The dual state capital background brings stronger shareholder strength. As of December 31, 2022, Yuexiu Group directly and indirectly held a total of about 39.78% of the shares of Yuexiu Real Estate listed companies, making it the company's largest shareholder; Guangzhou Metro Group, as the company's second largest shareholder, held 19.9% of Yuexiu Real Estate's shares through the wholly-owned company Guangzhou Metro Investment and Finance (Hong Kong) Co., Ltd. Considering that Yuexiu Group is the “double hundred enterprise” of the State Council's state-owned enterprise reform and the comprehensive strength and business position of Guangzhou Metro in the overall promotion of the construction of the “Greater Bay Area on Track”, we believe that Yuexiu Real Estate's dual state-owned shareholder background strength is expected to bring strong resource advantages and support to its various business developments.
Contract sales bucked the trend, and diversified reserves strengthened core competitiveness. In the first half of 2023, Yuexiu Real Estate achieved a cumulative contract sales amount of RMB 83.63 billion, +71.0% over the same period last year, and completed 63.4% of the full-year contract sales target of RMB 132 billion in '23. As of June 30, 2023, Yuexiu Real Estate has a land reserve area of 28.13 million square meters distributed in 30 cities across the country. In recent years, the company has optimized the land storage structure, selected the best investment projects, and continued to improve the “6+1" specialized and diversified storage platform using TOD, “urban operation”, urban renewal, state-owned enterprise cooperation, mergers and acquisitions, industrial land acquisition, and open market auctions. In recent years, the private market has accounted for more than 50% + of storage growth models.
The background of TOD business shareholders is supported, and new breakthroughs have been achieved in nationwide expansion. As of June 30, 2023, Yuexiu Real Estate has developed a total of 9 TOD projects in Guangzhou and Hangzhou. The total land reserve of TOD projects reached 3.98 million square meters, accounting for about 14.2% of the company's total land reserves. In 2022, Yuexiu Real Estate acquired shares in Gouzhuang TOD projects through the delisting of the Industrial Exchange, leaving Guangzhou and the Greater Bay Area for the first time.
Business and housing go hand in hand, real estate and housing trust interact on two platforms. In recent years, the company's housing management income has re-entered a growth path, while the total operating income of commercial properties has remained relatively stable. In the first half of 2023, commercial properties directly held by the company achieved rental income of about RMB 210 million, +16.7% year-on-year; Yuexiu Real Estate Fund, which holds 36.83% of unit equity, achieved operating income of about RMB 1.06 billion, +12.4% over the same period last year.
Successful financing enhances cash strength, and there is room for business development. On June 2, 2023, Yuexiu Real Estate announced that its stock offering had been oversubscribed by 1.15 times. The parent company Yuexiu Group and Guangzhou Metro Group, the second largest shareholder, fully supported the stock offering. As policies related to “urban village transformation” continue to advance while considering Yuexiu Real Estate's leading position as state-owned real estate in Guangzhou, we believe that the company has mature land planning and resource coordination capabilities, and that its steady financial situation and financial strength can also guarantee the financing of land development funds. The above competitive advantages can provide an opportunity for the company to further participate in related projects.
Investment advice. We forecast EPS for 2023 to be RMB 1.20, giving the company a 23-year PE valuation of 8-10 times PE. The corresponding market capitalization range is HK$423-52.9 billion, and the corresponding reasonable value range is HK$10.51-13.13 per share. (Not specified in this article; all prices are in RMB, HKD 1 = RMB 0.9156)
Risk warning: Market recovery falls short of expectations.