What's new
We expect property market in tier 1 and 2 cities to bottom outapproaching year end and to continue the momentum in FY18e,providing strong support to quality tier 1 and 2 names on bothfundamental and sentiment levels. We believe Sino ocean willcontinue its strong and visible growth in favorable market conditions.
Given its 9% correction recently, we reiterate our bullish view.
Comments
Quality tier-1/-2 cities name. 93%/82% of its land bank locates in tier1 and 2 cities by GAV/GFA.
Abundant saleable resources to back up strong sales in FY17e/18e.
Sino-Ocean has finished 68% of FY17e sales target （Rmbn70bn, +39%YoY） by end-9M17. We believe it is well positioned to take advantageof tier 1 and 2 cities momentum and further boost sales in the rest ofFY17e and FY18e. It has already prepared Rmb80.7bn saleableresources in 2H17e （71% are new products） and Rmb160bn saleableresources in FY18e （+44% YoY, 74% are new products）。
GPM to recover. We expect GPM to improve to 25.6%/26.6% inFY17e/18e, supported by 27% pre-sales GPM in 1H17.
Strong B/S and sound defensiveness. We expect net gearing ratio tostay low at 54%/56% at end-FY17e/18e （63% at end-1H17）。 Averagefinance cost was 5.07% in 1H17 （vs. industry average of 6.65%）。
Lucrative dividend yield of 5.7%/7.0% in FY17e/FY18e.
Valuation and recommendation
Keep earnings forecasts unchanged （39%/30% core NP growth inFY17e/18e）。 Raise TP by 32% to HK$6.7 （25% upside）， given: 1）favorable property market environment and its premium landreserves in tier 1and 2 cities ; 2） its strong and visible growth in bothsales and earnings in FY17e/18e. Our new TP implies 11.8x/9.1xFY17e/18e P/E and 35% FY17e NAV discount. The stock is now tradingat 9.5x/7.3x FY17e/18e P/E and 48% FY17e NAV discount.
Risks
Property sales in tier-1/-2 cities fall short of our expectations.