Landsea started its business in 2001 and positioned itself as a green housing developer, introducing German green building technology to China, using Nanjing as its main base, and spreading to other cities in the Yangtze River Delta region. Since then, it has successfully entered the US market, established the “LANDSEA HOMES” brand in major cities on the east and west coasts, seizing market share with good product quality, and ranked 37th in sales in the US in 2018. By the end of 2018, the company owned land reserves worth about 122 billion yuan (RMB, same below). In addition to uncarried sales of about 30 billion yuan, it is estimated that it will bring Landsea a profit of about 7 billion yuan, which will be realized through sales and delivery in the future. We estimate the adjusted net asset value of the company to be around $8.7 billion, and the target valuation is a 30% discount rate, which is equivalent to a target price of HK$1.4 per share, with the first “buy” rating.
Report summary
A pioneer in green homes. Landsea started its business in 2001, with Nanjing as its main base, and spread to other cities in the Yangtze River Delta region. The company is a pioneer in green housing developers, introducing German green building technology to China, then integrated smart home and big data analysis to develop a unique green smart home product line. Known for its high quality, the Landsea brand has successfully entered economically strong regions such as the Yangtze River Delta. Since then, it has successfully entered the US market and established the “LANDSEA HOMES” brand in major cities on the east and west coasts to seize market share with good product quality. Landsea ranked 37th in sales in the US in 2018.
Leveraging 100 billion dollars in value through brand effects. Landsea is rooted in Nanjing and the Yangtze River Delta, and spreads to major urban agglomerations such as the Bohai Rim, the southwest, and the United States, and will gradually develop the Greater Bay Area in the future. By the end of 2018, the company had land reserves of about 3.7 million square meters for traditional projects, with an estimated value of about 69 billion yuan (equity ratio of about 50%). In addition, benefiting from Landsea's brand effect, the company will undertake the management of third-party real estate projects, authorize the use of Landsea's brand and patented green building technology, and make a commission of about 5% of sales. By the end of 2018, the land storage for such asset-light projects was about 3 million square meters, with an estimated value of about 52.5 billion yuan. The combined value of light and heavy asset projects is about 122 billion yuan.
Sales increased steadily in 2019. Landsea expects to provide a value of about 50 billion yuan (full caliber) in 2019. The company's average for the past three years is about 80-90%. Considering that land storage is concentrated in the first and second tier cities of the Yangtze River Delta, the market depth is relatively stable. We think the company's removal rate in 2019 will remain at the previous level. It is estimated that the company's removal rate in 2019 will remain at the previous level. It is estimated that sales are equivalent to about 42.5 billion yuan, an increase of 11% over the previous year, and sales are growing steadily.
Strictly manage liabilities. Landsea's net leverage ratio in 2018 was about 23%, lower than the industry average, reflecting the company's strict control of financial risk. Coupled with the promotion of an asset-light model, demand for financial resources was low. By the end of 2018, cash on hand was about 6 billion yuan, far higher than the debt due within a year of about 700 million yuan, which is very stable. However, off-balance sheet debt is basically the same as cash, and the risk of off-balance sheet leverage is limited.
First, it has a “buy” rating. By the end of 2018, the value of full-caliber soil storage was about 122 billion yuan, and the equity was about 30%. In addition to the company's uncarried sales of about 30 billion yuan, we estimate that it could bring Landsea a profit of about 7 billion yuan, which will be realized through sales and delivery in the future. We estimate the company's adjusted net asset value of about 8.7 billion yuan, and the target valuation is a 30% discount rate, which is equivalent to a target price of HK$1.4 per share. The capital invested in the asset-light business is lower than traditional development projects. The financial risk is relatively low. Its value will gradually be recognized by the market. It is expected that the future will bring the company an opportunity for value revaluation, with the first “buy” rating.
Risk warning: Financial tightening affects sales; domestic regulation is being strengthened; control of asset-light projects is low.