We initiate Redsun with BUY rating. We estimate its end-20 NAV to be HK$5.61 per share. Given a 40% discount rate, our Target Price is HK$3.37. We believe the robust contracted sales, brand name shopping malls and a strong management team will become stock catalysts in the future.
- A Yangtze River Delta player. Founded in Nanjing in 1999, Redsun is engaged in the property development and operation of commercial properties businesses. Now the Company penetrates properties market in 39 mainland cities. It has penetrated in the leading cities in Jiangsu where accounted for 67% of the land bank as at Jun 2019.
- More than 40% contracted sales growth. In 10M19, contracted sales amount and area soared by 42.8% to RMB49.5bn and 44.6% to 3.73mn sq m, respectively. By end of Oct 2019, Redsun achieved 83% hit rate based on RMB60bn sales target of 2019. We believe it can achieve full year sales target. Based on the newly acquired lands, we project sales target to be RMB80bn in 2020.
- Total land bank of 15.69mn sq m. In 1H19, Redsun acquired 35 parcels of land in 20 cities (11 were new markets) with planned GFA of 4.07mn sq m. As at Jun 2019, Redsun had invested in 134 property projects. Total land bank amounted to 15.69mn sq m while attributable land bank was 8.16mn sq m. Average land cost is estimated to be RMB5,005 per sq m.
- Export “Hong Yang Plaza” brand. Redsun owns and operates commercial properties for long-term investment purposes. Its major investment properties include Nanjing Hong Yang Plaza and Changzhou Hong Yang Plaza. Besides self-owned commercial properties, it adopts asset-light business model. Looking forwards, there will be 12 asset-light Hong Yang Plaza openings, of which five will commence operation in 2H19 and another four in 2020.
- Forecast core profit to grow at a 28.5% CAGR from 2018 to 2021. Net gearing ratio is at comfortable level and we forecast net gearing ratio to be 68% at end-19. We forecast revenue to grow by a CAGR of 41.3% from RMB9.2bn in 2018 to RMB26.1bn in 2021. We forecast gross margin to retreat from 31.2% in 2018 to 25.5% in 2021. As a result, we estimate core profit to be RMB1.43bn, RMB1.97bn and RMB2.58bn in 2019-21, respectively.
