- August 24, 2020
Key highlights:
- LVGEM’s 1H20 results were blighted by the lack of project completions, which resulted in a 28% YoY decline in revenues, and a 54% YoY decline in core net profit.
- This should be expected for LVGEM’s high profit margins Urban Renewal Development focused business model, in our view.
- We believe market’s focus will instead be on the potential asset injection of the remaining stake in Baishizhou Urban Renewal Project, which is expected to take place during 2H20 as per company announcement.
- The transactional valuation and financing terms is market’s key focus, and will be a key swing to the stock, in our view.
- LVGEM currently owns 25% of the Baishizhou Urban Renewal Project which is primely located at the heart of Shenzhen in Nanshan District and has a total GFA of 3.58m sqm.
- We estimate 1.8m sqm of the project are sellable/leasable GFA after excl. resettlement area, the total sellable resources would reach ~RMB162bn, transforming LVGEM’s land bank and growth driver.
- We believe the stock is currently fairly valued at 7.7x 2020E P/E, while the asset injection will be a key 2H20 swing.
