Steady as she goes

Investment Thesis

Better-than-peers access to capital market funding. Logan was one of the only two POE mid-caps that were invited by the CSRC and Shanghai Exchange to apply for the issuance of public corporate bonds in Dec-21. The company was also successful in the pursuance of an HK$1.17bn share placement in early Dec (with c.3x oversubscription) and the issuance of an Rmb665m CMBS during the same month. We believe this showcased Logan’s better-than-peers liquidity position and financial strength, as proven by recognitions from regulators and its access to the capital market for funding.

Taking a pause to sit through recent uncertainties. Logan halted its land acquisition pace shortly after the liquidity crisis hit the sector in 3Q21. The company also took a step back from its original expansion plan into the YRD and investment properties. Looking into 2022, Logan looks to target for flat presales of Rmb140bn. While the company currently estimates to have an Rmb40-50bn cash buffer that can be deployed for investments, Logan will remain cautious with no specified land capex target in 2022.

Attractive valued with decent dividend yield despite earnings and payout cuts. Logan would still trade at an attractive 2.7x FY22F PE alongside a fruitful 12% FY21F dividend yield even after our 10- 20% FY21-23F earnings cut and a 10ppt dividend payout reduction. We believe it is now a good point for investors to revisit this stock.

Valuation:

Our TP is based on 3.3x FY22F PE, equivalent to the company’s 1- year forward PE average in 2021.

Where we differ:

Solid credit profile yet to be priced in. With the company’s undemanding valuation that is currently at >1.5sd below its 3-year mean, we believe Logan’s superior and regulator-acknowledged credit profile has yet to be fully appreciated by the market.

Key Risks to Our View:

Stronger-than-expected margin compression; slower-than-expected project delivery; larger-than-expected cuts on dividend payout.