【Company Research】CR Land (1109 HK) – Results slightly missed

Although 2019 core earnings was 9% below our estimate, its IP business and property management business were the catalysts. Due to COVID-19, we cut earnings forecast by 4.1% in 2020 and 9.1% in 2021. After considering the new land bank, we raise our NAV estimate from HK$61.01 to HK$63.22. Then, we raise target price from HK$42.15 to HK$44.25. Maintain BUY.

 

  • Core earnings 9% below our estimate. Revenue and net profit gained by 21.9% to RMB147.7bn and 18.3% to RMB28.7bn in 2019, respectively.  Gross margin narrowed from 43.4% in 2018 to 37.9% in 2019 because of less SZ projects contribution. Effective tax rate tumbled by 3.6ppts to 43.7% in 2019 because of less LAT. Excluding revaluation gain of investment properties (IP), core earnings gained by 12.2% to RMB21.6bn, which was 8.9% below our forecast. Total dividend was RMB1.066 per share, up 0.7% YoY.

 

  • 2020 contracted sales target of RMB262bn. CR Land was ranked as the tenth largest developer in China, in terms of contracted sales. After considering the impact of outbreak, CR Land sets its 2020 contracted sales target at RMB262bn, compared with full year contracted sales of RMB242.5bn in 2019. As at end-19, about RMB223.9bn of properties were pre-sold but unbooked, of which RMB128.7bn will be recognized in 2020.

 

  • Rental income reached RMB12bn in 2019. Rental income increased by 26.3% to RMB12.0bn in 2019, of which malls, offices and hotels contributed about 76%, 12% and 12% of total rental income. CR Land opened eight news IPs in 2019. By 2020, CR Land expects to have 88 malls in 9.0mn sq m leasable GFA under operation.

 

  • Spin-off of Property management business on track. The Company acquired 82 projects with attributable GFA of 13.25 sq m in 2019. As at end-19, CR Land owned attributable GFA of 41.67mn sq m for development business and 6.94mn sq m for IP. Furthermore, CR Land adopts X Strategy, including property management, senior housing and rental apartment as well as city development and operation. CR Land had 140mn sq m of properties under management and revenue from property management surged by 35.8% to RMB5.8bn in 2019. If the Company succeeds to spin off property management business, it would enhance its NAV.
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