Shimao has rich war chest to face future challenges after HK$4.6bn shares placement in Jan 2020. However, we trim our revenue forecast to reflect the recent outbreak. In addition, we also cut GM assumption and raise admin expense forecast. As a result, we reduce earnings forecast by 8.7%, 7.2% and 4.6% in 2019-21, respectively. We raise our end-20 NAV forecast from HK$40.92 to HK$45.06. TP is revised upward to HK$31.55. Upgrade to BUY.
- HK$4.6bn shares placement. Shimao underwent a top-up shares placement in Jan 2020. Through shares placement, 158mn new shares (representing 4.57% of enlarged capital) were issued at HK$29.58 per share. Net proceeds of HK$4.64bn would strengthen the financial position and help future M&A.
- 22% sales drop in 2M20. In 2019 contracted sales amount and area increased by 48% to RMB260.1bn and 37% to 14.66mn sq m, respectively. The rosy results was attributable to the aggressive M&A so that saleable resources expanded substantially. However, sales momentum was deteriorated by COVID-19 in Jan and Feb 2020. Contracted sales amount and area dropped by 22% to RMB16.7bn and 23% to 0.96mn sq m in 2M20, respectively. Generally speaking, 1Q is the non-peak season. Shimao would launch around 15% of saleable resources in 1Q every year. If epidemic ends in Mar, impact to property sales would be limited.
- Less than 5% of landbank in Hubei. Shimao is a national property developer. As at Jun 2019, total land bank amounted to 64.07mn sq m that spread over 301 projects in 101 cities. Management revealed that land bank in Hubei accounted for less than 5% of total land bank and that in Wuhan only accounted for 1/3 of that in Hubei. Current situation in Wuhan or Hubei does not impose huge impact on the Company.
- Upgrade to BUY. After the shares placement, we believe Shimao has a healthy balance sheet to face coming challenges. However, revenue, especially in rental and hotel, will be adversely affected by COVID-19 outbreak. We trim our revenue forecast by 1.4% in 2020 and 1.7% in 2021. In addition, we cut GM assumption and raise admin expense forecast. As a result, we reduce earnings forecast by 8.7%, 7.2% and 4.6% in 2019-21, respectively. We raise our end-20 NAV forecast from HK$40.92 to HK$45.06. TP is revised upward to HK$31.55. Recommendation is changed to BUY.
