Target price lifted to HKD5.81/share; maintaining Buy
We raise Future Land’s target price by 12% to HKD5.81 in view of: 1） increasedsales forecast （15-20% higher than previous estimates） to RMB110bn in 2017Fand HKD160bn in 2018F; 2） additional NAV accretive land acquisitions over thepast two months; and 3） 2-14% earnings lift between FY17-19F amid marginexpansion to above 30%. After the failure of privatization announced in mid-October, we believe the overhang is removed. We re-select Future Land as oneof our top-picks among small-cap developers.
Sales should beat RMB110bn in 2017F and RMB160bn in 2018F with abundanttotal saleable resources of RMB650bn
With strong sales momentum （achieved RMB14bn sales in October） andabundant saleable resources （total of RMB650bn with ~60% in YRD area）， weexpect Future Land to achieve >RMB110bn sales in 2017F, implying ~70% y-ygrowth. YTD sales of RMB89.2bn ranks the company at #13 among all Chinesedevelopers in terms of gross sales value. In addition, we expect the company’scontracted sales will show another jump in 2018F to reach above RMB160bn.If we use market cap/attributable sales ratio, Future Land should be one of thecheapest names among the developers we cover.
Earnings yet to surge for 2H17F
The contracted sales of Future Land began to surge in 2016 （RMB65.1bn,104% y-y growth） and followed with another strong year in 2017F. Consideringthe time lag between revenue booking and pre-sales, we expect the companyshould start delivering strong results from 2H17F. We estimate the company’score profits to reach RMB2.6bn/RMB3.6bn/RMB4.8bn in FY17-19F. By October2017, it had secured a total amount of sold but unbooked revenue ofRMB113bn （gross basis, including associates and JVs）， implying an 80% lockinratio for 2H17F and 2018F delivery （assuming those sales will be booked inthese periods）。 In addition, we expect the company’s gross margin will recoverto >30% in the next three years （vs. 32.8% in 1H17 and 23.4% in FY16）。
Valuation and risk
Our new TP of HKD5.81 is based on a 45% discount to our end-2018F NAV ofHKD10.56. The stock now trades at 5.5x FY18F P/E and a 61% discount toNAV. Key downside risks are higher gearing due to aggressive landbanking,and slower sales growth and margin recovery.