Summary of investment
-several heavy property development projects will be completed in 2017, accounting for huge revenue in recent years. Investment and hotel services account for a large portion of the total revenue, providing stable regular income for the collection industry.
General situation of the company
Thank you for our expected 2016 budget: Kerry Construction achieved a substantial increase in 2016. Revenue rose 25.0 per cent to HK $129.91 billion. Gross profit margin rose from 37.6% in 2015 to 45.1% in 2016, resulting in a 49.7% increase in gross profit in 2016 to HK $5.856 billion. The substantial increase in gross margin was mainly due to the increase in gross profit margin in property development. In 2016, Kerry Construction's sales were very strong, with Hong Kong regional contract sales rising from HK $5.8 billion in 2015 to HK $122 billion in 2016. Contract sales in China rose from 6.8 billion Hong Kong dollars in 2015 to 142 billion Hong Kong dollars in 2016. Profit attributable to shares increased by 18.2% to HK $6.537 billion in 2016. In 2016, earnings per share increased by 18% to HK $4.53, while a final dividend of HK $0.80 per share was declared, 33% higher than the same period last year.
Several large-scale development projects will be completed in 2017: by 2017, several major property development projects will be completed in Hong Kong and China. It is worth mentioning that in 2016, Hong Kong property Development Services received a contract sale of HK $12.2 billion for very strong sales. They were mainly sold by Hong Kong heavy property companies, that is, Hau Hau in Homantin and Ming Shan in Kwun Wat. China's property development policy has recorded a contract sale of HK $14.2 billion, which is mainly sold by residents such as Jinling in Nanjing, Hangheting in Hangzhou and Chengdu. In view of the fact that several projects will be completed in 2017, a large portion of the contract is expected to enter the market in 2017. The following are the Hong Kong projects estimated to be completed in 2017:
As for the remaining unsold units, especially those in Hong Kong, the Kerry Construction Plan plans to sell the remaining units at free cost after the completion of the whole project. As a matter of fact, using the recent transaction data, we estimate that the net value of the remaining units of Hao and Mingshan is 16 billion Hong Kong dollars, in order to collect valuable income.
In addition, there are plenty of development projects in the future, and the projects and land equipment are sufficient to support the development in the next four years. In addition to the above projects, which will be completed in 2017, there are several other development projects to be completed in 2018 and 2019, which are located in Bengjia Mountain, Xichang and Homantian, respectively. This batch of residential buildings will be aimed at high-end property owners and investors, and the demand is expected to be strong.
Further growth in investment and investment services: the investment and investment management plan will increase significantly because the Sanguang Road project originally designed for sale will be converted to rental after completion. The project will be completed in 2017, with a total construction area of 81217 square feet and will provide 106rental units at a rent of HK $50 to HK $70 per square foot per month. At a 100 per cent occupancy rate, this item will provide an annual income of about HK $6000.
Valuation and valuation
Our valuation model shows that our valuation model is HK $33.60: Kerry Construction projects in Hong Kong, namely Haoyi and Mingshan, have realized strong sales, and at the same time, investment management provides stable regular income for Kerry Construction. In addition, the Haomingshan project still has a large number of unsold units with high market value, resulting in a large amount of revenue. Therefore, we give Kerry Construction a target of HK $33.60, which is equivalent to 6.08 times earnings and 0.40 times price-to-price ratio. (as of July 12)