Rich valuation a big disconnect to weak fundamentals; Sell

Deutsche Bank Markets Research Rating Sell Asia China Property Property Company Gemdale Corp Date 20 January 2016 Forecast Change Rich valuation a big disconnect to weak fundamentals; Sell Reuters Bloomberg Exchange Ticker 600383.SS 600383 CH SHH 600383 Forecasts And Ratios Year End Dec 31 2013A 2014A 2015E 2016E 2017E Sales (CNYm) 32,849.8 43,049.9 48,565.4 49,922.5 50,189.8 EBITDA(CNYm) 5,088.9 8,208.1 9,078.2 9,650.9 8,833.8 Reported NPAT(CNYm) 3,608.8 3,997.5 3,973.6 4,218.4 4,621.5 DB EPS FD (CNY) 0.48 0.78 0.89 0.94 1.03 PER (x) 13.5 10.3 16.8 15.8 14.4 DPS (net) (CNY) 0.16 0.13 0.16 0.17 0.19 Yield (net) (%) 2.4 1.6 1.1 1.1 1.2 Source: Deutsche Bank estimates, company data Maintain Sell on profitability concern and rich valuation; target price RMB8.6 ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. Price at 20 Jan 2016 (CNY) 14.91 Price target - 12mth (CNY) 8.60 52-week range (CNY) 16.63 - 8.72 HANG SENG INDEX 19,237 Jason Ching, CFA Research Analyst (+852) 2203 6205 jason.ching@db.com Tony Tsang Research Analyst (+852) 2203 6256 tony.tsang@db.com Key changes Price target 7.50 to 8.60 ↑ 14.7% Sales (FYE) 47,319 to 48,565 ↑ 2.6% Op prof margin(FYE) - ↓ -0.2% Net profit(FYE) 3,839.6 to 3,973.6 ↑ 3.5% Source: Deutsche Bank Price/price relative 481216201/147/141/157/15Gemdale CorpHANG SENG INDEX (Rebased) Performance (%) 1m 3m 12m Absolute 10.0 25.9 55.8 HANG SENG INDEX -11.6 -16.3 -19.7 Source: Deutsche Bank We maintain our cautious view on Gemdale despite the strong growth in contracted sales yoy. At first glance, Gemdale had a good year in 2015, with total contracted sales by value up 26% to a new record high of Rmb61.7bn. Yet, the company missed its FY14 sales target of RMB60bn by 18% and that target was only met in FY15. Moreover, we believe the strong contracted sales performance merely reflects the aggressive land acquisitions made during the market peak in 2013 and that margin recovery (if any) could lag behind peers. Meanwhile, valuation is rich at current share price, trading at 12% premium to NAV and 17x 2015E PER, implying a marked premium over peers. Strong growth in FY15 contracted sales merely due to low-base effect Gemdale achieved total contracted sales +26% yoy to a record high of RMB61,660m by value in FY15. On the other hand, total GFA sold also grew by 15% yoy to 4.46m sqm while contracted ASP was up 9.8% yoy to RMB13,841/sqm. At first glance, Gemdale had a strong year in 2015. However, considering that it missed its FY14 sales target of RMB60bn by 18%, the strong yoy growth in 2015 is merely due to the low-base effect, whereby the FY14 sales target was only achieved in FY15. Moreover, we believe the strong sales performance in 2015 is merely due to a marked increase in saleable resources on aggressive new acquisitions in 2013. Unfavorable land bank vintage with close to 30% acquired during the peak Gemdale has total land bank of 24m sqm GFA as of end-14, of which 7.2m sqm GFA (or just less than 30% of total) was acquired in 2013. As land prices were at a cyclical high in 2013, concentration of land bank acquisition during the peak has resulted in an unfavorable land bank vintage, leading to slower margin recovery vs. peers going forward. We think Gemdale missed out on the best timing for land acquisition during the cyclical downturn in 2011/12, when the company only acquired 0.8m and 2.4m sqm GFA of land, respectively. Target price at a 35% discount to our estimated NAV of RMB13.23/share Our target price is based on a 35% discount to our NAV estimate of RMB13.23/share, implying a 2015/2016E PE of 10x/9x. Our target discount is in line with peers with similar contracted sales scale like Agile, Guangzhou R&F and Sino-Ocean (ranging from 30-40%), but markedly higher than industry leaders like COLI/Vanke (both at 10%), which we believe is appropriate. Key risks: government loosening policies, and strong market recovery. 20 January 2016 Property Gemdale Corp Page 2 Deutsche Bank AG/Hong Kong Model updated:17 January 2016 Running the numbers Asia China Property Gemdale Corp Reuters: 600383.SS Bloomberg: 600383 CH Sell Price (20 Jan 16) CNY 14.91 Target Price CNY 8.60 52 Week range CNY 8.72 - 16.63 Market Cap (m) CNYm 66,670 USDm 10,1