• Gross contracted sales grew 10.8% in 2021
• Relatively higher recurring income streams as compared to peers
• Reiterate as one of preferred picks within Chinese property sector
Gross contracted sales grew 10.8% to RMB315.8b in 2021 despite industry headwinds – China Resources Land (CR Land; 1109 HK) registered a 15.6% and 5.8% YoY increase in its gross contracted sales and contracted GFA for the month of Dec 2021 to RMB45.2b and 1.0m sqm, respectively. On an attributable basis, contracted sales rose 13.8% YoY to RMB34.4b, while contracted GFA grew 14.1% YoY to 853.3k sqm. Cumulatively, CR Land’s gross contracted sales increased double digits by 10.8% to RMB315.8b in 2021, which was highly commendable given the headwinds facing the Chinese property sector. This was also slightly ahead of our RMB315.0b forecast. Contracted GFA in 2021 jumped 17.4% to 16.6m sqm, which
translated to an ASP of RMB18,966 per sqm, or a decline of 5.6% YoY.
Rental income from investment properties jumped 40.6% in 2021 – Besides CR Land’s robust growth in contracted sales for its property development business, it was also able to grow its recurring income streams strongly. Rental income from its investment properties grew 9.5% YoY to RMB1.8b in Dec 2021, such that full-year 2021 rental income surged 40.6% to RMB18.3b. We continue to like CR Land for its relatively higher recurring income streams as compared to its peers, given its solid portfolio of shopping malls and to a smaller extent office and hotel properties. Management highlighted previously that it expects its rental income to fully cover its dividend and interest expenses for the first time in 2021 with its coverage ratio reaching 1.02x (rental income divided by sum of dividend and interest expense).
Poised to capitalise on opportunities ahead – We expect CR Land to maintain its prudent capital management approach, but also expect CR Land to capitalise on opportunities in the land market to build up its land bank when most of its peers are tightening their balance sheets. As at 30 Jun 2021, CR Land’s net gearing ratio stood at a healthy level of 37.4%, with a low average funding cost of 3.88% within the industry. We assume a slightly lower contracted sales growth momentum of 8% for both FY22F and FY23F, but raise our rental income assumptions. Our FY21F and FY22F core PATMI forecasts are trimmed by 3.5% and 1.1%, respectively. Maintaining our P/E target peg of 8.6x, our fair value estimate inches down from HKD43.66 to HKD42.68.
ESG Updates
CR Land’s ESG rating was upgraded in Aug 2021. This upgrade was driven in part by CR Land’s efforts to certify all its new properties to China’s Three Star green building standard. 22.9% of CR Land’s portfolio by building area was certified in 2020, which was above the industry average based on classification. Furthermore, CR Land is also ahead of its peers in adopting construction quality controls, and has come up with executive-level oversight and linked executive pay to safety indicators to strengthen accountability on the aspect of ‘Health & Safety’. That said, areas of improvement include needing to have a more detailed anti-corruption policy and provision of legal protection for whistleblowers. BUY. (Research Team)