February contracted sales stronger than expected

CCRE reported a stronger-than-expected set of contracted sales numbers in February, despite Chinese New Year is traditionally deemed as a low season of property sales (only 17 working days fall in February this year) and no new project was launched during the month. Supported by its diversified on-sale projects (35 projects spreading across tier-2/3/4 cities) in Henan Province, CCRE's February contracted-sales amounted to Rmb451mn, up 59.4% YoY (Feb-2012: Rmb283mn). This is on the back of a 76.2% YoY growth in GFA sold to 70,099sqm (Feb-2012: 39,791sqm). During the month, ASP achieved was Rmb6,432psm, down 9.4% YoY (Feb 2012: Rmb7,103psm) due to changes in product mix.

During the first 2 months of 2013, CCRE's aggregated contracted sales amounted to Rmb2.13bn (2M2012: Rmb1.44bn), up 47.3% YoY, and have already achieved over 16% of our 2013E total contracted sales of Rmb13bn. This is well-supported by a 89.3% YoY growth in aggregated contracted GFA sold to 306,238sqm (2M2012: 161,810sqm). During the period, ASP was reported at Rmb6,938psm, 5.9% YoY above FY12's average (Rmb6,549psm).

Solid financial position supporting NAV-accretive acquisitions

With strong contracted sales recorded in 2012 (Rmb10.35bn) and a solid balance sheet (2012E net gearing below 40% based on our estimation), CCRE has ample financial resources to further expand its coverage in the Henan Province at attractive costs, which will be NAV-accretive and support the company's medium-term growth. Since beginning of 2013, CCRE has already announced 5 project acquisitions in Henan Province (3 in Zhengzhou, 1 in Yuzhou and 1 in Shangqiu), with total consideration of Rmb1bn (attributable: Rmb668mn) and total GFA of 1.056msqm (attributable: 722ksqm). A new project acquisition cost remains low at only Rmb961psm. According to CCRE, the latest new project acquisition just announced yesterday (at the CBD of Shangqiu city) will have a total, expected GFA of 253,736sqm. CCRE expects the mixed-use project will commence construction in 2H13 and will be completing by end-2015.

Recent share price pullback presents buying opportunities

CCRE is now trading at a 63% NAV discount, 3.6x 13E P/E and 0.8x 13E P/B – attractive, in our view. With a strong start in contracted sales performance in 2013, we expect CCRE continues its strong sales execution and asset turnover in 2013. As the current financing environment continues to benefit private/small-cap developers, we expect to see further narrowing of the stock’s NAV and P/B discounts. Our TP of HK$4.20 is based on a 40% NAV discount. Key risks include unexpected economic volatility and government tightening.