Key points of investment
Incident: Recently, a related party to the company, Tianjin Zhaojiang Investment Co., Ltd. (Tianjin Songjiang holds 23% of shares), as the intended transferee, signed for delisting the company's construction group's Bac Waterfront Tianyuan project listed at the Tianjin Property Exchange Center on June 30, with a listing price of 725 million yuan. This related transaction has been approved by the company's board of directors and is still subject to approval by the shareholders' meeting. The transaction price is subject to the final delisting price.
Commentary:
Transfer projects, quickly return cash, and speed up investment recovery. Since the company went public backstage in 2009, capital market financing has been scarce, resulting in more interest-bearing debt and higher financial costs. In this context, the company achieved a rapid return of capital through the transfer of project shares and projects under construction, etc., to relieve the pressure on the company's operations. The transfer revenue of projects under construction in 2013 and 2014 was $290 million and $1.41 billion, respectively, accounting for 10% and 55% of revenue for that year, respectively. In 2016, the company accelerated the transfer of the project. At present, two transfer projects have been determined. In addition to the Tuanpo C Waterfront Tianyuan project to be transferred this time (listing price: 725 million yuan), there is also a Tianxiyuan project with a proposed listing price of not less than 180 million yuan. The transfer was reviewed by the board of directors on May 26. Based on the listing price, it is estimated that these two projects will contribute at least 900 million dollars in cash to the company. By the end of 2015, the company had 23 proposed projects under construction, with an equity construction area of nearly 2 million square meters, mostly located in Tianjin.
Zhuolang Technology helps development. Zhuolang Technology is strong and growing rapidly. In 2015, it achieved revenue of 580 million and profit of 70 million. Rapid growth is expected to continue in 2016. Premier Li Keqiang paid a special visit to Zhuolang Technology in Tianjin and praised the company.
The fixed increase is progressing in an orderly manner. The company's fixed increase plan was reviewed by the Securities Regulatory Commission on March 18, 2016. The scale was 2.7 billion yuan, and the issuance reserve price was 603 yuan per share. We believe that if this fixed increase is completed, the company's capital strength will be greatly strengthened, and the financial pressure will be effectively relieved.
Investment advice: The company relieves cash flow pressure and contributes to profits through the transfer of some projects. The company's subsidiary, Zhuolang Technology, has strong strength and will help the company continue to develop. Considering the approval of the additional issuance, it is estimated that the 2016-2017 EPS will be 0.11 and 0.31 yuan respectively, and the corresponding PE will be 59 and 21 times respectively, maintaining the “increase in holdings” rating.
Risk warning: Real estate sales have declined sharply.
