We met with President, Mo Bin, and other senior management last week and studied the latest development of Country Garden’s robotic business. The Company continues to develop property business in the third/fourth tier cities. Due to the advantages in cost, product and service, it can capture market share in these cities. Secondly, robotic business is under development. The Company had invested RMB3bn since Jul 2018 and expects it can save RMB10bn every year in construction CAPEX. Reiterate BUY. TP is maintained as HK$15.2, which is equivalent to 45% discount to end-20 NAV of HK$27.64.
- Steadily 10% per annum sales growth next three years. Attributable contracted sales gained by 5.2% to RMB480bn in 10M19. Country Garden (CG) believes its sales pace will accelerate for the rest of the year because of the low bases in Nov/Dec 2018 (RMB33.8bn in Nov 2018 and RMB12.1bn in Dec 2018). Although property market in the third/fourth tier cities is polarized, CG is confident to gain market share there due to the advantages in cost, product and service. President Mo also revealed his 10% sales growth target rate next three years.
- No full scale price cut. There are around 2,000 projects for sales now. Recently, ASP has around 5% volatility due to competition. Some price adjustments are affected by district and product structure. But gross margin is estimated to maintain at around 22-24%. Furthermore, inventories for sales are kept as 3-4x of monthly sales.
- To strengthen financial management. CG would strengthen its SG&A budget management. SG&A expenses is set as 8% of revenue. CFO expressed the importance of cash flow management. She will set monthly sales and quarterly cash collection as financial management benchmark next year. Cash collection is estimated to be 90% till year end.
- Robotic business harvests next year. CG founded robotic business (Bright Dream Robotics) in Jul 2018. Total investment in robotic business has amounted to RMB3bn. It develops a technology platform based on artificial intelligence and an integrated automation eco-system across the value chain. These robots can be used in construction, catering, property management, healthcare, agriculture, smart home and manufacturing. R&D staff totaled 3,000 and 1,200 patents are applied, of which 200 were granted. Management of Bright Dream Robotics revealed that operation of robotic management will be fruitful next year and about RMB10bn construction expenses can be saved each year if full scale of robots are used in the construction.
