Equity Research | (95.HK) LVGEM (China) Real Estate Investment Company: Asset Injection Propels Stock to New Heights, Upgrade to Buy

Key Highlights

• We upgrade LVGEM to a BUY rating (from Hold), as LVGEM announced the asset injection of Baishizhou project (a 3.58m sqm project) which will raise LVGEM’s project stake to 80%.
• The consideration of the transaction was minimal at ~RMB4m which was a major positive surprise and is significantly value accretive.
• We have thus raised our Target Price by 93% to HK$5.0/sh, based on our DCF analysis of the Baishizhou project, which has raised our NAV by 93% to HK$13.54/sh.
• We estimate Phase 1 of the Baishizhou Project to have ~300,000 sqm, or ~RMB36bn, of sellable resources, with a GP Margin of at least 50%.
• Annual contracted sales from this single project could reach ~RMB18bn, more than double our 2020E target for the whole company, in our view.