The current situation of the company
Shenzhen Holdings said its sales in the first 11 months of 2017 were 10.8 billion yuan, down 43% from a year earlier.
Comment
The company's sales are expected to fall to 110-12 billion yuan in 2017 and partially rebound to 15 billion yuan in 2018 (19 billion yuan in 2016). We expect sales to remain weak for the month due to the lack of new projects opening in December. We expect that the company's salable resources will reach 25 billion yuan in 2018, of which about 50% will be located in Shenzhen, and sales are expected to reach 15 billion yuan. In particular, as the price policy in Shenzhen will still be tight, we expect the opening of the residential part of the company's Shenye Zhongcheng project to be postponed again in 2018, which will continue to put pressure on the company's sales.
It is expected that the company's high-quality land reserve in Shenzhen is expected to expand in 2018. In addition to the promotion of existing urban renewal projects, we expect that listed companies are expected to further increase their high-quality land reserves in Shenzhen through the asset injection of the parent company (it is estimated that the asset injection will involve 200000 square meters of land in Pingshan District. The price is about 20,000 yuan / square meter).
The company's net debt ratio is expected to rise in 2017 and 2018, but will remain around 40% (25% at the end of the first half of 2017), mainly due to relatively weak sales and continued cash outflows from land acquisition and urban renewal projects. The company's average borrowing cost in the first half of 2017 was 4.3%. Thanks to the nature of its state-owned enterprises, the company has an obvious advantage in financing costs.
Valuation proposal
We keep our profit forecast unchanged (29% jump in 2017, 22% in 2018). Maintain the recommended rating, but cut the target price by 14 per cent to HK $3.85 (20 per cent higher than the current price), mainly because Shenzhen's continued tight price policy will put pressure on the company's sales in 2018. Our adjusted target price corresponds to a price-to-earnings ratio of 8.7 times and 7.2 times 2017 and 2018, a 54% discount to the 2017 forecast of net asset value per share. The current share price corresponds to a price-to-earnings ratio of 7.3 times and 6.0 times 2017 and 2018, a 61% discount to the projected net asset value per share in 2017.
Risk.
The opening of the new project will be postponed in 2018.