Morningstar | Likely to Outpeform Peers in 2019, Rental Income to Mitigate Residential Property Slowdown
Shimao’s sales performance outshone most of the sector peers during 2018. The company achieved contract sales growth of 75%. With the strong momentum and the expansion of its operation, we expect the company to book strong earnings growth for 2018 and 2019 with steady margin. However, as the property market is near the tail end of a growth cycle, along with the company's relative high gearing level, we expect the company to revert to a slow pace of growth after 2019. Increasing contributions from rental assets should moderate the risk of a slowing property market. We maintain our fair value estimate of HKD 25 and the company's no-moat rating.The company achieved contract sales of CNY 176 billion, exceeding its target of CNY 140 billion and our projection of CNY 150 million. The outperformance is a rarity among peers, which most had seen subdued growth comparing to prior years. The increase was entirely driven by higher GFA sold, with average selling price down 1% on the account of project mix. Management expects growth of 30% for 2019 on the back its expanded operational size, likely outperforming most peers.
The company’s IP 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. In terms of capital management, there is scope for spinning off hotel assets as well as continued share buybacks at the current price level.
Shimao Property Holdings is an investment holding company. Through its subsidiaries, Co. is principally engaged in property development, investment and hotel operation in the People's Republic of China. Co. develops commercial properties through its 64.12% owned subsidiary Shanghai Shimao Co., Ltd. As of Dec 31 2014, Co. had 104 projects in 41 cities in the country.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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