Investment positives
We initiate coverage of Times China Holdings Ltd with anOUTPERFORM rating and target price of HK$16.89 （implying 5.5x/4.5x 2019e-20e P/E, 47% discount to 2019e NAV and 32% upside）。
Why an OUTPERFORM rating?
Prime presence in Greater Bay Area （GBA）。 As a local developerin Guangdong, Times China holds more than 90% of its landreserve in GBA （anchor cities include Guangzhou, Foshan andZhuhai）。 Current landbank （Rmb190bn） together with potentialurban renewal projects （over Rmb200bn） should sufficientlycover its sales in the next four years, assuming 30% sales CAGR.
The edge of land cost （20-25% of selling price） grants it bothoffensive and defensive value, in our opinion.
Sustainable growth ahead. Sales equaled Rmb60.6bn in 2018（4-yr CAGR of 41%, ranking No.46 in China）； we expect it toexceed Rmb100bn in 2020 （2-yr CAGR of 28%）。 Capitalizing onsolid sales and extra profits from primary land developmentbusiness, Times China’s core net profit should reach Rmb6.7bnin 2020 （2-yr CAGR of 26%）， according to our estimates.
Sound financial position. We estimate net gearing ratio will inchup to 75% in 2019-20 （vs. 71% in 1H19）， still a reasonable level.
Strong cash flows should be underscored by abundant cash onhand, scalable sales proceeds and sound financing capability.
How do we differ from the market? We think the capital market hasundervalued the company’s land resources.
Potential catalysts: 2019 earnings beat consensus; the conversion ofurban renewal projects swifter than market expectation.
Financials and valuation
Our EPS forecast is Rmb2.75 and Rmb3.43 in 2019-20, a CAGR of22%. Attractive valuation. 2019 estimated NAV is HK$31.81 （DCF）。
The stock trades at 4.2x and 3.3x 2019e-20e P/E and 60% NAVdiscount. We estimate a lucrative dividend yield of 7.2% and 9.0% in2019-20. We initiate coverage with an OUTPERFORM rating and atarget price of HK$16.89. Risks: Market fluctuation in GBA;unexpected tightening policies; conversion of urban renewal projectsdisappoints the market.