【Company Research】Times China (1233 HK) – Cautious 2020 target

• 30% core earnings growth in FY19. Revenue from property development increased by 27% to RMB39.1bn in FY19. Total revenue grew 23% to RMB42.4bn. Overall gross margin slightly decreased from 30.9% in FY18 to 29.3% in FY19. Although effective tax rate rose 42.3% in FY18 to 46.2% in FY19, net profit to shareholders was up 18% to RMB5.2bn. Core earnings was up 30% to RMB5.5bn. Final dividend was RMB1.64bn, representing 30% of core profit payout. Earnings is in line with our forecast of RMB5.2bn.

 

• Conservative sales target. In 2019, the Company achieved RMB78.4bn contracted sales with 5.35mn sq m GFA sold, up 29% and 43% YoY, respectively. However, ASP dropped by 10% from RMB16,232/sq m in FY18 to RMB14,655/sq m in FY19. We believe this is due to more projects outside Guangzhou/Foshan sold during period. Guangzhou/Foshan’s sales accounted for 56.6% in FY19 compared to 65.9% in FY18.  Due to the disease outbreak in beginning of 2020, sales of properties slowed down. The Company expects sales to recover from April and conservatively sets its sales target at RMB83.0bn, representing a 5.9% sales growth target. Saleable resources in FY20 amounted to RMB145.0-150.0bn.

 

• GBA focus and new footprint outsides. In FY19, the Company acquired 28 parcels of land with 7.57mn sq m (4.92mn sq m attri.) and expanded business to Wuhan, Hangzhou, Shantou, Heyuan and Shanwei. Furthermore, Times China has successfully converted 10 urban renewal projects with 3.68mn sq m GFA in FY19, of which eight projects with 3.49mn sq m GFA were included in the land bank. As end-FY19, total land bank amounted to 23.00mn sq m with RMB4,074/sq m average land cost (28% of FY19 ASP). Guangzhou/Foshan and GBA (excl. Guangzhou/Foshan) accounted for 31.5% and 34.1% of total land bank, respectively.

 

• Maintain TP and BUY rating.  We trim FY20/21 earnings forecast by 5.8%/1.1% to RMB6,169/7,148mn. We maintain our TP unchanged. The counter is currently trading at 4.0/3.4x FY20/21 P/E. We believe Times China is attractive among mid-to-small-size developers given its strong foothold in GBA and position in Guangzhou/Foshan urban redevelopment business. Maintain BUY.