Key Research Idea
Longfor Group Holdings Ltd (960 HK) – Could a potential spinoff be on the cards?
Longfor (stock code: 960 HK) ranks as one of the top 15 developers in PRC, based on contracted sales value, and has a strong focus on Tier-1 and leading Tier-2 cities. Management has been prudent in managing its inventory and replenishing its land bank, thus allowing it to maintain a healthy balance sheet. Another positive attribute of Longfor stems from its growing investment properties, rental housing and property management portfolios, which offer recurring income streams to enhance the group’s earnings visibility amid headwinds within the property development sector. BUY. (Research Team)
Xiaomi Corp (1810 HK) – Challenging conditions for smartphone shipments
Xiaomi’s 3Q21 results were broadly in-line. While internet services GPM was robust at 73.6%, we still remain somewhat cautious given the more muted sentiment in domestic ads in light of the more subdued outlook per management teams of other internet platform companies. 3Q21 adjusted earnings grew 25% YoY to RMB5.2b, which was ~8% above consensus. Guidance for 2021 smartphone shipments has been lowered from 200m to 190m, with 2H21 facing notable supply shortages. Management notes that they will continue to expand their offline network in mainland China (though the ramp up will need time) and focus on productivity of stores. While smartphone GPM is supported by better mix, we do not exclude the possibility that rising opex pressures resulting from continued offline expansion could impact operating income. Following adjustments (while keeping our ESG discount unchanged), we also employ a lower target P/E multiple of 18.8x (0.25 SD below the 2FY 5-year mean) in light of a more uncertain outlook for smartphones as well as potential internet headwinds ahead. As such, our FV drops from HKD27.71 to HKD21.29. HOLD. (Research Team)