We estimate that investors could enjoy c.12% return from Times’ propertymanagement spin-off, which is expected to be completed by year end.
The company not only benefits from its high exposure to the GBA but alsofrom favourable policies on old town redevelopment projects.
Remains our small-cap top pick. It trades at an attractive valuation of 4xFY19 P/E and offers 7% yield.
Property management unit spin-off could offer 12% yield
Times China previously said it plans to spin off its property management unit （TimesNeighborhood） and distribute the shares in specie to Times China shareholders （oneshare of the spin-off unit for every 2.6 shares held）。 According to the prospectus from thestock exchange website, the unit recorded a net profit of Rmb42m in 1H19 and weestimate that its full-year earnings could reach Rmb120m in FY19F and Rmb180m （50%growth yoy） in FY20F. Assuming a fair P/E of about 15x for FY20F （sector average: 20x,see Fig. 2）， the unit’s market cap could be c.HK$3bn, accounting for about 15% of TimesChina’s market cap. Further assuming Times China owing about an 80% stake in theunit after the spin-off, we estimate Times China shareholders could get c.12% yieldif they choose to sell their shares in the unit in the secondary market after listing.
The highest exposure to the Greater Bay Area （GBA）
The company had a total land bank of 23m sqm as of end-Jun 2019. Around 90% of ourNAV estimate is from projects in the GBA, where we believe the property market couldoutperform the overall industry given favourable policies from both central and localgovernments.
One of the biggest beneficiaries of old town redevelopment
We believe Times is one of the biggest beneficiaries of old town redevelopment in theGuangdong Province. On 4 Sep, the Guangdong government announced 19 measures tospeed up the process of urban redevelopment. The most notable measure is that thethreshold to reach redevelopment agreement has been lowered to two-thirds ofstakeholders from 90-100% previously. As of end-Jun 2019, Times had 85 urbanredevelopment projects in its portfolio with a total planned GFA of 28m sqm （vs. currentland bank of 23m sqm）， of which 44 projects with a total planned GFA of 12m sqm arelikely to be converted in FY19-21F. Times converted four urban redevelopment projectsinto its land bank （total GFA 1.5m sqm） in FY18 and we expect it to further speed up theconversion given the recent government measures.
Remains our small-cap top pick
Times remains our top pick in the small-cap space due to the aforementioned reasons. Italso trades at an attractive valuation of 4x FY19F P/E and offers about 7% yield. Our TPof HK$21.0 is still based on 30% discount to end-FY19F NAV of HK$30.0. Key risks toour call include lower-than-expected market value of its property management unit at thetime of the spin off and slower-than-expected conversion of old redevelopment projectsinto its land bank.