• FY17 core PATMI jumped 25.9%
• Special dividends declared
• Projecting strong growth in FY18

FY17 Core Earnings Met Our Expectations

Longfor Properties Co. Ltd. reported FY17 revenue of RMB72,075m, representing an increase of 31.5%. This exceeded our forecast by 9.7%, and was driven by its Property Development segment, which saw revenue growth of 31.1% to RMB67,462m. Gross profit surged 53.3% to RMB24,436m, underpinned by a 4.8 ppt expansion in gross margin to 33.9%.

FY17 PATMI came in at RMB12,599m (+37.6%), while core PATMI jumped 25.9% to RMB9,773m. The latter met our expectations, as it formed 99.9% of our forecast. Management declared a final dividend of RMB0.473 per share and also a special dividend of RMB0.085 per share to commemorate its 25th business anniversary.

Including an interim DPS of RMB0.20, total FY17 DPS was RMB0.758. This translates into a dividend yield of 3.8%, based on a closing price of HK$23.00.

Targeting RMB200b in Contracted Sales for FY18

Looking ahead, Longfor guided that it is targeting contracted sales of RMB200b for FY18 (FY17: RMB156.1b; +77.1%), which would represent a growth of 28%. This was higher than our initial projection for a 20% growth.

We further note that last year, management had revised its initial FY17 contracted sales guidance upwards to RMB150b, which it also eventually beat. This targeted growth would be supported by estimated saleable resources of RMB300b in FY18, which would imply a sell-through rate of 67%. Longfor has also set a goal of remaining as one of the top 10 developers in the industry, based on contracted sales.

Strong Balance Sheet

In terms of financial position, Longfor’s balance sheet remains strong, with a net gearing ratio of 47.7% (as at 31 Dec 2017), lower than 53.9% as at end-FY16. Its funding cost has also seen a healthy decline from 6.6% in 2013 to 4.5% in FY17, and is expected to remain stable despite tighter credit conditions in PRC.

We raise our core PATMI forecast for FY18 by 3.5%, which translates into robust projected growth of 30.6%. Correspondingly, our fair value estimate is increased to HK$25.94 (previously HK$25.25), based on an unchanged target PE peg of 10x to our FY18 core fully diluted EPS forecast.

Source: OCBC Research - 27 Mar 2018