- August 27, 2021
We published a research report on China Aoyuan (3883.HK) on the back of its recent interim results announcement. Please kindly see the full report attached.
Key Highlights:
We believe Aoyuan’s primary focus will be on deleveraging its balance sheet in the next 6-12 months. We believe this will result in slower contracted sales and revenue growth ahead. Nonetheless, we believe market’s valuation of the stock at distressed valuations of 2.0x 2021E P/E, ~20% div yield is unwarranted and thus maintain our Buy rating.
- We believe China Aoyuan’s contracted sales growth into 2H21E and 2022E will gradually slow down as balance sheet deleveraging takes priority, in our view.
- Aoyuan announced its 1H21 results which are largely in line with our estimates. Revenues increased 15% YoY to RMB32.5bn for 1H21. 1H21 core attrib. net profit came in at RMB2.16bn representing 41% of our full year estimate.
- We have noted that the developers’ 1H21 Total Assets has declined HoH to RMB316bn (2H20: RMB326bn). We expect the overall contracted sales growth to slow down in the next 6-18 months due to slower growth in new sellable resources.
- Moreover, we believe the decline in 1H21 contract liabilities to RMB63bn (2H20: RMB69bn) also implies a higher downside risk to our 2021E revenue estimates.
- While there is rising downside risks to our 2021E-2023E revenue and earnings forecasts, we are still confident that the developer will maintain a positive earnings growth which is better than market’s current expectations.
- Aoyuan is currently trading at 2.0x 2021E P/E offering 20.1% dividend yield, which we believe is attractive.
