Core views
Guangzhou Asset plans to use no more than 556.5 million yuan of its own capital to buy Yuexiu Real Estate's Hong Kong shares in the secondary market through Hong Kong Stock Connect. The period of purchase is 12 months, and the cumulative purchase of shares shall not exceed 2% of Yuexiu Real Estate's total share capital. Yuexiu Real Estate is a company controlled by Yuexiu Group with Guangzhou assets. This investment can enhance synergy within the group, jointly explore the “bad+real estate” business layout, and fully explore market opportunities in the real estate industry. In May 2024, the company achieved full-caliber sales of 10 billion yuan, a year-on-year decrease of 18.9% and a year-on-month increase of 20.7%. Thanks to the May series of policies, the company's marginal sales improved significantly. By the end of 2023, the company had 9.8 million **** meters of land reserves in Guangzhou, accounting for 38.2%. Since 2024, favorable policies in Guangzhou have been frequent, and the company's sales are expected to benefit from the recovery of the Guangzhou market.
occurrences
Guangzhou Assets plans to use no more than 556.5 million yuan of its own capital to purchase Yuexiu Real Estate's Hong Kong shares in the secondary market through Hong Kong Stock Connect. The period of purchase is 12 months, and the cumulative purchase of shares will not exceed 2% of Yuexiu Real Estate's total share capital.
Brief review
Guangzhou Assets increased their holdings of Yuexiu Real Estate through the secondary market and jointly explored the “bad+real estate” business layout. Guangzhou Asset plans to use no more than 556.5 million yuan of its own capital to buy Yuexiu Real Estate's Hong Kong shares in the secondary market through Hong Kong Stock Connect. The period of purchase is 12 months, and the cumulative purchase of shares will not exceed 2% of Yuexiu Real Estate's total share capital. Guangzhou Asset is the first fully licensed local asset management company in Guangdong Province. Its main business is managing non-performing assets, and is deeply involved in the Greater Bay Area to mitigate local financial risks. Yuexiu Real Estate is a company controlled by Yuexiu Group with Guangzhou assets. This investment can enhance synergy within the group, jointly explore the “bad+real estate” business layout, and fully explore market opportunities in the real estate industry.
Sales margins have improved markedly, and land acquisition has been actively used to supplement soil storage. According to Kerry's statistics, in May 2024, the company achieved full-caliber sales of 10 billion yuan, a year-on-year decrease of 18.9% and a year-on-month increase of 20.7%. Thanks to the May series of policies, the company's sales margins improved significantly. From January to May 2024, the company achieved full-caliber sales of 40 billion yuan, a year-on-year decrease of 42.4%. During the same period, the sales volume of the top 100 real estate companies fell 46.0% year on year, and the company's sales situation was superior to the general trend. According to Kerry statistics, from January to May 2024, the company acquired 9.66 billion yuan of land, with an additional value of 21.8 billion yuan. The land acquisition intensity was 24.1%. The company actively acquired land to supplement soil storage.
Guangzhou's policies are frequent, and sales are expected to recover. In January 2024, Guangzhou lifted purchase restrictions for homes over 120 **** meters. Since then, supportive policies have continued to be introduced, including lifting sales restrictions, lowering the down payment ratio for the first and second units to 15% and 25%, and abolishing the lower interest rate limits. In the first 5 months of this year, Guangzhou's sales volume was 2.28 million **** meters, down 37.2% year on year; in May, new housing transactions were 560,000 **** meters, down 28.7% year on year; in the first 4 months of this year, second-hand housing transactions were 4.04 million **** meters, down 23.4% year on year; in April, second-hand housing transactions were 1.16 million **** meters, down 5.7% year on year. As policies continue to be introduced, sales in Guangzhou are expected to recover. By the end of 2023, the company had 9.8 million **** meters of land reserves in Guangzhou, accounting for 38.2%. The company's sales are expected to benefit from the recovery of the Guangzhou market.
Keep the purchase rating and target price of HK$13.84 unchanged. We forecast that the company's core EPS will be $0.90/0.95/1.02 in 2024-2026, keeping the purchase rating and target price of HK$13.84 unchanged.
Risk warning: 1) In terms of performance, due to the downturn in the market, the pressure to depreciate inventory has increased, which is likely to continue to be reflected in performance. 2) In terms of operation, the sustainability of the current market recovery has yet to be tested. The company has always maintained a high level of land acquisition intensity. If the market declines again, the expected price at the time of land acquisition may not be achieved, which will further affect subsequent performance and put pressure on cash flow. 3) The nationwide expansion of the company's TOD model may be blocked by high competitive barriers in local markets, and the current slowdown in subway construction in some cities may have a certain impact on the company's project expansion. 4) After the company's share offering is completed, the total share capital will increase, and EPS will be diluted in the short term.