• Undershooting the target
• Tough times, but not all gloom
• Lower FV of HK$12.86

Just Shy of Full-year Target

On a 11M18 basis, Agile Group Holdings Limited (Agile; 3383 HK) has managed to clock ~81.2% of its RMB 110b pre-sales target, and will probably achieve ~RMB 100b for the full-year. Looking to 2019, we believe that the group could be targeting around RMB 110-120b of sales, representing a modest 10-20% YoY growth.

We believe this is not for a lack of trying, especially with the tightening measures on Hainan island. Hainan contributed ~18% of pre-sales for 2017, and ~12% for 2018, and we believe that the group will be looking to diversify its sales across more regions in 2019. However, this would have some pressure on margins, given that the group’s Clearwater Bay project in Hainan, for instance, commands a gross profit margin of over 60%.

Caution in Its Stronghold

Apart from Hainan island, Agile also has a sizeable presence in Zhongshan (14.9% of landbank as at 1H18). As we understand, recent land tenders in Zhongshan have either failed or seen tepid demand from developers, as the ability to conduct pre-sales on these land parcels were suspended.

Thus, it is not difficult to understand why Agile has remained cautious with land bank replenishment, especially in the later part of 2018. Despite setting a full-year budget of RMB 50b, Agile spent RMB 20.3b in 1H18 and less than RMB 10b in 2H18. In terms of gearing, we note that Agile’s net debt to equity came in at 87.7% in 1H18, and we expect 2019 to remain at around the 90% handle.

Not Everything Is Bad News

While the above would be reasons for gloom, we believe that these have been more than baked into valuations. Some of these headwinds would take some time to play out, as gross margins and earnings for the upcoming earnings season should have already been locked in from presales that were conducted previously. Furthermore, selective loosening of cooling measures on a city-by-city basis is afoot, and this should remain supportive to the share prices of property developers in general.

Following the broader market weakness and possible volatility ahead, we have ascribed a target FY19F P/E ratio of 5.5x, which is 0.25 S.D. below its 10-year mean. Incorporating also our latest FX assumptions, our fair value estimate drops from HK$17.00 to HK$12.86.

Source: OCBC Research - 2 Jan 2019