Summary. Revenue and core earnings grew by 4.7% to RMB45.8bn and 11.3% to RMB8.11bn in 1H19, respectively. Total land bank amounted to 67.37mn sq m, which is sufficient for the Company’s next five years’ development. We raise TP from HK$33.18 to HK$34.81, based on 30% discount to NAV. Maintain HOLD recommendation.
- Net profit grew by 43.6% to RMB12.7bn in 1H19. Due to decline of properties booked in Shenzhen, recognized ASP tumbled by 21.5% that slowed down revenue growth of property development to 0.3% in 1H19. On the other hand, rental income soared by 34.9% to RMB5.0bn in the period because of the contribution of newly opened shopping malls. Gross margin narrowed to 38.2% in 1H19 from 48.1% in 1H18. Given RMB6.3bn revaluation gain in investment properties (IP) recorded in 1H19 (vs. RMB2.0bn in 1H18), bottom line jumped 43.6% to RMB12.7bn while core earnings gained 11.3% to RMB8.11bn in 1H19.
- Contracted sales increased 26% in 1H19. Contracted sales amount and area gained by 26.0% to RMB118.8bn and 9.6% to 6.26mn sq m in 1H19, respectively. Including RMB12.7bn sales in Jul, the Company achieved 54.3% hit rate by Jul based on RMB242bn sales target. As of Jun 2019, CR Land locked up revenue from property development of RMB273.3bn, of which RMB116.9bn was recognized in 2019. Earnings visibility is high in 2019 and 2020.
- 83 shopping malls will operate after 2021. As at Jun 2019, 35 shopping malls were in operation. Rental income from shopping malls surged by 39% to RMB4.29bn in 1H19. In 2H19, six new shopping malls will open. It is estimated that there will be 53 shopping malls in operation by end-2021 and another 30 malls will operate after 2021. Strong pipeline of IP will be the major growth engine.
- Total land bank of 67.37mn sq m. CR Land acquired 39 plots of land with 10.21 mn sq m total GFA in 1H19. As of Jun 2019, the Company had the footprint in 75 cities worldwide. Total and attributable land bank amounted to 67.37mn sq m and 50.56mn sq m as at Jun 2019, respectively.
- Maintain HOLD. Net gearing increased from 34.9% as at Dec 2018 to 43.6% as at Jun 2019 but was at safe level. Cost of debt stayed at low level of 4.45% in 1H19. We raise our earnings forecast by 18.1% to RMB27.8bn in 2019 but trim 6.3% to RMB26.9bn in 2020. We estimate end-20 NAV to be HK$49.73 per share. As a result, we raise TP from HK$33.18 to HK$34.81, representing a 30% discount to NAV.
