• FY18 under expectations
• Better land acquisition opportunities
• Higher FV of HK$13.56

Results a Miss

Agile Group Holdings Limited’s (Agile; 3383 HK) FY18 results came in under our expectations. Revenue grew 8.8% to RMB 56.1b, with recognised property sales growing 6.5% to RMB 52.5b. Gross profit margin (GPM) for the fullyear came in at 43.9%, increasing 3.8 %pt over 2017. However, this was a story of two halves, given that 1H18 and 2H18 saw GPMs of 49.6% and 39.6%, respectively.

We believe this is likely a delivery schedule issue. SG&A as a proportion of attributable pre-sales came in at 6.3%, a tad higher than the 5.9% in 2017. We believe that this was likely to be due to the new cities entered into in 2018, as well as the headcount ramp up in the group’s non-property segments.

Stripping out the one-offs, core PATMI came in at RMB 6.5b, or 91.5% of our full-year forecast. We deem this set of results to be below our expectations. Full-year dividend came in at HK$1/share, or a ~51.5% payout ratio against core PATMI.

Conservative Target

For 2019, management is targeting pre-sales of RMB 113b, or a 56.5% sell-through rate based on RMB 200b of saleable resources. This is a similar sell-through rate achieved in 2018. We believe that the projected growth of ~10.0% of pre-sales pencils in challenging sale conditions in Hainan, which could see upside risk should favourable policy conditions emerge.

Management has guided that GPM for 2019 is likely to be lower than that of 2018, which should not take the market by surprise. We believe the group still sits on projects with high margins (e.g. Clearwater Bay project in Hainan), but the speed at which this can be sold/recognized hinges largely on policy changes once again.

Net Gearing Should Remain at ~80%

The group’s net gearing ratio has improved from 87.7% in 1H18 to 79.1% in 2H18, on the back of slower land banking activity. We expect that the group’s net gearing should hover around the 80% level for 2019 and 2020, as land costs are starting to look more palatable.

We have ascribed a target FY19F P/E ratio of 5.4x, which is 0.25 S.D. below Agile’s 10-year mean. With our latest FX assumptions, our fair value estimate rises from HK$12.86 to HK$13.56.

Source: OCBC Research - 21 Mar 2019