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SGX Stocks and Warrants

Author: kimeng   |   Latest post: Tue, 16 Oct 2018, 12:14 PM

 

Longfor Properties: Recent Correction Presents Buying Opportunities

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  • Preparing for FY18
  • Expansion into Zhuhai
  • Raising our FV and maintain BUY

Saving Some Bullets for FY18

Longfor Properties Co. Ltd. recently reported its operating statistics for Dec 2017, whereby it reported a mild 1.3% YoY decline in contracted sales to RMB7.64b. This was a sharp contrast compared to the 12th consecutive months of YoY growth registered from Dec 2016 to Nov last year. Longfor’s share price has corrected 3.6% following this data release, but is still up 30.5% since our ‘Buy’ rated initiation report on 8 Dec 2017.

We believe investors should not be overly concerned with the soft contracted sales for Dec, as management may have been holding back inventory in preparation for 2018 rather than aggressively push out its sales in Dec. This is because overall contracted sales for 2017 still hit RMB156.08b, which not only represents a strong growth of 77.1%, but also exceeded Longfor’s upward revised target of RMB150b.

This was inline with our forecast of RMB156.9b. Furthermore, the full-year contracted sales growth figure came in stronger than most of the Chinese developers which we tracked.

Continuing Its Land Bank Acquisition Drive

Longfor also announced that it had acquired a number of projects in Dec. This includes making its maiden penetration into the Zhuhai market, thus entrenching its footprint across 33 cities nationwide. Other projects acquired were in Baoding, Chengdu, Hangzhou, Jiaxing, Jinan, Ningbo and Xi’an. It has also opened 26 shopping malls as of the end of 2017, which would support its recurring income streams ahead.

Maintaining Our BUY Rating

We factor in higher contracted sales (20% growth versus 15% previously) and a slightly higher gross profit margin for FY18, and correspondingly bump up our core PATMI forecast by 4.0%. Given the re-rating in share prices of the Chinese developers YTD, driven in part by improved optimism on the relaxation of some housing policy restrictions, we also revisit our valuation assumptions.

Longfor’s peers set is currently trading at a market-cap weighted average forward P/E ratio of 9.3x for FY18. As before, we ascribe a premium to Longfor and assign a target peg of 10x to our FY18 core fully diluted EPS forecast. Our fair value estimate increases from HK$20.63 to HK$25.25. Maintain BUY.

Source: OCBC Research - 17 Jan 2018

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