Main points of investment
Sales are growing rapidly and profits are expected. The sales of Jindi Merchants have been growing rapidly in recent years, and the rise in volume and price has pushed sales to record highs. In 2017, the company's sales reached 45.28 billion yuan, an increase of 124.69% over the same period last year, with a compound growth rate of 101% in the past two years. The core reason is that the company's land reserve layout is forward-looking, and the fundamentals of the company's key layout of first-and second-tier cities have risen sharply since 2015. The company's products are located in the first home and the first modified products, with significant brand advantages and rapid sales growth.
Looking ahead to take the land, the land reserve is abundant and the cost is low. The total amount of land reserve of the company is rich and increasing rapidly. By the end of 2017, the cumulative construction area of the company's domestic land reserve reached 1388.2 million square meters, an increase of 29% over the same period last year. The company's land reserves are mostly concentrated in first-and second-tier cities, and the proportion of land storage and construction in first-and second-tier cities is 22.6% and 68.5% respectively; the company lays out core cities ahead of time, and the average price of land reserve rights and interests in the country is only 5521 yuan per square meter. This is mainly due to the company's forward-looking and diversified way of acquiring land, mainly through open market bidding, collection and merger to obtain high-quality and cheap land.
The holding property is located in the core location and the rent is considerable. The investment property held by the company is located in the core area of the core city, and the rental rate is high to increase the rental scale of the company. The first and second phases of Weixin Software Science and Technology Park in Shenzhen and the Sohu.com Ltd Network Building in Beijing currently have an occupancy rate of 100%. In the future, rental income is expected to further increase after the operation of the company's nearly one million industrial parks in Shenzhen and Shanghai, including the third phase of Shenzhen Weixin Science and Technology Park.
The management team is experienced and the equity incentive system is complete. The four executive directors of the company, Mr. Ling Ke, Mr. Huang Juncan, Mr. Xu Jiajun and Mr. Wei Chuanjun, all come from Jindi Group. They have long experience in the real estate industry and rich experience in real estate development, operation and management in China. Since 2013, the company has encouraged the management through equity incentives, and the effect is strong. A total of 1.114 billion share options were granted under the three equity incentive schemes, of which four executive directors were granted 542 million share options.
Investment suggestion: Jindi merchants look forward to buying and taking land, focusing on the layout of the core first-and second-tier cities, with abundant land reserves and low costs. at present, the scale of land reserves is close to 1400 million square meters. The company's sales are growing rapidly, with a compound growth rate of 101% in the past two years. At the same time, the company also holds a large number of high-quality properties in the core cities, as well as a large number of properties under construction, and rental income will continue to rise in the future. We expect the company's EPS to be RMB0.10,0.18,0.25,9.0,5.3,3.8 times for 2017-2019, respectively, with a "buy" rating for the first time, with a target price of HK $1.50.
Risk tips: a sharp decline in the scale of industry sales; a sharp rise in mortgage interest rates; a sharp tightening of real estate policy; a sharp rise in the cost of capital for real estate enterprises; and greater volatility in Hong Kong stocks.