Decent 1H17 results; net gearing hiked due to aggressive landbanking
Future Land reported decent 1H17 results: 1) revenue rose 23% to RMB11.4bn,2) gross margin expanded to 32.8% (vs. 23.4% in FY16), and 3) core profitsrose 14.8% to RMB352mn (account for only 14% of our full-year forecast ofRMB2.5bn). The company has aggressively acquired 15.7mn sqm GFA (vs. 5.3mn sqm GFA sold in 2016) with RMB48bn (attributable of RMB21.6bn) in1H17. This boosted its net gearing to 157% from 89% in FY16.
Proposed privatization at HKD3.30/share
The company proposed a privatization plan on 18 July at HKD3.30/share, and itis now pending for the approval of the court and shareholders. Future Land isone of our top picks among small caps without considering the potentialprivatization. The stock now trades at 4.9x FY18 P/E and a 52% discount toNAV (without factoring in YTD land acquisitions). Our TP is based on 50%discount to NAV and the key risks are stronger sales and margin expansion.