Operating losses of shopping malls narrow, property sales contribute to performance
Hualian shares released the 3Q2016 quarterly report, the cumulative revenue in the first three quarters was 769 million yuan, down 23.14% from the same period last year; the net profit from its mother was 125 million yuan, down 46.54% from the same period last year, mainly due to 470 million yuan in investment income contributed by the sale of three properties so far this year. After deducting the fee, the mother made a net loss of 156 million yuan. From a quarterly point of view, 3Q16's single-quarter revenue fell 33.06% year-on-year to 243 million, deducting a net loss of 34 million yuan (Q1/Q2 deducted a loss of 73 million / 45 million), a significant improvement from the previous quarter, and the main business of shopping center operation is expected to further reduce losses in the fourth quarter.
The core profit model of the company's shopping operation is self-construction / purchase of property, sell back the funds when the operation is mature, and continue to operate as the operator (the leased property is the difference between the whole rent of the company and the rent of the merchant), so it has to bear the loss during the training period. The cumulative sales + management expense rate of 1-3Q16 rose sharply to 43.3% from the same period last year, mainly due to the cultivation pressure of a large number of new projects last year (a net increase of 13 projects in 15 years). The sharp decline in revenue so far this year is mainly due to the disposal of mature projects (5 in 15 years + 3 this year). Considering that the projects sold in the same period last year have been spun off, the decline in revenue in the fourth quarter is expected to narrow sharply.
The logic of long-term transformation is clear, waiting for the landing of fixed growth and subsequent capital operation, that is, the return of funds from property disposal and the introduction of CITIC Industrial Fund (holding about 18.7% after completion, becoming the company's second largest shareholder). Docking industrial fund investment and incubation of high-quality consumer projects, transformation shopping center operation + equity investment two-wheel drive. In addition to last year's ele.me ($90 million) and singing bar (160 million yuan) project, the company has completed equity investments in Wanguo apartment (230 million), Changping Longde Square (115 million) and Qingdao Changshan Xing (260 million) so far this year.
We believe that in the short term, the company will mainly focus on the improvement of the main business operation capacity of shopping malls, taking into account that the current growth of the company has not been passed, and that it will take time to cultivate a new shopping mall project, the company's 16-18 EPS forecast will be lowered to 0.07 picks 0.16 picks 0.22 yuan per share (mainly due to lower investment return expectations).
We are optimistic about the transformation of the company and maintain its "buy" rating.
Risk hint: the fixed increase is not too late; the investment process is lower than expected; offline consumption remains low.