Investment summary:
We believe that at the stage of central decline in the real estate industry, property as a downstream part of real estate is thinking about how to enhance independence, yet the capital market's perception of the relationship between the two is still difficult to speak of independence. From the profit side, it is easier for property companies with stable project sources to smoothly deliver results, while property companies with impressive external data on this basis are more likely to have profits that exceed expectations. From the risk side, in the real estate industry bottoming out stage, the main line of property industry transactions is still mainly “risk avoidance”, and stable central government enterprise targets are more easily favored by the market. From the flexible side, since the vast majority of listed property companies are Hong Kong stock listed companies, the majority of listed property companies are likely to bring in foreign capital inflows during the year when US bond yields peak., the rebound is expected to be even stronger.
We believe that the property industry, whether viewed from its relationship with real estate or from its own fundamental differentiation, has various uncertainties. Under such circumstances, we prefer to choose whether fundamentals are determined, performance meets expectations, or even has high hopes of exceeding expectations. PEG is still the target of cost effectiveness.
We believe that CNOOC Property, as a real estate enterprise in the context of a central enterprise, has the characteristics of high performance certainty, low risk probability for parent companies, and high flexibility in Hong Kong stocks. It should be noted that CNOOC Property announced a related transaction on October 11. The higher transaction consideration caused its stock price to fluctuate greatly. However, considering that this fluctuation was mainly affected by market sentiment rather than major changes in company fundamentals, we believe that CNOOC Property is currently in the value range and has a cost-effective investment ratio.
Strong from within and outside, expanding fame
CNOOC Property is backed by China Construction, has strong shareholders, and reliable sources of capital. As the controlling shareholder of CNOOC Property Group Limited, China Overseas Group Co., Ltd. accounted for 61.18% of the total shares.
Related parties have strong support in terms of sales, land storage, and value structure. Zhonghai Real Estate's actual sales capacity is strong. From January to October '23, CNOOC ranked second in equity sales among Chinese real estate companies. In terms of land acquisition amount and equity added value, CNOOC ranked first in terms of land acquisition amount and equity value added from January to October '23. Judging from the price structure, Zhonghai Real Estate focuses on investment in first-tier and stronger second-tier cities. In 23H1, Zhonghai Real Estate accounted for 79.5% and 79% of the total new value of new land in first-tier and second-tier cities, respectively, in total land purchases and new goods value.
Property management goes hand in hand with value-added
Stable core of property management services: the number of projects under management by the company continues to grow, and the management area continues to increase. As of 23H1, the total management area of the company's properties was 363 million square meters, and the year-on-year growth rate of the management area was 13%.
According to Kerry's data, CNOOC Properties ranked first in the ranking of cumulative new contract area and cumulative expansion area from January to October '23, with high performance certainty.
Value-added services seek to surpass: Value-added services for non-households are the most important component of CNOOC Property Group's value-added services. Its revenue is increasing year by year, and the year-on-year growth rate is significantly positive. Household value-added services are the second largest sector of value-added services. Their business revenue has also increased dramatically year after year, and the share of the business has also increased year by year.
Convenient parking service: In order to improve customer satisfaction and convenience in various service scenarios, the Group greatly expanded the parking space trading business in '21, but after switching to stock business development in '22, the level of unilateral revenue was slightly reduced.
Financial analysis
The company's operating income continues to grow, and operating cost control is effective. As of 23H1, the company's revenue reached HK$7.163 billion, with a year-on-year growth rate of 23.2%, and the company's operating costs of HK$6.016 billion, an increase of 21.85% year-on-year, lower than the year-on-year revenue growth rate.
The gross margin reached an inflection point in 23H1, and the net profit performance of the mother was impressive. 23H1's gross margin reached 16%, slightly higher than 15.9% at the end of the year 22. At the same time, the company's expense ratio has declined steadily over the past four years. The overall net profit scale of the 61 property companies that disclosed their performance in mid-'23 increased by 0.53% compared to the same period in '22. Among them, CNOOC Property had the highest net profit growth rate among the top 10 real estate companies in revenue, reaching 50.04% (based on the historical exchange rate of RMB).
The company's share of short-term accounts receivable is increasing year by year, and the accounts receivable aging structure continues to be optimized. As at mid-'23, the total amount of accounts receivable was HK$2,933 billion, accounting for 85% of accounts receivable within one year.
Investment advice: We continue to be optimistic about the performance development of CNOOC Properties. We predict that the company will achieve operating income of HK$16.321/209.48/26.3 billion HK$26.3 billion in 2023-2025, a year-on-year increase of 28.6%/28.3%/25.5%; achieve net profit of HK$16.8/21.55/2,728 billion, an increase of 31.9%/28.3%/26.6% year on year; the expected EPS is HK$0.51/0.66/0.83 respectively, covering the “buy” rating for the first time.
Risk warning: The assumptions in the forecast are the risk of deviating from the actual situation, mergers and acquisitions integration falling short of expectations and the risk of impairment of goodwill, the risk that the expansion will fall short of expectations, the risk that the project will not be renewed, costs will continue to rise, and cost reduction and efficiency will fall short of anticipated risks.