As a key Hangzhou player (32% of its land bank), Dexin has seized the booming local demand to expand into YRD/National Tier 2 cities and achieved 25% attributable sales CAGR in 2018-20 to RMB21.8bn. With abundant and quality land bank, we think it can continue to deliver 15-20% attributable sales growth in 20-22E. This growing scale would help Dexin to increase the attributable/consolidated sales ratio (35%/45% in 2020) to boost national brand influences and balance sheet transparency. Initiate with Buy.
- The Hangzhou index. As born and raised in Hangzhou, Dexin has 32% of its land bank in Hangzhou. In 2016-2021, Hangzhou primary property price has been up 11.5% CAGR to RMB28447/sq m in Jan 2021 based on CREIS. As a key beneficiary, Dexin’s sales ASP also rose to RMB20,401/sq m in 2020 (+11% YoY) with a reasonable land cost/ASP ratio of 35%. In the future event of 2022 Asian game and YRD zone development, we think the local demand would remain robust and thus continuously benefit the Company.
- Abundant saleable resources to drive 15-20% attributable sales growth CAGR in 20-22E: As of 1H20, the Company had 4mn attributable land bank or 80bn saleable value, which is enough for 3-4 years of development. Within its land bank, 75%/60%+ are located in YRD region and Tier 1-2 cities. Therefore, we think this quality land bank + improving asset turnover (from land acquisition to cash flow breakeven at 8-12 months) would help Dexin deliver 15-20% sales growth in 21/22E, > the industry average of 10%.
- Higher transparency on increasing attributable ratio: Its attributable and consolidated sales ratio at 35%/43% in 2020 was much lower than the industry of 60-65%. Going forward, we think the ratio would start to increase based on higher attributable ratio of its land bank acquisition (at 46% in 1H20 and 40% for the overall land bank). This would increase the overall balance sheet transparency and thus have a positive impact on the funding rate (8.9% in 1H20). The Company had a net gearing ratio of 76% in 1H20 but with an off-balance debt of RMB14.4bn (26% attributable ratio).
- Expect 6% core earnings CAGR in 2019-2022E on revenue growth. Riding on strong sales in 2019/20, we forecast total revenue to grow at 26% CAGR in 2019-2022E to reach RMB19bn, but it would be partly offset by the drop in GPM to 25%. Therefore core earnings are expected to grow at 6% CAGR in 2019-22E. Initiate at Buy with TP of HK$3.56. We derive TP by applying 50% discount to its NAV per share at HK$7.12. It’s currently trading at 3.8x 2021E PE, vs. industry average of 4.5x. Risk: policy tightening in Hangzhou.
