POLY PROPERTY {Ticker: 0119.HK, Closing Price: 5.01 HKD, Target Price: 7.82 HKD, Recommendation: Buy}
Poly Property reported FY12 results, with core profit of HK$2,278mn, largely flat YoY. Basic EPS was down 5.3% YoY to HK$72.88 cents (FY11: HK$76.96 cents). The company recommended a final dividend of HK$0.218/share (2011: Nil). Revenue up 46.7% YoY to HK$20,695mn (FY11: HK$14,105mn), while gross profit up by 12.8% YoY to HK$6,287mn (FY11: HK$5,573mn), indicating that gross margin was down by 9ppt to 30.4% (FY11: 39.5%). Reported net profit was down by 5.3% YoY to HK$2,629mn (FY11: HK$2,777mn).
Net gearing fell to 93.9% as of end Dec-2012
As of end-Dec 2012, Poly had outstanding bank and other borrowings of HK$40.7bn, with total cash (including pledged deposit) of HK$15.3bn, hence it has a net debt position of HK$25.4bn. Shareholders' equity of HK$27.07bn (2011: HK$24.67bn), with book value per share of HK$7.50 (2011: HK$6.84). Net gearing (being net debt over shareholders equity) at end-2012 was 93.9%, down 8.8ppts from end-2011 net gearing of 102.7%. Its total liabilities over total assets ratio was reported at 72% (2011: 72%). The management will continue to work on improving gearing, with a target of 70% or below.
2012 GFA start stronger-than-expected
In 2012, Poly Property's GFA commencement was c. 3,910,000sqm, 11.7% higher than its planned commencement of 3,500,000sqm. GFA completion was amounted to c. 3,270,000sqm. As at end-2012, Poly had 44 commodity housing projects in development, with GFA amounted to c. 11,135,000sqm. In 2012, pre-sale area was about. 2,510,000sqm, 25.5% higher than its target of 2,000,000sqm, of which 32 were on-going projects and 14 were debut launches. In 2012, Poly added 3 new projects in Shanghai, Jinan and Kunming respectively, with a total site area of about 174,000sqm and total GFA of about 904,000sqm. All 3 projects have currently commenced construction work, while the pre-sales of the Jinan Poly Center started already in Jan-2013. Poly targets to have GFA commencement of 4msqm in 2013. (FY12: 3.91msqm)
2013 sales target looks conservative
Poly Property is targeting Rmb26bn contracted sales in 2013, up 11% YoY from Rmb23.4bn actual sales last year. This is based on planned saleable resources of Rmb42bn (of which Rmb9-10bn is carried forward, and Rmb32bn are new saleable resource), and a 62% sell-through rate assumption (FY12: 72%).
Attractive valuations
Poly now trades at a 55% NAV discount, 6.1x 2013E PE and 0.6x PB – attractive in our view. As we continue to see faster sales and lower net gearing, we expect to see more NAV and PB discount-narrowing for the stock. Our TP of HK$7.82 is based on a 30% NAV discount. Risks: unexpected economic volatility and unexpectedly harsh government tightening measures.