AMTD Research has published the report on Redsun (1996.HK). We maintain our Buy rating with a target price of HK$3.32/sh. Redsun announced a solid 2019 balance sheet, despite a weaker than expected core attrib. net profit growth. We believe this solid balance sheet will offer management with flexibility to react to the uncertain macro environment, ensuring the developer’s long term stability.

A solid balance sheet to underpin a 15% contracted sales growth

Redsun has successfully deleveraged its balance sheet to a Net Debt to Equity of 70.4% and Total Assets to Equity of 5.3x during 2H19. The developer targets to achieve a contracted sales of RMB75bn during 2020, based on a sellable resources of RMB110bn. The target sell-through rate of ~68% is higher than industry average (60%). Therefore, we believe there may be potential upside surprise in contracted sales growth, if the developer successfully identifies attractive acquisition opportunities that can add to its 2020 sellable resources.

2019 results slightly below our expectations on higher SG&A and MI

Redsun reported a core net profit of RMB1,415.2m, growing 25.8% YoY. However, core net profit attributable to shareholders was only at RMB1,247m, up by only 3% YoY. The core attrib. net profit was 9% below our expectations, mainly due to a higher than expected SG&A and high portion of Minority Interests. 2019 SG&A as percentage of contracted sales rose to 2.7% (2018: 2.2%), which is still reasonable and in-line with industry average. On the other hand, minority interest was 69% higher than our expectations.

A deleveraged balance sheet provides ammunition for 2020

Redsun’s Net Debt to Equity has declined to 70.4% at end-2019 (1H19: 76%), while Total Assets to Equity has declined to 5.3x at end-2019 (1H19: 5.74x). We believe such a solid and healthy balance sheet gives management the flexibility to either remained disciplined to further lower financing costs, or take advantage of attractive land acquisition opportunities that may arise in 2020 and underpin its contracted sales growth. In the current uncertain macro environment, such a flexibility will ensure the developers’ long term stability, in our view.

Challenges needed to be overcome during national expansion plans

As Redsun continues to grow from the 2019 contracted sales levels of RMB65bn, expansion outside of Greater Jiangsu Region is inevitable. The developer entered into 17 new cities during 2019, including Jinan, Qingdao, Xi’an, Changsha and Zhengzhou. We believe it will take time for Redsun to develop its operational network and execution capabilities in these cities outside of its home turf of Jiangsu/Yangtze River Delta. 2020 will be a year which the developer continue to strengthen its foothold in these cities/regions which will be the springboard for future growth.

Stock is trading at 3.4x 2020E P/E slightly below industry average

Redsun is currently trading at a 3.4x 2020E P/E, which is slightly below industry average (4.2x). At such valuations, we believe the market has already factored in the slower-than-expected 2019 core net profit growth and potential upside surprises in contracted sales could spark a rally in share price. Our Target Price of HK$3.32/sh is based on a target 2020E P/E of 5.0x, offering 33% upside to current share price.

◆ ◆ ◆◆ ◆ ◆◆ ◆ ◆◆ ◆ ◆◆ ◆ ◆
This article is only a summary (the “Summary”) of a published research report (the “Report”). It only includes part of the comments and views stated in the Report, which has been issued by Research Department of AMTD. The mentioned comments and views such as target price, company profit forecast, industry trend forecast, etc., are based on a series of preconditions and assumptions. Readers should study the full version of the Report issued in details so as to form a thorough understanding on the expressed comments and views.

The Summary is solely for AMTD clients’ information. A person will not be regarded by AMTD as its client solely because he or she receives this Summary. The contents of the Summary will not constitute investment recommendations to any person in any event. AMTD will not assume any legal responsibilities regarding any consequences or losses arising from the direct or indirect use of the Summary, or investment made accordingly.

The extracted valuations, forecasts and ratings in the Summary represents the judgments or opinions formed on the issuance date of the Report. The contents of the Summary may become inaccurate or invalid as a result of changes in circumstances or other factors subsequent to the issuance of the Report. AMTD is not obliged to update inaccurate or outdated information subsequently. Meanwhile, AMTD will not separately inform the readers of the Summary after updates have been made.

AMTD reserves the copyrights of the contents of the Summary. No part of the Report shall be forwarded, modified, quoted, copied or reproduced in any form by any mean to any other person without the prior written consent of AMTD. The Company retains all legal rights in this Report.

Analyst Certification
We, Jacky Chan and Karen Huang, hereby certify that (i) all of the viewsexpressed in this research report reflect accurately our personal views aboutthe subject company or companies and its or their securities; and (ii) no partof our compensation was, is or will be, directly or indirectly, related to thespecific recommendations or views expressed by us in this research report, noris it tied to any specific investment banking transactions performed by AMTDGlobal Markets Limited.

Firm Disclosure
AMTD Global Markets Limited has an investment banking relationship with Redsun Properties GroupLimited and/or its affiliate(s) within the past 12 months.
AMTD Global Markets Limited
Address: 23/F – 25/F, Nexxus Building, No. 41 Connaught Road Central,Central, Hong Kong
Tel: (852) 3163-3288 Fax: (852)3163-3289

The research report is prepared by AMTD Global Markets Limited (“AMTD”) and is distributed to its selected clients.

This research report provides general information only and is not to be construed as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such offer or solicitation would be illegal. It does not (i) constitute a personal advice or recommendation, including but not limited to accounting, legal or tax advice, or investment recommendations; or (ii) take into account any specific clients’ particular needs, investment objectives and financial situation. AMTD does not act as an adviser and it accepts no fiduciary responsibility or liability for any financial or other consequences. This research report should not be taken in substitution for judgment to be exercised by clients. Clients should consider if any information, advice or recommendation in this research report is suitable for their particular circumstances and seek legal or professional advice, if appropriate.

This research report is based on information from sources that we considered reliable. We do not warrant its completeness or accuracy except with respect to any disclosures relative to AMTD and/or its affiliates. The value or price of investments referred to in this research report and the return from them may fluctuate. Past performance is not reliable indicator to future performance. Future returns are not guaranteed and a loss of original capital may occur.

The facts, estimates, opinions, forecasts and any other information contained in the research report are as of the date hereof and are subject to change without prior notification. AMTD, its group companies, or any of its or their directors or employees (“AMTD Group”) do not represent or warrant, expressly or impliedly, that the information contained in the research report is correct, accurate or complete and it should not be relied upon. AMTD Group will accept no responsibilities or liabilities whatsoever for any use of or reliance upon the research report and its contents.

This research report may contain information from third parties, such as credit ratings from credit ratings agencies. The reproduction and redistribution of the third party content in any form by any means is forbidden except with prior written consent from the relevant third party. Third party content providers do not guarantee the timeliness, completeness, accuracy or availability of any information. They are not responsible for any errors or omissions, regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability of fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities for investment purposes, and should not be relied on as investment advice.

To the extent allowed by relevant and applicable law and/or regulation: (i) AMTD, and/or its directors and employees may deal as principal or agent, or buy or sell, or have long or short positions in, the securities or other instruments based thereon, of issuers or securities mentioned herein; (ii) AMTD may take part or make investment in financing transactions with, or provide other services to or solicit business from issuer(s) of the securities mentioned in the research report; (iii) AMTD may make a market in the securities in respect of the issuer mentioned in the research report; (iv) AMTD may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this research report or may be providing, or have provided within the previous 12 months, other investment banking services, or investment services in relation to the investment concerned or a related investment.

AMTD controls information flow and manages conflicts of interest through its compliance policies and procedures (such as, Chinese Wall maintenance and staff dealing monitoring).

The research report is strictly confidential to the recipient. No part of this research report may be reproduced or redistributed in any form by any means to any other person without the prior written consent of AMTD Global Markets Limited.

Leave a Reply

5 × four =