Company News - 06/22/2020

AMTD Research | LVGEM (95.HK)

AMTD Research has published the report on LVGEM (95.HK). LVGEM announced a solid set of 2019 results with core net profit 26% higher than our estimate. We believe the developer is on track to a 41% 2020E net profit growth with the sales from Shenzhen Urban Redevelopment projects Mangrove Bay No.1 and Meijing Plaza being the key earnings driver for 2020E.

RMB15bn sellable resources in GBA Urban Redevelopment Projects

LVGEM reported a solid set of 2019 results with core net profit beating our estimate by 26%. In 2020, the developer has RMB15bn of sellable resources across Shenzhen and Zhuhai. Of which, we estimate that Mangrove Bay No. 1 and Meijing Plaza in Shenzhen will achieve an aggregate contracted sales of approx. RMB6bn, which will be recognized straight into 2020E revenues. We have lowered our 2020E-2021E net profit estimates by 4-6% respectively to reflect the latest project launch and completion schedules.

2019 core net profit 26% above our estimates

LVGEM’s results were stronger than our expectations on higher than expected sales from the completed Mangrove Bay No. 1 project during 2019. Excl. revaluation gains from Investment Properties, we calculate that the 2019 core net profit of LVGEM to be at RMB1,236m (up 43% YoY), which is 26% above our estimate. 2019 revenue rose 53% YoY to RMB6,902m, thanks to solid sales (RMB4.4bn) achieved at Mangrove Bay No. 1 which contributed to ~65% of 2019 revenues. 2019 GP Margins remain at 64%, above industry average, underpinned by urban redevelopment projects.

Baishizhou – Target to complete Ph 1 relocation contracts in 3Q20

The signing of relocation contracts for Ph 1 of the project are ongoing, and the developer targets to complete the Ph 1 process in 3Q20. The project is primely located at the heart of Shenzhen in Nanshan District and has a total GFA of 3.58m sqm, of which 1.8m sqm are sellable/leasable GFA after excl. resettlement area. The developer will acquire the remaining 75% stake from the controlling shareholder in due course, depending on market conditions and project development progress. This project will take over the baton as the key growth driver of the company from 2022 onwards.

Net gearing rose in 2H19 to 135%, while HK NEO faces challenges

Balance sheet has softened from 1H19 levels, with net debt to equity rising to 135% (1H19: 121%). This is mainly attrib. to the acquisition of Zhuhai Dongqiao project. LVGEM’s HK NEO occupancy rate remained at 50%, similar to 1H19 levels. We believe management faces an uphill task to ramp up the occupancy rates and rental income from HK NEO, considering the slowdown in macroeconomy amid the COVID-19 pandemic.

We have trimmed our TP by 5% to HK$2.58 to reflect rising macro risks

We have trimmed our TP to HK$2.58/sh (from HK$2.72/sh) to reflect the rising macro risks amid the COVID-19 outbreak. Our TP is based on a 7.0x target 2020E P/E. Key risks to the stock include (1) Dilution overhang from the conversion of the controlling shareholders’ preference shares; (2) Revaluation loss to HK NEO may put further pressure on balance sheet; and (3) Higher than expected acquisition cost of the remaining 75% of Baishizhou project, and potential dilution if equity issuance is required.


This article is only a summary (the “Summary”) of a published research report (the “Report”). It only includes part of the comments and views stated in the Report, which has been issued by Research Department of AMTD. The mentioned comments and views such as target price, company profit forecast, industry trend forecast, etc., are based on a series of preconditions and assumptions. Readers should study the full version of the Report issued in details so as to form a thorough understanding on the expressed comments and views.
The Summary is solely for AMTD clients’ information. A person will not be regarded by AMTD as its client solely because he or she receives this Summary. The contents of the Summary will not constitute investment recommendations to any person in any event. AMTD will not assume any legal responsibilities regarding any consequences or losses arising from the direct or indirect use of the Summary, or investment made accordingly.
The extracted valuations, forecasts and ratings in the Summary represents the judgments or opinions formed on the issuance date of the Report. The contents of the Summary may become inaccurate or invalid as a result of changes in circumstances or other factors subsequent to the issuance of the Report. AMTD is not obliged to update inaccurate or outdated information subsequently. Meanwhile, AMTD will not separately inform the readers of the Summary after updates have been made.
AMTD reserves the copyrights of the contents of the Summary. No part of the Report shall be forwarded, modified, quoted, copied or reproduced in any form by any mean to any other person without the prior written consent of AMTD. The Company retains all legal rights in this Report.


Analyst Certification
We, Jacky Chan and Karen Huang, hereby certify that (i) all of the viewsexpressed in this research report reflect accurately our personal views aboutthe subject company or companies and its or their securities; and (ii) no partof our compensation was, is or will be, directly or indirectly, related to thespecific recommendations or views expressed by us in this research report, noris it tied to any specific investment banking transactions performed by AMTDGlobal Markets Limited.
Firm Disclosure
AMTD Global Markets Limited has an investment banking relationship with LVGEM and/or their affiliate(s) within the past 12 months.
AMTD Global Markets Limited
Address: 23/F - 25/F, Nexxus Building, No. 41 Connaught Road Central,Central, Hong Kong
Tel: (852) 3163-3288 Fax: (852)3163-3289


The research report is prepared by AMTD Global Markets Limited (“AMTD”) and is distributed to its selected clients.
This research report provides general information only and is not to be construed as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such offer or solicitation would be illegal. It does not (i) constitute a personal advice or recommendation, including but not limited to accounting, legal or tax advice, or investment recommendations; or (ii) take into account any specific clients’ particular needs, investment objectives and financial situation. AMTD does not act as an adviser and it accepts no fiduciary responsibility or liability for any financial or other consequences. This research report should not be taken in substitution for judgment to be exercised by clients. Clients should consider if any information, advice or recommendation in this research report is suitable for their particular circumstances and seek legal or professional advice, if appropriate.
This research report is based on information from sources that we considered reliable. We do not warrant its completeness or accuracy except with respect to any disclosures relative to AMTD and/or its affiliates. The value or price of investments referred to in this research report and the return from them may fluctuate. Past performance is not reliable indicator to future performance. Future returns are not guaranteed and a loss of original capital may occur.
The facts, estimates, opinions, forecasts and any other information contained in the research report are as of the date hereof and are subject to change without prior notification. AMTD, its group companies, or any of its or their directors or employees (“AMTD Group”) do not represent or warrant, expressly or impliedly, that the information contained in the research report is correct, accurate or complete and it should not be relied upon. AMTD Group will accept no responsibilities or liabilities whatsoever for any use of or reliance upon the research report and its contents.
This research report may contain information from third parties, such as credit ratings from credit ratings agencies. The reproduction and redistribution of the third party content in any form by any means is forbidden except with prior written consent from the relevant third party. Third party content providers do not guarantee the timeliness, completeness, accuracy or availability of any information. They are not responsible for any errors or omissions, regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability of fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities for investment purposes, and should not be relied on as investment advice.
To the extent allowed by relevant and applicable law and/or regulation: (i) AMTD, and/or its directors and employees may deal as principal or agent, or buy or sell, or have long or short positions in, the securities or other instruments based thereon, of issuers or securities mentioned herein; (ii) AMTD may take part or make investment in financing transactions with, or provide other services to or solicit business from issuer(s) of the securities mentioned in the research report; (iii) AMTD may make a market in the securities in respect of the issuer mentioned in the research report; (iv) AMTD may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this research report or may be providing, or have provided within the previous 12 months, other investment banking services, or investment services in relation to the investment concerned or a related investment.
AMTD controls information flow and manages conflicts of interest through its compliance policies and procedures (such as, Chinese Wall maintenance and staff dealing monitoring).
The research report is strictly confidential to the recipient. No part of this research report may be reproduced or redistributed in any form by any means to any other person without the prior written consent of AMTD Global Markets Limited.