What's new
Times China announced 5M20 sales of Rmb24.6bn （-2% YoY）。
Comments
Sales growth gearing up. The firm budgets Rmb145–150bn （+13%YoY） in saleable resources for a conservative sales target of Rmb82bn（+5% YoY）， which we think should be easily met. Thanks to the launchof anchor projects in its major and newly-entered cities （Guangzhou,Foshan, Qingyuan, Zhuhai, Changsha, Hangzhou） in recent months,monthly sales resumed positive growth in May, and we expectstronger momentum in June. As a result, we think the firm shouldachieve positive sales growth in 1H20. We expect a stable YTD salesGPM of 26–28%, flat with 2019 owing to competitive land cost.
Urban renewal business progressing smoothly. Times China locked inover 120 urban renewal projects with potential GFA of 43mn sqm byend-2019, and has made further achievements in 2020 （e.g. signedcontracts with two villages in Guangzhou and a village in Dongguan）。
We expect GFA converted in 2020 to exceed that in 2019, helping toreplenish valuable landbank resources and deliver 15–20% growth inprimary land development profit. We expect a slight delay inconversion progress in 1H20, leading to limited land replenishmentand primary land development profit.
Financial position improving continuously. Times China acquiredfour land parcels in 4M20, and total land cost accounted for a mere30% of contract sales （lower than most developers under ourcoverage）。 Despite back-loaded sales and earnings, we expect a flatnet gearing ratio to 2019 （67%）。 The firm seized opportunities amid afavorable credit market and made smooth progress in refinancing in1H20; therefore, we think its average financing cost should edgedown accordingly （7.5% in 2019）。 For example, it issued a US$0.2bntranche of 1-year senior notes at a coupon rate of 6% on April 27.
Valuation and recommendation
Keep earnings forecast. Keep OUTPERFORM rating and TP ofHK$18.6 （4.8x 2020e P/E, 30% NAV discount, 37% upside）。 TimesChina now trades at attractive valuation （3.5x 2020e P/E, 49% NAVdiscount）。 We expect sales momentum in recent months andprogress in the urban renewal business to strengthen investorconfidence in the firm’s growth prospects and drive further re-rating.
Risks
Tightening in housing and financial policies; 2020 sales and earningsbelow our expectations; major delay in conversion of urban renewalprojects.