- April 01, 2021
We believe China Aoyuan’s (3883.HK) depressed valuations reflected investors’ concerns of a potential earnings decline in its results. Following the results announcement, we believe the overhang is removed and we expect the stock to rebound in the coming months. Maintain Buy.
Key Highlights:
- We believe Aoyuan’s special dividend declared reflects the strength in the company’s underlying cash flows. As we highlighted in our sector report, “A Bumpy Ride Ahead, Take Shelter Under Dividend Yield”, dated 5 May 2020, we believe property developers like Aoyuan has been undervalued and this is reflected in its high dividend yield.
- The stock is still offering a 10.8% 2020 dividend yield despite the rebound in share price post-results announcement.
- The 2.7x 2021E P/E valuation of Aoyuan reflected market’s concerns about a potential earnings decline, in our view. We believe this overhang is now removed following the latest results announcement.
- We thus expect the stock to rebound in the next few months to trade back at levels closer to industry average of ~5.0x P/E.
- Aoyuan’s contracted sales target is expected to grow by 13% YoY in 2021E to reach RMB150bn, however, we believe the attributable stake in contracted sales will also be lowered amid the higher portion of JV and Associate companies.
- We expect management to focus their efforts to fulfill the three-red lines during 2021 and deleverage their balance sheet.
