Future earnings clouded by uncertainty
Investment Thesis
Earnings to take a hit from ongoing pressure faced by related developer. CCNL is fairly dependent on the overall performance of CCRE (832 HK) with c.48% of its 1H21 gross profit derived directly from its related developer via nonproperty owner VAS. Alongside the recent COVID-19 outbreak in Henan and a tougher liquidity environment in the development sector, we believe CCRE will face higher liquidity pressure, and delivery pace is expected to slow and presales outlook to weaken accordingly. Support through intelligent community solutions will likely be slower as well. We estimate impact from these fronts would reduce our FY21-23F earnings by c.0-28%.
Searching for an appropriate business model for Jianye+. CCNL has been actively seeking for ways to penetrate deeper into its community with local lifestyle services offered on its Jianye+ platform. So far, the growth in users and members on the platform have been slower than expected in 2021. We believe CCNL will likely revise down its growth guidance in this business segment in March.
Valuation:
Our TP is based on a 9.6x FY22F EPS, which is the average 1- year forward PE for the company in 2H21.
Where we differ:
Moderation in CCNL’s growth outlook yet to be fully reflected. We believe the market has yet to recognize the full impact that the current turbulence in the property market has on CCNL’s future growth outlook. Our FY21-23F earnings are 3-37% below market consensus estimates.
Key Risks to Our View:
Tougher than expected liquidity pressure on CCRE (832 HK); longer than expected search for growth strategy on Jianye+, significant labour cost increments