CR Land announced that management was reshuffled in Dec 2019. We believe the change does not have negative impact to the Company. Its contracted sales increased by 15% to RMB242.5bn in 2019. So it was ranked as the 10th largest property company in China. After 10mn sq m newly acquired lands in 2H19, we raise our NAV estimate to HK$61.01. Then, we raise target price from HK$36.02 to HK$42.15. Upside potential is 16.0%. Recommendation is changed to BUY.
- Top management changed. The Company announced that Tang Yong resigned as the Chairman of the Board and Wang Xiangming was appointed as Chairman of the Board in Dec 2019. Mr Tang would act as the President of CR Power (836 HK, NR). On the other hand, Mr. Wang joined CR (Holdings) in 2019. Prior to that, he was general manager of China State Construction Engineering Corp. So we believe the departure of Mr Tang is an internal arrangement. We do not have any concern about this.
- Contracted sales increased 15% in 2019. Contracted sales amount and area gained by 15.1% to RMB242.5bn and 10.5% to 13.25mn sq m in 2019, respectively. Contracted ASP gained by 4.2% to RMB18,304/sq m in 2019. Sales in East China and North China represented about 30% and 22% of contracted sales in 2019. According to CRIC, CR Land was ranked as the top 10 developer based on contracted sales in 2019. We forecast its contracted sales growth will slow to 13.4% in 2020 due to the scale.
- Sustainable rental income growth in 2019. The Company also announced that its rental income grew by 29.7% to RMB12.4bn in 2019. Now, it operates 32 shopping malls with 10.2mn sq m of leasable GFA. In 2020, Xian Mixc One, Nanning Wuxiang Mixc One and Chengdu Mixc Phase II will open and these bring about 0.26mn sq m of leasable GFA to the Company. We forecast rental income will grow at 24.0% to RMB15.3bn in 2020. Furthermore, the Company plans to spin off its property management business that will become a short-term catalyst.
- Upgrade to BUY. Since the better than expected rental growth, we raise our earnings forecasts by 2.2%, 3.3% and 3.9% in 2019-21E. CR Land has strengthened its capital after HK$6.7bn share placement. It bought 43 plots of land with total GFA of 10.03mn sq m in 2H19. We raise end-20 NAV estimate to HK$61.01 due to new land acquisitions. As a result, we raise TP from HK$36.02 to HK$42.15, representing a 30% discount to NAV. As a result, recommendation is upgraded to BUY.
