The major shareholder of Lujing resold 55% of the Baishizhou project to Lujing for 4.07 million yuan. Together with the 25 per cent bought from major shareholders for $10000 last year, the company now holds 80 per cent of the Baishizhou project. The Baishizhou project, located in Nanshan District of Shenzhen, is an urban renewal project with a total construction area of about 3.58 million square meters. after deducting the relocation part, it is estimated that the construction area can be sold about 150 square meters, with an average price of 120000 yuan per square meter in the surrounding property market. Based on the half-year performance data, we raised the NAV valuation to 39 billion yuan; the target valuation was adjusted from the NAV 30 per cent transfer rate to 20 per cent to reflect the significant reduction in uncertainty risk after the injection of the Baishizhou project, with a new target price of HK $4.00 per share, maintaining a "buy" rating.
Summary of the report
Inject the Baishizhou project at a low price. The major shareholder of Lujing resold 55% of the Baishizhou project to Lujing for 4.07 million yuan. Together with the 25 per cent bought from major shareholders for $10000 last year, the company now holds 80 per cent of the Baishizhou project. The Baishizhou project, located in Nanshan District of Shenzhen, is an urban renewal project with a total construction area of about 3.58 million square meters. after deducting the relocation part, it is estimated that the construction area can be sold about 150 square meters, with an average price of 120000 yuan per square meter in the surrounding property market. The project is divided into three phases, and the overall development cycle is expected to be 8-10 years. The first phase is expected to start pre-sale in 2022-23 to support the company's future sales and profitability.
The gross profit margin remained high in the first half of the year. Affected by cyclical fluctuations, the carry-over of Lujing declined in the first half of the year compared with the same period last year, and its income decreased by 28% to 2.46 billion yuan compared with the same period last year. However, thanks to the advantages of the old reform, the cost of acquiring land is relatively low, and the gross profit margin remains high. The gross profit margin in the first half of the year is about 65%. Excluding non-core items such as changes in the fair value of investment properties and the fair value of convertible bond derivatives, we estimate that the company's core net profit is about 260 million yuan and the core net interest rate is about 10.6%.
Soil reserves are relatively abundant. As of June 2020, the total construction area of the Lujing Land Reserve is about 1450 square meters (including the Baishizhou project). After deducting the part sold, the estimated value of the goods is about 400 billion yuan, 80% of which is in the Greater Bay area. Projects available for short-term development and sales include Mangrove Bay No. 1, Shenzhen Beauty Project, Zhuhai Joy Vera and Huazhou International Flower City, with a sales value of about 16 billion yuan, supporting the company's sales from the second half of 2020 to 2022. the main salable resources before the sale of the Baishizhou project.
Maintain a "buy" rating. The development of the company has always been "residential + commercial", two-wheel drive. With the deepening of urbanization, the property value of the core area of the core city will continue to rise, and the company will strategically retain the main commercial part for self-investment. As of June 2020, the total construction area of the commercial project is about 680,000 square meters, the operation is more than 500000 square meters, and the rental income in the first half of the year is about 320 million yuan. With the opening of the Hong Kong commercial project Green View NEO, the structure of investment properties will be further optimized to bring stable cash flow for the future. Based on the half-year performance data, we raised the NAV valuation to 39 billion yuan; the target valuation was adjusted to 20 per cent from the NAV rate of 30 per cent, reflecting a significant reduction in uncertainty risk after the injection of the Baishizhou project, with a new target price of HK $4.00 per share, maintaining a "buy" rating.
Risk tips: real estate regulation and control policies, economic downturn on sales pressure.