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Shanghai Shimao Co Ltd:Maintaining Sell on weak growth and expensive valuation

发布时间:2017-06-12    研究机构:德意志银行

Maintaining Sell with 12% potential downside.

We maintain our Sell rating on Shanghai Shimao, lower our TP to RMB4.32 (effective 4.7% change considering the bonus share), and cut FY17-19F core earnings by 2-5%, after factoring in: 1) weaker-than-expected contracted sales; 2) recent tightening on commercial property sales in Beijing and Shanghai; and 3) the acquisition of the Nanjing project from its parent Shimao Property. The stock is currently trading at 11.8x FY17F P/E and a 26% discount to NAV, which is expensive compared to the sector average of 8.1x P/E and 39% discount to NAV.

Weak sales outlook.

The company achieved RMB3.4bn (+2% y-y) in 1Q17, implying only 20% completion of its full-year sales target of RMB17bn. Given the recent tightening on credit and commercial property sales in Beijing and Shanghai (which may spread to other T2 cities), we expect its sales will continue to underperform peers, and may only reach RMB16.8bn.

Earnings are lagging behind.

Due to its weak sales last year (-16% y-y) and YTD, we expect the company’s core earnings to decline 8% y-y to RMB1.6bn in FY17F, although its gross margin may expand further to 32.9% (vs. 31.9% in FY16).

More expensive valuation than large caps.

Shanghai Shimao is now trading at 11.8x FY17F P/E and only offers a 1-2% dividend yield in the next three years, which is much more expensive than large caps (Vanke A’s 9.1x P/E and 4-6% yield; Gemdale’s 11.2x P/E and 5-6% yield), based on our estimates. Also, the company’s ROE is low at ~8% (vs. Vanke A’s 20% and Gemdale’s 11%). We think the weaker fundamentals of the company do not justify its current high valuation.

Valuation and risks.

Our TP is based on a 35% discount to end-2017F NAV of RMB6.64. The stock now trades at 11.8x FY17F P/E and a 26% discount to NAV. Key risks include: 1) stronger-than-expected contracted sales; 2) better-than-expected rental growth; and 3) faster-than-expected gross margin expansion.

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