Summary of the report
Company overview
Dafa Real Estate is a real estate developer rooted in the Yangtze River Delta region, focusing on residential property project development and sales. As of June 2018, the company has a total land storage area of 2.24 million square meters, we estimate that the total value of the company is about 30 billion yuan (the same below), of which Shanghai land storage is about 1.4 million square meters, with an estimated value of about 6 billion yuan. In addition, Wenzhou, Zhejiang and Anqing, Anhui are also important development cities of the company, with land storage areas of about 400000 square meters and 60 square meters respectively, with an estimated value of about 6 billion yuan and 5 billion yuan respectively. The value of goods in the three cities accounts for about 60% of the total land storage.
According to public data from the China Index Research Institute, the company ranked 136th and 134th with contract sales of about 11 billion yuan and 5.6 billion yuan in 2017 and the first half of 2018 respectively. Among the developers listed in Hong Kong, the company is a small and medium-sized developer.
Total revenue rose from about $700 million to about $4.6 billion in fiscal year 2015-17 at a compound annual growth rate of 158%, and revenue in the first April of 2018 was about $900 million. Gross margins were about 16 per cent, 17 per cent and 14 per cent respectively in the 2015-17 fiscal year and about 30 per cent in the first four months of 2018. Affected by the delivery of a single project, income and gross profit margin fluctuate greatly, which is a common phenomenon among small and medium-sized developers. As of April 2018, the net leverage ratio was about 235 per cent. Assuming the lower limit of IPO pricing, the net leverage ratio after the completion of the global offering was about 150 per cent.
Industry status and prospects
The company takes the Yangtze River Delta as the development base, and the Yangtze River Delta economic circle headed by Shanghai has always been one of the national key areas, driven by factors such as accelerated urbanization and growing disposable income. It is expected that the demand for residential and retail properties will continue to rise steadily.
In the first half of the year, the total sales area of the top 100 commercial housing sales in the country is about 350 million square meters, while sales are about 4.6 trillion yuan, accounting for 45% and 69% of the total market respectively, up sharply from 33% and 57% in the same period in 2017. the industry consolidation is expected to continue, and the company's share is expected to increase under the industry integration.
Advantages and opportunities
Dafa Real Estate has taken root and ploughed the Yangtze River Delta in Shanghai and other places, benefiting from the strong economic growth in the region.
The company has professional and experienced core management, with an average of 10 to 15 years of experience in real estate and related industries.
Weakness and risk
The company's land reserves are concentrated in third-and fourth-tier cities, and the prices and sales fluctuate greatly.
The net leverage ratio as of April 2018 is about 235%. Assuming the lower price limit, it is estimated that the net leverage ratio after the completion of the global offering will drop to 150%, but it is still higher than the 88% of the industry, and there is a lot of pressure in the case of tight capital chain.
Investment valuation
Although the company has professional and experienced core management, and the deep cultivation of the Yangtze River Delta region benefits from the strong economic growth in the region, in terms of sales scale, the company is a small and medium-sized developer and is more difficult than other large developers in financing in the future. The earnings of small and medium-sized developers are also more volatile. Valued at net asset value, IPO is priced at about twice the static price-to-book ratio, slightly higher than its peers, giving IPO a dedicated rating of "4".