Company Profile
　　China Aoyuan was established in 1996 in Guangzhou. Company was listed on HKEX in 2007,under the stock code 3883.HK. Company’s current businesses include property development,commercial real estate, technology, health, tourism and entertainment, e-commerce, urbanrenewal etc. The businesses have covered main city clusters in mainland China, HK and Macaoas well as overseas countries such as Australia and Canada.
　　Highlights
　　Initiate at “Buy”， TP HKD 13.50. Company’s businesses were distributed in China and overseascountries. Company has various land acquisition channels including urban renewal, M&A etc.
　　Its sales scale develops fast, and the profit growth is accelerating. We expect company’srevenues to be Bn 82.0/102.2 CNY in 2020/2021, up 62.2%/24.8% YoY. Core net profits areexpected to be Mn 6.3/7.7 CNY in 2020/2021, up 52.3%/23.0% YoY. Based on an 35% discountof NAV, we initiate coverage with “BUY”， TP HKD 13.50, implying 5/4X PE in 2020/2021,representing a 61% upside from current price.
　　Various Channels to Acquire Land Bank. Company has diversified land acquisition ways. Landacquisition through M&A accounts for 68% of the newly increased land bank since listing.
　　M&A continues to be an important land acquiring way in the future. At the same time,company reserved sufficient urban renewal resources in GBA. Over 20 projects can beincubated （partly/totally） in short term within 1-2 years, corresponding to total saleable areaof 5.6 million sqm.
　　Multi-regional Layout in China and Abroad. Company deeply focused in GBA and its businessescovered mainland’s main city clusters, Hong Kong and Macao, Australia and Canada, forming asound business layout. The land bank’s attributable interest maintains at a high level of 80%.
　　Company’s land bank was 45.03 million sqm by 2019A, and the total average land cost was2536yuan/sqm, accounting for about 25% of company’s average sales price, lower thanindustry average.
　　Stepped into Post-100 Bn Era. Company’s sales scale has realized leapfrog growth since 2016,with the sales amount from 2016 to 2019 increasing by 69%/78%/100%/29%. Company’smid-term saleable values are sufficient. 2020E sales target is kind of conservative, but the salesgrowth is expected to accelerate in 2021. We expect the sales value CAGR from 2019 to 2022to be around 20%.
　　Profit Growing at High Speed. Company has smooth domestic and foreign financing channels.
　　We expect net gearing to maintain under 80%. Company’s average funding cost keepsdecreasing. Company’s unbooked value reached Bn 170 CNY by 2019A, providing a goodfoundation for future profit growth. Company’s dividend payout ratio is expected to maintainaround 40% （of attributable net profit）， and current dividend yield reaches 7.3%.
　　Key risks: 1） Macroeconomic growth slows down. 2） Stricter industry regulation and policies. 3）Tighter liquidity. 4） Contracted sales below expectation. 5） RMB depreciation. 6） Urbanrenewal projects proceed below expectation.