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.
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