• Great scorecard
• Ironing out the kinks
• Maintain FV of HK$17.00

Good Set of Results

Agile Group Holdings Limited’s (Agile; 3383 HK) 1H18 results were broadly within our expectations. Revenue grew 8.5% YoY to RMB 24.2b, while gross profit jumped 44.4% YoY to RMB 12.0b, translating into an impressive gross profit margin (GPM) of 49.6% (1H17: 37.3%). This is largely due to the group’s Clearwater Bay project in Hainan, which commands a GPM of over 60%.

Core PATMI rose 149% to RMB 4.1b, comprising 57% of our full-year forecast, and resulting in a net profit margin of 16.9% (1H17: 7.3%). Gearing saw a notable jump of 16.3ppts to 87.7%. While management noted that this was due to a slight mismatch of cash flow between pre-sales and land bank acquisition, the guidance given was for net gearing to maintain at around 85-90% by end-FY18.

There are obvious risks involved with such a gearing level, but we believe that the group should assuage market concerns by (a) increasing its current cash collection ratio of ~70% or (b) exceeding the RMB 110b full-year pre-sales target.

Turning the Negatives Around

We were encouraged by the group’s proactive efforts at managing headwinds brought about by sales restrictions on Hainan island. In order to attain the abovementioned RMB 110b pre-sales target this year, the group has sped up construction across various regions so as to increase its full-year saleable resources by ~8.3% to 13m sqm, thereby reducing its reliance on contribution from the Clearwater Bay project.

While this will have an obvious impact on margins, management believes that full-year margins of ~40% will still be possible, as there are other projects (e.g. in Zhongshan and Huizhou) that command GPMs in excess of 50%.

Importantly, ASPs at the group’s Clearwater Bay project are still transacting at high ASPs of ~RMB 28-30k psm, which indicates to us that demand is still robust. This should continue to be the case as the authorities look to set up a free trade zone in China by 2020, notwithstanding the current restrictions in place.

Beneficiary of the GBA Story

Agile currently trades at an undemanding forward P/E of 5.6x, which is 0.2 S.D. below its 10-year mean. With ~31% of its land bank situated in the Greater Bay Area, we believe a re-rating could be on the cards, should policy details on developmental plans for the region be made known. We maintain our fair value estimate of HK$17.00 for now.

Source: OCBC Research - 30 Aug 2018