AMTD Research | CCRE (832.HK): Reaping in the Harvest
AMTD Research has published the report on CCRE (832.HK). We reiterate our Buy rating on CCRE, one of our top picks of the sector. 2019 results beat consensus estimate by 26%. The stock is now offering an 11.8% div yield, backed by strong positive cash flows which saw net debt to equity decline to 6%. A solid 30% net profit CAGR outlook is highly visible with unrecognized sales locked-in on balance sheet.
11.8% dividend yield, highly visible 30% 2019-2021E earnings CAGR
Central China Real Estate (CCRE) is set for another two years of highly visible 30% net profit CAGR during 2020-2021E, in our view, underpinned by RMB53bn of contract liabilities (142% of 2020E revenues) locked-in on end-2019 balance sheet. Contracted sales is targeted to grow by another 11% in 2020 to RMB80bn. At 4.0x P/E, we believe market is yet to reflect the fair value of the company and the stock is now offering a 11.8% 2019 div yield. This dividend is underpinned by solid cash flows as reflected by its 6% net debt to equity, in our view. We reiterate our Buy rating with a Target Price of HK$6.0/sh, offering 50% upside to current share price.
Strong 2019 results on higher revenues and better margins
CCRE reported a strong set of 2019 results, with core net profit rising 150% YoY to RMB1.96bn, beating consensus estimate by 26%, mainly due to higher than expected revenue and GP Margins. 2019 revenues were 12% higher than our estimate at RMB30.8bn, while GP Margins were also better than expected at 26%, above our estimate of 24%. Final DPS of HK$0.31/sh was declared, bringing 2019 Full Year DPS to HK$0.466/sh (up 118% YoY)
Net Debt to Equity lowered to 6%, reflects strong positive cash flows
We believe the decline in financial leverage, while maintaining growth, reflects the positive cash flow strength that the developer is generating from its underlying business. CCRE’s Net Debt to Equity (incl. Restricted Cash) has been lowered further to 6% (1H19: 18%), one of the lowest in the industry. Even if we exclude restricted cash, the Net Debt to Equity is still at comfortable levels of 64% (1H19: 61%). Total Assets to Equity remained stable at 11.4x (1H19: 11.2x), as the developer continues to fund its balance sheet mostly with non-interest bearing liabilities.
March contracted sales almost doubled the Jan-Feb aggregate amount
As per third-party data from CRIC, Central China’s 1Q20 contracted sales reached ~RMB11bn, implying a contracted sales of RMB7.2bn achieved in March across both Heavy-Asset and Light Asset business combined. This is almost double the aggregate amount of the first two months total contracted sales. We believe these are positive signs that the developer is back on track to achieve its RMB80bn Heavy Assets contracted sales target.
Reiterate our Buy Rating with a TP of HK$6.0/sh
We reiterate our Buy rating, with the stock currently trading at attractive valuations of 4.0x 2020E P/E, slightly below the industry average of 4.2x 2020E P/E. Our target price of HK$6.0/sh is based on a 6.0x 2020E P/E. Key downside risks include (1) Lack of supportive policy easing measures in Henan Province causing a weaker than expected contracted sales; (2) Construction delays causing a delay in revenue recognition.
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