- March 04, 2021
Powerlong (1238.HK) reported a solid set of results with a deleveraged balance sheet and stable profit margins, while contracted sales growth is still targeted to maintain at 29% for 2021E. We believe Powerlong’s solid 2020 results will drive its stock to outperform peers during this March 2021 results season. We raise our target price by ~24% to HK$8.05/sh as we roll forward our 6.0x target P/E Multiple to 2021E. We reiterate our Buy Rating.
Key Highlights:
- We reiterate our view that Powerlong’s commercial property business complements its residential business to drive profit margins and sell-through rates and therefore earnings growth. We believe the stock will thus outperform pure residential developers.
- The company has announced a 2021E contracted sales target of RMB105bn, marking a strong YoY growth of another 29%, while we estimate GP Margins to remain stable at ~34%.
- The developers’ 2020 earnings was in-line with our estimate without major surprises.
- Powerlong’s 2020 balance sheet has met the requirements of the 3-red lines regulatory target, with Debt-to-Asset (excl. contract liabilities) at 69.9%, Net Gearing at 73.9% and Cash to Short Term Debt at 122.6%.
- We believe this will loosen up the developers’ access to onshore capital to fund the growth of its contracted sales in the next few months.
- We believe that this is a key driver to Powerlong’s business model as such access is fundamental towards the developer’s ability to recycle the capex invested into its shopping malls.
