• Beneficiary of Greater Bay development
• Robust contracted sales expected
• Attractive valuations and dividend yield

Abundant Saleable Land Bank Resources of ~RMB800b

Shimao Property Holdings Limited (Shimao; stock code: 813 HK) was listed on the main board of The Stock Exchange of Hong Kong Limited on 5 Jul 2006. The Group is involved in the development of residential, hotel, office and commercial properties in cities with dynamic economic growth potential in PRC. Shimao has abundant saleable land reserves aggregating ~RMB800b, with significant exposure to the Yangtze River Delta region and Guangdong-HKMacao Greater Bay Area. This positions Shimao as a key beneficiary of the government’s initiative in the development of the Greater Bay Area.

Strong Earnings Momentum Driven by Surge in Contracted Sales

Following a consolidation phase in 2015 and 2016 whereby Shimao had to implement inventory reduction plans which affected its margins and profitability, management has since managed to turn around its earnings in FY17. We expect its earnings momentum to gain further traction ahead.

We forecast a core PATMI CAGR of 24.5% from FY17-19F. Growth is expected to be underpinned by an uplift in its contracted sales. Management has set its FY18 contracted sales target at RMB140b, which we believe is conservative. We forecast RMB149.1b of contracted sales in FY18, representing growth of 48%, followed by a further 20% increase to RMB179.0b in FY19.

Solid Fundamentals; Undemanding Valuations

We value Shimao using a P/E multiple approach, and ascribe a target peg of 8x for our valuation. While this represents half a standard deviation above Shimao’s 10-year average forward P/E of 6.5x, we believe this is justifiable as the Group is re-entering another phase of strong growth in contracted sales and earnings, underpinned by management’s solid execution capabilities and clear strategic goals.

Applying the aforementioned 8x P/E multiple to our average FY18F/FY19F core fully diluted EPS forecast (FX assumption of RMB1 = HK$1.20), we derive a fair value estimate of HK$27.18. Shimao is trading at an attractive price/earnings to growth ratio (PEG ratio) of 0.35x for FY18F and 0.21x for FY19F, while offering investors a dividend yield of 5.4% (FY18F), as of the closing price of HK$22.20.

Source: OCBC Research - 30 May 2018