Focus on trade and logistics and seize historical opportunities. For the first time, we cover Yide International Holdings Co., Ltd. ("Yide"), a leading developer and operator of large-scale trade and logistics centers in the country. We believe that trade and logistics real estate is a rapidly rising sub-sector of the real estate industry, with great potential for development. At present, the historical integration of resources is taking place among the real estate industry, the traditional retail industry and the emerging e-commerce industry, which is expected to create new and huge social value. The main participants in this sub-sector will benefit a lot.
Locates the regional central city, the land cost is low. Since its establishment in 2010, Yide has been expanding rapidly in the regional central cities across the country. At present, the company's land reserve is 7.8 million square meters, and the average land cost is RMB280 per square meter, which is one of the lowest levels in the industry. At present, the company's project is mainly located in third-tier cities, and is gradually expanding to second-tier cities such as Lanzhou.
High profit margin, high growth. The company is entering a period of rapid growth. According to the just announced annual results, the confirmed operating income and core net profit in 2013 were 4.76 billion yuan and 1.18 billion yuan respectively, up 196.0% and 444.0% respectively from the same period last year. The company's profit margin is among the highest in the real estate industry (gross profit margin in 2014 is 61.6 per cent, core net profit margin is 24.8 per cent) and is still expected to achieve net profit growth of more than 30 per cent in 2013-16.
The best balance sheet in the industry. Due to the special business model, low pre-project investment and fast turnover, the company has the best balance sheet in the real estate sector. At the end of 2013, the company had 4.4 billion yuan in cash on hand and only 880 million yuan in total loans, making it the only active real estate developer in the industry with a net cash financial position. The company has sufficient financial resources to support faster development.
Coverage for the first time, rating "buy". After reviewing Yide's current project portfolio, we estimate the company's net asset value at about RMB 4.97 per share. Our 12-month target price for the company is HK $4.35, which is equivalent to a 30% discount on the above estimated net asset value. Taking into account the company's business area, excellent financial position and strong growth momentum, we believe that this valuation target which is higher than the average real estate developer is reasonable. This target has about 17.6% room to rise from the latest closing price, and our initial rating is "buy."
