Introduction to this report:
The company took the Gaogaoqiao Free Trade Zone as a starting point, and used the construction of the Shanghai Free Trade Zone as an opportunity. Through deep cultivation in the Waigaoqiao region, it has obtained large-scale property assets with stable rents and high dividends, and has become a high-quality target for scarce assets.
Key points of investment:
Covered for the first time, an increase in holdings rating is given. The company is the main developer and operator of the Shanghai Free Trade Zone. Based on location advantages, the company relies on parks represented by Waigaoqiao Free Trade Zone and Waigaoqiao Port Comprehensive Free Trade Zone, and is mainly engaged in park property operation, trade and professional services, and urban renewal business. Taking into account the company's business development trends and the current state of the industry, the company's EPS is expected to be 0.88 yuan, 0.90 yuan, and 0.97 yuan from 2024 to 2026, with growth rates of 7.9%, 2.5%, and 7.2%, and the target price is 11.83 yuan, increasing its holdings.
The company holds 4.7 million square meters of high-quality rental property assets, bringing in rental revenue of 1.78 billion yuan in 2023, and there is still room for flexible revenue growth of 37% to 79% in the future. 85% of the company's leasable assets are industrial properties and 15% are commercial properties. The customer base is widely distributed in the “three bases and four” core industries, and the vacancy rate is only 8%. Looking forward to the future, with the continuous investment in incremental space, the orderly renovation of stock space, in line with the improvement of operation management, investment promotion capabilities, and improvements in the macroeconomic environment, etc., rental revenue is expected to be driven by both area expansion and increased revenue generation capacity per unit area. According to estimates, if the unit rent fluctuates ± 10% from the 2023 level and the vacancy rate fluctuates ± 3% from the 2023 level, there is still room for potential growth of 37% to 79% in rental income.
Innovation in multiple financing channels is being carried out simultaneously, and the high capital requirements under the asset-heavy model can be met through lower cost capital, which can support scale expansion while reducing the balance ratio and financing costs. The company has asset-heavy investment characteristics and high capital requirements. In the past, it used bank loans, debt financing, and operating capital as the main sources, and is currently experimenting with innovative financing channels such as additional issuance of A shares, issuance of warehousing and logistics REITs, increased direct financing ratios, and disposal of non-core assets.
Under the asset shortage pattern, the company has a steady increase in rental revenue. In line with the characteristics of high dividends, it is the preferred target in the context of declining market risk appetite, and will usher in a revaluation. Asset shortage does not mean that there are no assets in the real sense; rather, there is a mismatch between the risk appetite of assets and the risk-return of assets, resulting in a situation where some funds cannot match assets. Since 2022, the overall growth rate of M2 at the macro level has been greater than the growth rate of social finance. Financing channels for housing enterprises at the industry level have not been significantly improved and the downsizing has continued, and the pattern of asset shortage is particularly prominent. In addition to the steady and positive rental revenue mentioned above, the company proposed increasing the cash dividend ratio from 2023 to 2025 to more than 50%. The characteristics of high dividends further catalyze the company's value discovery in an asset shortage pattern.
Risk warning: The weakening of international trade activities affects the development of trade services business; the recovery in demand in the real estate market falls short of the expected pressure on the company's residential sales; the results of innovative financing channels such as fixed issuance of A-shares and issuance of REITs fall short of expectations