EUR 850.00 For Business Accounts Only

Morningstar | 00813 Updated Forecasts and Estimates from 23 May 2019

Shimao reported full-year 2018 results that were slightly below our estimate. Revenue and core attributable profit were CNY 86 billion and CNY 8.6 billion, respectively, up 21% and 23% year on year. Gross margin continued to improve, rising from 30% to 32% as expected. Full-year dividends totaled CNY 1.20 per share, up 20% year on year. The top line was 2% below our estimate, and core earnings were 6% below due to higher tax and higher minority interest. The company achieved strong contracted sales growth during the year, the strongest growth among peers. As the property market is expected to slow during 2019, with the company’s relatively high gearing and small scale, its growth is expected to taper off. We maintain our fair value estimate of HKD 25 and the company’s no-moat rating.

Property development accounted for 95% of total revenue. The company booked revenue totaled CNY 81 billion, up 21% year on year. Average booked price was CNY 13,807, up slightly year on year. Contract sales totaled CNY 140 billion, up 75% year on year, driven almost entirely by volume growth. For 2019, the company projected salable resources of 19 million square meters, almost 40% higher than a year ago. Assuming 65% sell through rate at comparable average selling price, contract sales growth is expected to be 15%. Through February 2019, contract sales appeared to be off a quick start with sales up 26%, mostly due to volume growth.

During the year, GFA completion was 8.9 million square meters, while GFA under construction was 29 million square meters, roughly in line with the company’s guidance for the year. The company guided a further step up in operational scale with completion of 10.5 million square meters and construction of 35 million square meters for 2019.

Land banking had been brisk during the year. The company acquired land reserves of 16 million, resulting in a total land bank of 55 million square meters. Compared with 2017, the company acquired 11 million square meters and a land bank of 48 million square meters. Gearing remained steady at 62% as strong contract sales offset the balance sheet impact of the scale expansion. The company is still in the expansion phase, albeit now at a slower pace.
During 2018, the property market in China decelerated under the weight of government policies. For the year, sales of commodity housing were up 1.3% and 12% by GFA and value, respectively, compared with growth rates of 8% and 14% in 2017, and 22% and 36% in 2016. Despite a nominally accommodative policy for 2019, the property market is expected to slow.
The company’s investment property portfolio is on track with the ramp-up of several large hotel assets in Shanghai and Hong Kong as well as office assets in Shenzhen. The company projects rental income to double to CNY 7 billion by 2020. Increasing contributions from rental assets should moderate the risk of a slowing property market. In terms of capital management, there is scope for spinning off hotel assets.