• FY18 core PATMI jumped 48.6%
• RMB160b pre-sales target
• Net gearing of 184.1%

FY18 Results Fell Slightly Short of Our Expectations

Guangzhou R&F (R&F) (Stock code: 2777 HK) reported its FY18 results which came in slightly below our expectations. Revenue and gross profit rose 29.7% and 33.3% to RMB76,857.7m and RMB27,949.5m, respectively, implying a gross profit margin of 36.4% (+1.0 ppt). Core PATMI came in at RMB9,531m, representing robust growth of 48.6%.

Management declared a final dividend of RMB0.83 per share, and this culminates into a full-year DPS of RMB1.23 (payout ratio of 41.6% based on core EPS), or a dividend yield of 8.6% based on its closing price of HK$16.92.

Contracted Sales Guidance of RMB160b in 2019

During FY18, R&F achieved attributable contracted sales of RMB131.1b (+60%) on the back of 10.18m sqm of attributable GFA sold. This translates into an ASP of RMB12,900 psm. Looking ahead, management has guided for attributable contracted sales of RMB160b for FY19 (1H and 2H split: 35%/65%), implying a targeted growth of ~22%. This would be backed by saleable resources of RMB300b. It has also earmarked the Greater Bay Area as a focus for growth, with targeted sales of RMB16b in FY19 and RMB24b in FY20.

Net Gearing Ratio Remains High

Although R&F has made efforts to reduce its net gearing from 187.5% (as at end-1H18) to 184.1%, this remains at an undesirable level, in our view. Its effective debt cost also rose from 5.12% in FY17 to 5.74% in FY18. We believe dilution risks from a potential equity fund raising exercise remain, in light of its high gearing, strong share price rebound YTD and the fact that a number of its bonds can be puttable in FY19.

We trim our FY19 core PATMI forecasts by 5.4% to RMB10,210.8m and introduce our FY20F projections. Based on an unchanged P/E target peg of 3.1x (-1.5 standard deviations from 8- year mean) but a higher RMB to HKD assumption, we derive a fair value estimate of HK$11.49, versus HK$11.94 previously.

Source: OCBC Research - 21 Mar 2019