• FY18 contracted sales jumped 75%
• Ranked 11th, up five spots
• Focus on recurring income streams

Contracted Sales Convincingly Beat Target and Our Expectations

We met up with Shimao Property Holdings Limited (Shimao; stock code: 813 HK) over the past week and were encouraged by its outlook. FY18 contracted sales had come in at RMB176.1b, representing robust growth of 74.8%. This convincingly beat management’s full-year target of RMB140b and also our forecast of RMB149.1b. The strong growth augurs well for Shimao’s future earnings recognition once the projects are delivered. Contracted GFA jumped 76.3% to 10.69m sqm, thus translating to an average ASP of RMB16,482 psm.

Although this was a slight decline of 0.8%, Shimao highlighted that this was largely due to change in city mix. Based on data from CRIC, Shimao’s contracted sales of RMB176.1b ranks it in 11th place, a healthy improvement of five spots from 2017. Looking ahead, although Shimao has yet to provide an official 2019 contracted sales target, it believes the top 20 Chinese developers are capable of achieving a 20% growth this year. Shimao has plans to outperform this growth.

Another Focus Will be on Growing Its Recurring Income

Another focus of Shimao would be to increase its recurring income streams. It has a target to grow its recurring income at a CAGR of 30% from 2019-2022. This would be driven by the ramp up of existing hotels and commercial properties and the opening of new ones.

Some Optimism in Macroeconomic Environment

The PBoC recently announced a cut in the reserve requirement ratio (RRR) by 100 bps. We believe this will help to provide a welcome boost to liquidity in the markets. Meanwhile, there also appears to be continued signs of progress on trade talks between China and the U.S. We raise our FY18 and FY19 core PATMI forecasts by 2.0% and 1.2%, respectively, roll forward our valuations to 8x FY19 P/E and also lower our FX assumption to RMB1 = HK$1.15.

Overall, our fair value is raised from HK$27.18 to HK$29.60. One of Shimao’s key risks is that 33.3% and 10.6% of its borrowings are denominated in USD and HKD (as at 1H18), respectively. Shimao expects to utilise more onshore funding in FY19 given signs of a looser funding environment.

Source: OCBC Research - 14 Jan 2019