresponding to 7.8/5.5 times PE in 2016/2017. Compared with the company's high-quality assets, brand and central enterprise background, investors are advised to pay strong attention.
Risk warning: Macroeconomic growth is slowing, purchase and loan restriction policies have been further tightened, and new business progress falls short of expectations.