FY17 core net profit in line with expectations
Sino-Ocean Group Holding Limited announced its FY17 results:revenue was up 33% YoY to Rmb45.8bn and core net profit was up51% YoY to Rmb4.02bn, with core diluted EPS of Rmb0.53. Totaldividend HK$0.322/sh （final dividend HK$0.155/sh） implying a 6.6%yield and a 40% payout.
Active land purchase in tier-1/-2 & strong tier-3 cities. 16.1mn sqmGFA （42% attributable） was replenished in 2017 （3.7mn sqmsold）， >30% of which in strong tier-3 cities （Wuxi, Jiaxing, Foshan）。
Trends to watch
2018 sales target of Rmb100bn （+42% YoY） is achievable. Thecompany has prepared Rmb175bn of saleable resources for 2018,among which 78% is newly-supplied （70% in 2017） to secure acompetitive sell-through rate （i.e. 67% in 2017）。
GPM to sustain and lift earnings. GPM improved 2.4ppt to 24.5% inFY17. We expect 24.7%/24.2% in FY18/19e, given that the GPM of itsRmb66.6bn unbooked sales at end-FY17 was 25–26%, 60% of whichto be delivered in FY18e, with the rest coming in following years.
Premium IP to enhance recurring income. Attributable rental income+14% YoY in 2017; its Rmb4bn 2022 target implies a 16% 5-yr CAGR.
Strong balance sheet to support scale expansion. Net gearing ratiowas 62% in 2017. And a sound fund raising capacity – 5.2% averagefinancing cost; investment ratings from Moody’s and Fitch – willsecure further land acquisitions.
Earnings forecast
Keep FY18e core NP unchanged （Rmb4.8bn; +19.5% YoY）； introduceFY19e core NP as Rmb5.97bn （+24.2% YoY）。
Valuation and recommendation
The stock is trading at 7.4x/5.9x FY18e/19e P/E. Maintain BUY, butcut our target price by 12% to HK$6.80 （16% upside, 8.5x FY18e P/E）to reflect 22% core NP CAGR in FY17-19e.
Risks
Over shrinkage of mortgage loans in tier-1/-2 cities.