The M&A-oriented Languang Justbon (“Justbon”) is the sector’s outlier pick. Like many others, we await further clarity on the Company’s M&A completion. Yet despite uncertainty, we see positive catalysts as the Company shifts away from its current M&A approach and secures more sizable deals. Initiate with BUY, with TP of HK$64.2, representing 13.5x 2021 P/E.
- The outlier pick of the sector. A leading PM service provider in Southwestern China, Justbon has relied on third-party contracts and M&A over parent developer for new GFA delivery. GFA under management was 89.9mn sq m as of 1H20, 44% of which came from past acquisitions.
- Active in M&A market, but need sizable deals to make progress. Justbon has stepped up M&A efforts in 2020, completing 11 deals with total GFA of 17.2mn sq m to date. We feel that Justbon’s approach of making numerous small-sized acquisitions (managed GFA: avg. 1.6mn sq m per company acquired) is unlikely to trigger re-rating, with M&A quality being our major concern. We prefer larger M&A business such as the CMIG acquisition by A-Living, our sector top pick, and expects some of the larger-sized deals currently in Justbon’s M&A pipeline to drive re-rating in 2021.
- Positive catalysts to emerge from better-quality M&As and regional competitiveness. We expect around 75% completion for new GFA target in FY20, and see positive catalysts as sizable M&A deals start to materialize in 2021. In addition, Justbon’s competitiveness in Sichuan and Eastern & Southern China should help secure third-party contracts in the region. We forecast 39.6% 2019-22E CAGR for revenue and 33.5% 2019-22E CAGR for net profit.
- Set TP at HK$64.2; Initiate with BUY. Justbon currently trades at 8.3x 2021E P/E, versus average of 19.1x P/E among mid-sized PM companies. We set TP at HK$64.2, reflecting 13.5x 2021E P/E.
