China Overseas Land (688 HK)

H O N G
R e t a i l
M a r k e t
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STOCK FOCUS
K O N G
Friday, 07 February 2014
KEY INDICES
China Overseas Land (688 HK)
Offering Shelter In Uncertain Times
With COLI trading at mean less 1SD, we see this as an attractive entry level for a
market leader and suggest BUY for five reasons: a) relatively strong contract sales in
1Q14, b) a respectable 20% growth in sales this year, c) its low gearing and funding
costs will become important strengths during monetary tightening, d) asset injection
from parent will add at least 10% to NAV, and e) sturdy track record means COLI tends
to outperform peers during uncertain times. Maintain target price of HK$27.15.
WHAT’S NEW
We recommend investors to take advantage of the share price correction to BUY COLI
for the following five reasons:
a) Contract sales likely to be ahead of peers’ in 1Q14. Unlike its peers whose contract
sales tend to skew towards the 2H of the year, COLI has always had the discipline to
work hard on generating sales right from the beginning of the year. COLI made 28% of
its full-year sales in 1Q13, 20% in 1Q12 and 23% in 1Q11, vs the sector’s 23%, 15%
and 20% respectively. We foresee a similar pattern this year and in particular, we
expect a strong January number as HK$18.5b of sales were subscribed but not yet
contracted as at end-13, and the bulk of these should be booked in January. Good
monthly sales have always been a key mover of share prices, and will be more likely
this year given the more challenging operating environment.
b) Still generating respectable growth despite the high base. Despite its high base,
COLI generated a 24% increase in contract sales last year, after a 28% growth in 2012
and 30% in 2011, vs peers’ 28%, 24% and 21% respectively. Management has been
aiming to achieve at least a 20% growth in net profit and contract sales each year, and
has not missed these targets even in difficult conditions such as 2011. As far as we are
aware, these are still the targets for 2014 (we will get confirmation when the company
announces its results on 13 March). These targets are very respectable, especially as
we expect most China developers to aim for 10-20% sales growth this year. COLI’s
sales growth fell behind peers’ last year only because even the small and not-so-wellmanaged developers were able to sell in the robust market. But in the slower market
this year, the better-known and better-managed developers will gain market share
again. 20% sales growth very achievable this year. COLI’s GFA under construction
rose 25% in 2013 to 25m sqm and based on this, we estimate saleable resources to be
at least 20% higher at >HK$200b in 2014. Hence, COLI will have to achieve a sellthrough rate of around 80% to meet the 20% sales growth target. This is not easy, but
not far-fetched given COLI has attained an average sell-through rate of 81% in the last
two years.
HSI Index
HSI Futures
HSCEI index
SHCOMP
DJI index
SPX index
NKY index
DAX index
CAC index
Prev
Close
21,423
21,483
9,538
2,033
15,629
1,773
14,400
9,257
4,188
Chg
(%)
0.7
0.7
0.7
-0.8
1.2
1.2
1.7
1.5
1.7
YTD
(%)
-8.1
-7.9
-11.8
-3.9
-5.7
-4.1
-11.6
-3.1
-2.5
Price
(HK$)
Chg
(%)
Value
($m)
508.
50
60.6
71.10
78.70
72.55
0
-0.4%
10.9%
7.3%
0.1%
0.1%
3005.5
2290.7
2047.8
1718.4
1152.5
Price
(HK$)
Chg
(%)
Value
($m)
1.53
0.65
0.52
0.66
1.11
48.5%
32.7%
30.0%
22.2%
20.7%
8.9
27.7
9.6
13.3
78.1
Price
(HK$)
Chg
(%)
Value
($m)
2.61
0.19
1.02
0.98
2.00
-24.1%
-20.7%
-19.0%
-16.2%
-13.4%
386.2
23.4
2.0
0.3
48.6
Source: Bloomberg
TOP VOLUME
Stock
TENCENT HOLDINGS
SANDS CHINA LTD
GALAXY ENTERTAIN
HSBC HLDGS PLC
CHINA MOBILE
TOP GAINERS
Stock
YUNBO DIGITAL
NORSTAR
FOUNDERS
SINO GOLF HLDGS
TELEFIELD INTERN
CENTURY SUNSHINE
TOP LOSERS
Stock
CITIC 21CN CO LT
MERDEKA
RESOURCE
CIAM GROUP LTD
LEEPORT HOLDINGS
KINGWORLD MEDICI
EARNINGS REVISION/RISK
Expecting 21% growth in 2013 underlying profit. We have not changed our earnings
projections, expecting COLI to report a 21% growth in underlying profit for 2013. We
expect operating margin to decline to 37% for the full year from 1H’s 41% mainly due to
booking of affordable housing projects in the 2H. We do not expect any surprises in the
results.
VALUATION/RECOMMENDATION
Distressed valuation relative to its own past. Arguably the best-run China developer,
COLI never comes cheap relative to peers. It is now trading at a 27% discount to NAV,
vs the sector’s overall 44%. But similar to the overall sector, current valuation is
distressed, at historical mean less 1SD. We maintain our target price, which is pegged
at mean discount to NAV of HK$27.70. The impending asset injection will be a worthy
catalyst and we expect the exercise to add >10% to NAV.
SHARE PRICE CATALYST
Upside: Asset injection, strong sales and favourable policy environment.
Downside: Slow sales and new tightening measures.
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ANALYSTS
Sylvia Wong
+852 2236 6793
[email protected]
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H O N G
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Friday, 07 February 2014
TRADERS’ CORNER
HK & China Gas (3 HK)
Critical Support at HK$15.00
HK & China Gas breached the 0.76x
retracement level at HK$15.94 on Tuesday.
With reference to the roadmap of MACD, it is
critical that the stock finds support at the
neckline of the previous rounding bottom
formation at HK$15.00.
Otherwise, the stock may test the previous low
and the psychological support at HK$14.00.
Longyuan (916 HK)
Bullish Divergence Of Slow Stochastics
Longyuan completely refilled the previous
downside gap top at HK$9.60 yesterday.
Given the bullish divergence of the Slow
Stochastics, the stock is likely to re-test the 50week high at HK$10.32 after the consolidation
completes.
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H O N G
R e t a i l
M a r k e t
M o n i t o r
K O N G
Friday, 07 February 2014
Henderson Land (12 HK)
MACD Support Breached
Trading sentiment turned sour as the MACD
breached the support of the previous low.
In this circumstance, we believe the HK$40 level
where the psychological support and the
downtrend support line intersect will be
penetrated soon.
Thereafter, the stock is likely to re-test the
previous low at HK$37.44.
Source: HKET Net
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ANALYST
Barole Shiu, CMT
+852 22366716
[email protected]
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H O N G
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K O N G
Friday, 07 February 2014
CORPORATE NEWS
Geely: Leading automaker in Ukraine’s PV market
Geely took the lead in passenger car sales in Ukraine, obtaining 12.4% of the market
share in January. In January, Geely saw PV sales in the Ukrainian market hit 1,356
units, up 44.3% yoy. Toyota and ZAZ followed with sales volume of 1,253 units and 860
units respectively. Vehicle sales in Ukraine rose by 4.3% yoy in January to stand at
10,950 units. In 2013, total vehicle sales stood at 346,746 units, down 4.5% yoy from
2012.
Xinhua, China DailyCN
Citic Pacific: Lost bid to stop mineralogy from operating port
Citic Pacific lost a bid to stop Mineralogy Property from operating a port in Western
Australia, a dispute stemming from the construction of the biggest magnetite iron-ore
development in the country.
Bloomberg
Beijing industrial firms’ profits decline in 2013
Industrial firms regulated by the Beijing Municipal government saw profits drop by 0.2%
yoy in 2013. The data was collected from industrial companies in Beijing with annual
business revenue of more than Rmb20m. The companies had aggregate profits of
Rmb125.5b in 2013. SOE saw profits drop by 6.8% yoy, joint-equity firms down by 15%
yoy and foreign funded enterprises surged by 19.4% yoy. The auto and pharmaceutical
sectors recorded profits growth of 28.7% yoy and 23.5% yoy respectively, while the
electricity and heating sectors saw profits decline by 1.5% yoy.
Xinhua, China DailyAsia
Macao airport 12% traffic surge in January
Macao International Airport recorded a 12% traffic surge as it handled 422,242
passengers in January. The airport also recorded 4,355 aircraft movements in January,
which was an increase of 10.9% yoy. During the Chinese new year period, passenger
traffic volume recorded a 0.8% yoy growth, serving over 80,000 passengers and
handling over 700 flights.
Xinhua, China DailyAsia
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H O N G
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Friday, 07 February 2014
Disclosures
As of 07 February 2014, the analyst and his/her immediate family do not hold positions in the respective securities
recommended in this report.
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representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness.
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without notice. Any recommendation contained in this document does not have regard to the specific investment objectives,
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