CMS(HK)Research Highlights

类型：投资策略机构：招商证券(香港)有限公司研究员：招商证券(香港)研究所日期：2016-07-05

Property QE, M&A and asset restructuring should be the key themes in 2015-17E. We expect more property privatization and assets restructuring amid distressed valuation (sector NAV discount at 42%, 1SD below 7-year mean)

    We are looking forward to more developers to go private at a premium against share prices. Maintain OVERWEIGHT on the property sector. Our top picks are COLI (688 HK) and CR Land (1109 HK)

    Strong incentives to delisting or restructure

    Mid-sized developers are trading at 63% discount to 1-year forward NAV or 0.5x FY16E P/B. The distressed valuation attracts developers to unlock values through 1) delisting and re-listing in A share markets at higher valuation and 2) assets disposals/spin off at a price at above 1x P/B ratio and then paying a high special dividend. New World China (917 HK) had been approved for privatization at 1.15x PB in Mar 2016. Wanda (3699 HK) is also undergoing its privatization plan at 1.0x FY16E PB. We expect more privatization/ restructuring in the near future.

    Non-core asset disposals -potential special dividends

    Developers are actively selling non-core property assets (mainly hotels and shopping malls) so as to improve the ROE and asset turnover. Shimao (813 HK) had signed RMB4bn disposals of Beijing Fortune Times and it would continue to sell more. Agile (3383 HK) also planned to sell most rental properties and hotels which were worth RMB10.7bn or equivalent to 87% of its market cap. The active M&A activities also encouraged land site disposals by non-property-focused companies such as CIMC (2039 HK) and KB Laminates (1888 HK). We are not surprised that these companies will pay high special dividends after selling their non-core assets.

    Large-scale restructuring -potential privatization

    Some developers are disposing their landbank assets in large-scale, such as Shui On Land (272 HK) and CC Land (1224 HK). We estimate CC Land’s net cash and investment securities value at HK$3.9/share at FY16E year-end or equal to 189% of current share price. We believe that major shareholders have strong incentives to go delisting after large-scale asset disposals. The persistent property QE could support buoyant home sales and developers’ privatization and restructuring activities, which would be catalysts to re-rate the sector. (John SO)