Strong recovery in 1H17 results
Zhongan enjoyed a set of decent 1H17 results, revenue increasedby 68% yoy to Rmb3,172m, gross margin increased by 6.5ppt to21.2%. Booked sales in 1H17 amounted to Rmb3,152m with ASP ofRmb9,741/sm compared to booked sales of Rmb1,878m with ASPof Rmb9,187/sm in 1H16. Core net profit was up 15 times toRmb199m. No interim dividend was declared.
Zhongan achieved contracted sales of Rmb4,235m, which was up110% yoy. Zhongan has already achieved 61% of FY17 contractedsales target of Rmb7,000m, this suggests management has strongrecord execution ability. Management targets to achieveRmb10b/15b contracted sales for FY18/FY19, we believe thesetargets are highly achievable as Zhongan has close to Rmb75bsalable resources with land bank of 5.7msm GFA. We continue tolike Zhongan as its projects are concentrated on the Yangtze RiverDelta （Hangzhou, Hefei GAV accounted for 82%）， which offers thefastest population growth with 5yrs CAGR of 8.7% in Hefei, 5.5% inHangzhou, much higher than China metro average of 2.4%.
Target to expand through acquisitions
Property industry is undergoing consolidation as local developersbeen acquired by larger developers. Zhongan is also a consolidatorin the local property markets. It has acquired a 51% project in Yuyaofor Rmb25m with 0.11msm GFA, this project is available for sale in2H17. Zhongan plans to acquire 7 local projects in 2H17 with morethan 1msm gross GFA with ASP range of Rmb13k-15k, net marginsfor these projects should be higher than 10%. Acquisition projectscan be available for sale within 12 months, this would help tofacilitate asset turnovers. Furthermore, Zhongan’s net gearingdeclined to 29% in 1H17 from 50% in FY16. We believe Zhonganhas plenty of rooms to leverage up its balance sheet if suitableproject arrives.
Valuation attractive, maintain BUY with target price HK$3.77
We fine-tuned NAV and increase our target price for Zhongan fromHK$3.50 to HK$3.77, which is set at 55% discount to NAV ofHK$8.37, compared to current sector average NAV discount of43% discount.
Strong recovery in 1H17 results
Zhongan enjoyed a set of decent 1H17 results, revenue increasedby 68% yoy to Rmb3,172m, gross margin increased by 6.5ppt to21.2%. Booked sales in 1H17 amounted to Rmb3,152m with ASP ofRmb9,741/sm compared to booked sales of Rmb1,878m with ASPof Rmb9,187/sm in 1H16. Core net profit was up 15 times toRmb199m. No interim dividend was declared.
Zhongan achieved contracted sales of Rmb4,235m, which was up110% yoy. Zhongan has already achieved 61% of FY17 contractedsales target of Rmb7,000m, this suggests management has strongrecord execution ability. Management targets to achieveRmb10b/15b contracted sales for FY18/FY19, we believe thesetargets are highly achievable as Zhongan has close to Rmb75bsalable resources with land bank of 5.7msm GFA. We continue tolike Zhongan as its projects are concentrated on the Yangtze RiverDelta （Hangzhou, Hefei GAV accounted for 82%）， which offers thefastest population growth with 5yrs CAGR of 8.7% in Hefei, 5.5% inHangzhou, much higher than China metro average of 2.4%.
Target to expand through acquisitions
Property industry is undergoing consolidation as local developersbeen acquired by larger developers. Zhongan is also a consolidatorin the local property markets. It has acquired a 51% project in Yuyaofor Rmb25m with 0.11msm GFA, this project is available for sale in2H17. Zhongan plans to acquire 7 local projects in 2H17 with morethan 1msm gross GFA with ASP range of Rmb13k-15k, net marginsfor these projects should be higher than 10%. Acquisition projectscan be available for sale within 12 months, this would help tofacilitate asset turnovers. Furthermore, Zhongan’s net gearingdeclined to 29% in 1H17 from 50% in FY16. We believe Zhonganhas plenty of rooms to leverage up its balance sheet if suitableproject arrives.
Valuation attractive, maintain BUY with target price HK$3.77
We fine-tuned NAV and increase our target price for Zhongan fromHK$3.50 to HK$3.77, which is set at 55% discount to NAV ofHK$8.37, compared to current sector average NAV discount of43% discount.
