What's new
In accordance with the spin-off and conditional distribution of TimesNeighborhood Holding Limited, Times China announced onNovember 28 the record date of qualifying shareholders of theassured entitlement in the distribution1. Times China’s share price fell4.8% on the spin-off, which we think offers an attractive entry point.
Comments
We think the effect on Times China’s valuation from the spin-off hasbeen largely priced-in. We estimate the fair value of TimesNeighborhood might come to HK$1.8-2.8bn, representing HK$0.9-1.4per outstanding 1.94bn shares at Times China. The latter’s share pricefell HK$0.76 on November 28.
Attractive valuation offers good entry point. Times China is currentlytrading at 5.0x/4.0x 2019e/20e P/E, 1.2x/1.0x 2019e/20e P/B and52% NAV discount. We think that the entry opportunity wouldbecome more appealing should share price continue to fall.
Commanding extensive resources in the Greater Bay Area （GBA）。
Times China currently holds a landbank of Rmb190bn with potentialurban renewal projects of over Rmb200bn, and over 90% of theseresources are located in GBA. We estimate a conversion of around2-2.5mn GFA into land reserve from urban renewal projects in 2019,well on track with the company’s conversion plan of 10.8mn GFA over2019-21.
Solid growth prospects. We think sales could reach Rmb75bn in 2019（+24% YoY） and grow by around 30% in 2020 to Rmb100bn. Weproject core net profit of Rmb5.2bn in 2019 （+25% YoY） andRmb6.7bn in 2020 （+27% YoY）。
Valuation and recommendation
We keep our earnings forecast. We maintain OUTPERFORM and liftTP 14% to HK$19.2 （5x 2020e P/E, 40% NAV discount and 26%upside） on improved market sentiments.
Risks
2019 sales and earnings fall below our expectation.