Summary of investment
Jiji's Mingshan project is expected to be sold by about HK $6.8 billion in July 2017. the project is expected to be completed and put into operation in the second half of 2017, and the market has successfully acquired an occupation for it in July 2017.
Another project of Jiyi has been launched in the first half of 2017, and 47% of the project has not yet been sold as of June 2017. the final forecast of this project provides a certain increase in revenue.
We believe that the level of dividends is sustainable, because the investment business of the collection is very large, which provides a steady regular income for the collection, and the new investment construction projects also make the business continue to grow.
An overview of Chinese companies
The first half of 2017 is in line with our expectations: Kerry Construction achieved a very strong performance in the first half of 2017.
Revenue jumped 220 per cent from HK $5.537 billion in the first half of 2016 to HK $177.42 billion in the first half of 2017. The substantial increase in revenue was mainly due to the acquisition of its Hong Kong project during the period, which was acquired in March 2017, so the related income and cash flow were confirmed in the first half of 2017. In view of the rapid growth in revenue, gross profit margin increased by 57% in the same period last year, from 2.612 billion Hong Kong dollars in the first half of 2016 to 4.102 billion Hong Kong dollars in the first half of 2017, mainly due to the combined activities of property sales organizations. the gross profit margin fell from 47% in the first half of 2016 to 23% in the first half of 2017. In the first half of 2017, property development services in Hong Kong accounted for 57% of the total income, with a gross profit margin of only 11.7% (China's property development services in the first half of 2017: 21.7%). However, in the same period in 2016, Hong Kong property development services accounted for 4% of the total income, so the overall gross profit margin decreased. The share of equity as a share of core profit increased by 98%, from HK $1.43 billion in the first half of 2016 to HK $2.833 billion in the first half of 2017, with core profit per share of HK $1.96. In the first half of 2017, Kerry Construction announced an interim dividend of HK $0.45 per share, up 50% in the first half of 2016.
The equipment of the property development project can continue for four years: Kerry currently has several large-scale development projects in Hong Kong and China, which are scheduled to be completed in 2020 according to the current schedule. In the coming years, the development project of Jiali Construction, which is mainly used for sale, will continue to be completed, with an estimated construction area of 5.1 million square feet. In particular, this number does not include the end of completed development projects, such as finished buildings (built noodles: 1142168 square feet, as of 30 pounds, 6 pounds, 2017, when 53% has been sold). We conservatively estimate the residual value of the project at HK $10 billion, which is the space for a substantial increase in revenue this year. In addition, the Mingshan project is expected to be completed in the second half of 2017. As of 30x62017, 83% of the units in Mingshan have been sold, with a total construction area of 9366,600 square feet. According to the sales data in July, the total accumulated sales of Mingshan reached 6.8 billion Hong Kong dollars. The project was occupied in July 2017, thus enabling Kerry Construction to confirm its related income and cash flow in the second half of 2017, greatly increasing the revenue and profit of the collection this year. The major property development projects in Hong Kong and China are as follows:
The immediate dividend level is sustainable, even if the interim dividend rises by 50 per cent: Kerry raised its interim dividend to HK $0.45 a share in the first half of 2017. I believe that the dividend level is sustainable because the recurrent income of the cluster is too large, and the investment capital management of the cluster provides stable but growing income for the cluster. As of June 30, 2017, the total investment area of Kerry Construction in Hong Kong and China was 2.86 million square feet (first half of 2016: 2.78 million square feet) and 7.39 million square feet (first half of 2016: 7.53 million square feet). However, the total construction area has declined slightly, but since a number of large-scale investment projects have been completed in recent years, we expect that the total construction area will increase.
Valuation and valuation
Our valuation model is known as HK$36.70: in view of the relatively large investment and property development costs of the collection, we use the classified and summed valuation method to set up a valuation for Kerry. We maintain the "premium" level of Kerry Construction, raising our target to HK $36.70, which is equivalent to 9.99 times earnings and 0.59 times price-to-value ratios. (as of October 4)