Takeaways from virtual property conference
? CR Land’s sales outperformed its peers’ in 5M22 and management said its
Jun sales could be higher mom on the back of more projects launches.
? The company is proactively buying land from public auctions as management
thinks the risk from this is relatively easier to assess than M&A risks.
? Reiterate Add and HK$48.2 TP in view of its strong balance and SOE status.
We see CR Land as one of the key winners of rapid market consolidation.
Jun sales to be exceed May’s
? CR Land participated in our virtual property conference this week. Below are some of
the key takeaways from meetings with its management.
? May sales were Rmb20bn, up 35% mom but down 20% yoy; its yoy performance was
still ahead of its peers’ average of 40-50% decline.
? 5M22 sales amounted to Rmb81bn, down 35% yoy, outperforming its peers’ average of
50% decline.
? Management expects Jun sales to beat May’s, due to more new launches.
? Management said its presale showroom visitor traffic was strong in the 1st week of Jun,
but weakened again in the second week.
? Management concurred with other developers that sales in low tier cities had been quite
weak.
? CR Land’s sell-through rate for 5M22 was below 50%, vs. c.62% in FY21.
Proactive land banking in 5M22
? CR Land bought 20 plots of land in 5M22 for Rmb46bn, or attributable value of
Rmb40.7bn based on its average stake of 88% for the respective plots. The amount it
paid for land in 5M22 is equivalent to about 50% of its sales in 5M22.
? Management said the land premium for public land (via auctions) were much lower in
5M22 (0% to low single-digit premium above reserved prices) vs. 2021. Hence it expects
the GPMs for projects on land acquired from public land auctions in 5M22 to be higher
than the GPMs on land parcels acquired in 2021.
? Management said it has a requirement of IRR of not less than 15% for land acquisitions.
? Management said CR Land has conducted feasibility studies on many potential M&A
targets in the past few months but did not reach a conclusion on any because many of
the targets are quite complicated, making it very difficult for CR Land to assess the risks.
Moreover, many of the vendors are not willing to reduce prices to what it considers to
be more reasonable levels.
Need to subsidise mall tenants in 1H22 due to Covid-19
? 5M22 rental income was Rmb8.1bn, up 13% yoy – Rmb6.5bn from malls (+16% yoy),
Rmb1.1bn from offices, and ~Rmb0.4bn from hotels.
? The rental figures above have not factored in potential rental concessions it could offer
to its tenants later in view of Covid-19, likely in the form of reimbursements.
? Management said CR Land provided about 1.5 months of rental support to its tenants
during the first wave of Covid-19 in China in 2020. We believe it may need to provide
support over a similar period this time around.
? 5M22 retail sales for its malls were Rmb44.2bn, up 4% yoy; SSSG declined 7% yoy.
Management will update its guidance with its 1H21 results
? Management said CR Land is maintaining its sales target and 14th Five-year plan
unchanged for now; it will share a new guidance, if any, during its 1H22 results briefing.
? 1H22 results could be affected negatively as it may recognise rental support to tenants.
Maintain Add and TP of HK$48.2
? Maintain Add and NAV-based TP of HK$48.2.
? We see CR Land as one of the key beneficiaries of the sharp market consolidation of
China’s property market given its strong balance sheet and state-owned enterprise
(SOE) status.
? Key catalysts for its share price include stronger-than-expected sales in 2H22F while
unexpected further spread of Covid-19 in China is key risk to our call.