We met management last week and updated with them on the latest development.
We believe that acquisition Kinghand would strengthen its land bank while spinoffof China Cultural Tourism would enhance valuation. Contracted sales startedto pick up in Apr and we believe Aoyuan can achieve its full year sales target ofRMB132bn in 2020 (up 12% YoY) and target RMB200bn sales in 2022. Wemaintain our forecast and TP unchanged. Reiterate BUY and it remains one ofour top picks.
Acquire 29.3% of Kinghand Industrial (000615 CH). In Apr, Aoyuanannounced to acquire 29.3% stake of Kinghand Industrial from its controllingshareholder, Mr. Tian, in total consideration of RMB1.16bn. Completion ofacquisition is pending for authority approval. Kinghand Industrial is engagedin property development and manufacture of bio-based fibre materials andproducts. Revenue and net profit of Kinghand amounted to RMB3.15bn andRMB12.1mn in 2019, respectively. Aoyuan targets Kinghand for its land bank.
Kinghand has around 18 projects with total saleable GFA of 1.24mn sq m inBeijing, Tianjin, Chongqing, Chengdu, Nanjing, Taiyuan, GuangdongProvince and Hebei Province.
Spin off cultural tourism property business. After successful spin-off ofAoyuan Healthy (3662 HK, NR) in Mar 2019, Aoyuan’s associated company(28% interest), China Cultural Tourism Group Ltd is applying for listing onHKEx. China Cultural Tourism is engaged in the development of vacationproperties in its cultural tourism destinations in Jiangmen and other locationsin Guangdong Province. As at Feb 2020, land band of China Cultural Tourismamounted to 1.6mn sq m. Furthermore, revenue and net profit of ChinaCultural Tourism were RMB736mn and RMB104mn in 2019, respectively.
Contracted sales declined 9% YoY in Apr. Due to impact from COVID-19,contracted sales amount declined by 18% to RMB23bn in 4M20, representinga 17% hit rate of full year target of RMB132bn. However, we saw sales startedto improve and amounted to RMB8.7bn in Apr (up 20% MoM). We areconfident that it can accomplish the full year sales target and it aims to reachRMB200bn in 2022.
Reiterate BUY. By end-19, pre-sold and unbooked properties amounted toRMB170.5bn with estimated gross margin of 26-28%. Meanwhile, there maybe some gains from redevelopment projects. We are confident about its futureearnings growth. We maintain our net profit forecast of growing by 51.5% toRMB6.37bn in 2020 and 16.2% to RMB7.40bn in 2021. We also maintaintarget price unchanged at HK$15.48, which is equal to 50% discount of end-20 NAV estimate (i.e. HK$30.95 per share). Maintain BUY. Reaffirm as oneof our top picks in the sector.