【Company Research】China Aoyuan (3883 HK) – Ambitious LT goal with cautious FY20 target

• 60% core earnings growth in FY19. Aoyuan achieved 78% and 100% contracted sales growth in FY17 and FY18, respectively. Driven by previous fast-growing contracted sales which was gradually recognized in FY19, revenue from property development grew 62% to RMB48.1bn. Gross margin slightly declined 1.4ppt YoY to 29.7%. Core net profit was up 60% to RMB4,122mn, in line with growth of topline and representing core net margin of 8.2%. The core earnings is in line with our forecast of RMB4,134mn.

 

• 12% sales growth target. In FY19, the Company achieved RMB118.1bn contracted sales with 11.69mn sq m GFA sold, up 29% and 32%, respectively. This represented ASP of RMB10,104/sq m. Aoyuan announced the FY20 sales target is 12% growth from FY19 sales, which is approx. RMB132.0bn. Saleable resources amounted to RMB220.0bn, indicating sell-through target would be 60%. By end-FY19, unbooked revenue amounted to RMB170.5bn, which will be gradually recognized in the next two years. Gross margin of unbooked revenue is at 26-28%. 12% growth is a cautious target given the disease outbreak in 1Q20 which adversely affects the sales. In 2M20, sales drop 37% YoY to RMB7.0bn. But 1Q sales normally accounts for 15% of full year sales. Sales, in our view, may pick up in 2Q if the situation continues to improve. Although FY20 target is not thrilling, Aoyuan is still ambitious to accelerate the growth in FY21/22 and to achieve RMB200.0bn sales by FY22.

 

• Competitive land bank with urban redevelopment highlights. By end-FY19, Aoyuan’s land bank reached 45.03mn sq m (attributable: 81%) with a saleable value of RMB458.5bn (expecting ASP of RMB10,200/sq m), of which 22.3% of value was attributable to GBA. The Company is making a big progress in urban redevelopment business in FY19. Aoyuan has over 30 urban redevelopment projects at different phases with planned total GFA of 14.25mn sq m and saleable resources of RMB226bn. Saleable resources from GBA contribute approx. RMB201.9bn. Its flagship project, Cuiwei Village in Zhuhai (largest urban village in Zhuhai), started construction in 1Q20. Est. saleable value reaches RMB20.0bn.

 

• Raise TP to HK$15.48, maintain BUY. The Company’s Average land cost/ FY19 ASP is 25.1% and saleable value of Tier 1&2 plus international cities together accounted for 55% of total value. Furthermore, with more high margin and GBA located urban redevelopment projects, especially Cuiwei Village, to be added to the Company’s pipeline and land bank in the future, the Company has a good positioning in land bank layout. We revise up FY19/20 EPS forecast by 3.4%/1.2% to RMB2.37/2.75. We derive our FY20-end NAV forecast at HK$30.95 per share. Given 50% discount, we raise our TP from HK$14.30 to HK$15.48. Maintain BUY. Reaffirm one of our Top Picks in the sector.