Parent’s liquidity woes to hamper its growth
? Recent announcements and news on Jinke Property (Jinke SS’s parent)
point to a higher chance of default on its domestic bonds.
? Parent’s weak property sales outlook would drag on Jinke SS’s growth in PM
services as well as VAS to non-property owners.
? We downgrade Jinke SS from Add to Hold with a lower TP of HK$21.4, based
on a lower 23% FY21-24F EPS CAGR (previously 30.8%) and 0.4x PEG.
Parent’s liquidity has worsened
On 19 May 2022, Jinke Property (000656 CH, NR; Jinke SS’s parent) announced that
starting from today (20 May), it would limit the purchase of eight of its outstanding domestic
bonds to institutional investors only in order to “protect investors’ interests and ensure
smooth operations of bond markets”. According to Bloomberg, Evergrande and Sunac
made similar announcements regarding their domestic bonds. Meanwhile, local news
media Guandian reported that Jinke Property is arranging to refinance two of its bonds due
soon with a domestic bond, which may not eventually materialise. Jinke Property also
announced after market close today that 45m shares owned by its controlling shareholder
and held in the margin account maintained with Citic Securities were liquidated on 18-19
May. Shares in Jinke Property/Jinke SS slumped by 10%/16% today.
Parent’s weak sales a drag on its managed GFA growth
In our view, that is a key signal that the liquidity of Jinke Property has worsened. Its
contracted sales have been weak YTD with a 57% yoy decline in sales value and a 46%
yoy decline in GFA sold in 4M22. Due to its liquidity issues, we project a 27% decline in its
annual average GFA to be delivered to Jinke SS for management in FY22-24F, compared
to FY19-21. Jinke SS’s managed GFA growth would then slow to 81m-93m sq m p.a. in
FY22-24F based on our latest estimates (96m-103m sq m p.a. previously).
EPS cuts reflect weaker prospects for PM services and VAS
Jinke SS’s growth in value-added services (VAS) to non-property owners and community
VAS would be negatively impacted by parent’s liquidity woes and recent lockdowns at the
city level in China. We cut our FY22-24F EPS by 7-17% to factor in 1) lower revenue growth
from property management (PM) services due to slower growth in managed GFA; and 2)
slower growth in VAS to non-property owners and community VAS. As a result of a lower
proportion of revenues from VAS, we also forecast lower overall gross profit margins
(GPM) of 28-29.4% in FY22-24F (FY21: 30.9%). Our new FY21-24F EPS CAGR is cut to
23%, vs. Bloomberg consensus’s 35%.
Downgrade to Hold with a lower TP of HK$21.4
We downgrade Jinke SS from Add to Hold, with a lower TP of HK$21.4, which translates
into 0.4x PEG or 9.2x FY22F P/E. A lower PEG reflects a weaker GFA pipeline from Jinke
Property. Key downside risks: prolonged Covid-19 outbreak in China that slows VAS
expansion and further disposal of shares of Jinke SS by Jinke Property. Improvement in
Jinke Property’s liquidity is a key upside risk for Jinke SS.