Logan achieved 59% core earnings growth in 1H19 to RMB4.67bn. In 7M19, the Company achieved RMB54.6bn contracted sales, up 25% YoY, completing 64% of RMB85.0bn sales target. We maintain our TP unchanged at HK$13.10. Upgrade to BUY.
- 59% core earnings growth in 1H19. In 1H19, Logan achieved 78.3% growth of revenue to RMB27.0bn. Logan has accumulated strong urban redevelopment pipeline which is ready to realize income. During the period Logan recorded RMB4.9bn primary land development income, which amounted to more than 10% of total revenue. Supported by the high margin of primary land development (around 50% GPM), overall gross margin was 34.8%, higher than those in FY17/18 (34.4%/33.7%). Core net profit was up 59% to RMB4.67bn, representing core net margin of 17.3%.
- 64% hit rate in 7M19. In 1H19, the Company achieved RMB45.3bn contracted sales with 3.39mn sq m GFA sold, up 27.7% and 85.9%, respectively. Due to more Nanning projects and less Shenzhen sold during the period, overall ASP was RMB13,186/sq m, lower than those in FY18/19 (RMB17,096/16,008/sq m). In fact, according to the management, local ASP was stable. Saleable resources of FY19 amounted to RMB150.0bn. In 7M19, Logan realized contracted sales of RMB54.6bn, completing 64% of annual sales target of RMB85.0bn. We believe Logan is likely to complete its FY19 sales target. Furthermore, pre-sold but unbooked properties amounted to more than RMB70.0bn.
- Urban redevelopment plays a more important role now. As of 1H19, Logan held a total land bank of 35.9mn sq m, with estimated RMB427.0bn saleable amount. Land bank in GBA reached 21.7mn sq m (70% of total land bank) with estimated RMB21.7bn saleable amount (61% of saleable amount). Furthermore, Logan had 18.8mn sq.m M&A/urban redevelopment projects in the pipeline, whose saleable resources amounted to RMB325.0bn. With strong local advantage and solid execution, the management plans to convert no less than saleable value RMB30.0bn from urban renewal business each year and contribute 10%-20% of core profit annually in the future.
- Maintain TP, upgrade to BUY. We revise up FY19/20 earnings forecast by 7.3%/1.1% to RMB10,516/11,817mn. Logan is a Shenzhen-theme player. It benefits from the new positon of Shenzhen as a “pilot city” to showcase the virtues and achievements of China’s political and economic systems – with the aim of eventually becoming a world-class city. Current valuation is undemanding with 5.4x/4.8x FY19/20 P/E and 6.3%/7.0% FY19/20 yield. We maintain our TP of HK$10, which is equivalent to 50% discount to NAV of HK$26.20. Upgrade to BUY.
