We cut earnings forecast by 10.6%, 4.4% and 4.9% in 2019-21 respectively due to market’s prudent attitudes and slower sales growth. We raise our end-20 NAV estimate from HK$29.19 to HK$32.58 mainly due to surge of value for A-Living (3319 HK, BUY). As a result, we raise TP from HK$16.05 to HK$16.29. Maintain BUY.
- Cut 2019 earnings forecast by 10.6%. Agile reported net profit of RMB5.08bn in 1H19, mainly contributed by RMB5.2bn of other operating income in the period. We expect the Company would make more provision in 2H19 to reflect the recent difficult operating environment. As a result, we trim 10.6% earnings forecast to RMB8.81bn in 2019. Meanwhile, we also cut our earnings forecast by 4.4% to RMB8.81bn in 2020 and 4.9% to RMB10.5bn in 2021 to reflect the slower sales growth assumption.
- Forecast mid-single digit in contracted sales growth in 2020. In 2019, contracted sales amount and area soared by 15.0% to RMB118bn and 11.7% to 8.91mn sq m in 2019, respectively. Due to the impact from COVID-19, contracted sales tumbled by 39.9% to RMB8.0bn in 2M20. Although we believe Agile will catch up sales job for the rest of the year, we forecast full year contracted sales will grow by 8% to around RMB128bn in 2020.
- Spin-off plan for construction business. According to media reports, Agile plans to spin off “Agile City” to list on HKEx this year. Preliminary plan is to raise about US$300-500mn. Agile City is engaged in the construction business that spread across 300 projects in 78 cities as at Jun 2019. Revenue of Agile City amounted to RMB8bn in 1H19. Its major businesses include (i) engineering, procurement and construction, (ii) landscaping and (iii) home decoration.
- Sound results of A-Living. Agile span off A-Living to list on HKEx. Currently, valuation of A-Living, including domestic shares, totaled HK$44.3bn. Agile owned 720mn domestic shares of A-Living that are worth HK$23.9bn or 58.0% of Agile’s market cap of HK$41.2bn.
- Successful spin-off enhances value. Agile has a sound track record of being incubator. Besides the construction business, it will spin off environment business and real estate construction management in coming years. We revise up end-20 NAV forecast to HK$32.58. As a result, we raise TP from HK$16.05 to HK$16.29, based on 50% discount to NAV.
