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Beijing North Star -A:Acceleration in earnings growth ahead;U/G to Buy on valuation

发布时间:2016-04-01    研究机构:德意志银行

Upgrading to Buy, still preferring its cheaper H-share counterpart; TP: Rmb6.23

We upgrade Beijing North Star A to Buy (from Hold) on valuation, following a22% sell-off YTD (versus 6% decline YTD for its H-share and 15% decline in theShanghai Composite Index). Accelerating revenue/core profit growth in FY15reaffirms our view that the aggressive operating scale expansion in the pasttwo years has started to translate into a corresponding acceleration in earningsgrowth. Looking ahead, we expect core profit growth to be at a CAGR of 20%in FY16-18, markedly higher than the industry average of 10%. Currentvaluation is attractive at a 56% discount to NAV and 12x 2016e. We see soundre-rating potential ahead on solid fundamentals.

FY15 core profit +13% YoY to Rmb744m; gross margin stays at a high 39%

Beijing North Star reported a 15% YoY increase in FY15 revenue toRmb7,186m, driven by a surge in GFA delivery in property sales (segmentrevenue rose by 22% YoY) and strong performance in the investment propertyportfolio (revenue was up 10% YoY pre-interest costs apportionment, 6%higher than our projection). Gross margin saw a 5.5 percentage pointcompression to 38.9% (44.4% in FY14), but was still one of the highest in theindustry. Excluding fair value gains, core profit rose by 13% YoY to Rmb744m.

Meanwhile, net margin was little changed at 10.47% (10.6% in FY14). Finaldividend of Rmb6cent/share was declared for FY15 (flat YoY).

Net gearing rises to 88%; but set to decline on A-share placement

As of end-2015, Beijing North Star had total gross debt of Rmb21,736m (up35% from Rmb16,110m at end-2014) and a cash balance of Rmb6,575m (up53% from Rmb4,310m at end-2014). The marked increase in gross debt is notabnormal as a result of a more aggressive stance on operating scaleexpansion. Reported net gearing rose to 88% as of end-2015 from 73% at end-2014; such gearing is slightly above industry average. However, we believe netgearing is set to decline in FY16 as a result of the upcoming A-share placement(already received CSRC approval), which will likely enlarge its capital base.

Target price at 35% discount to our revised NAV estimate of Rmb9.59/share

Our target price is based on a 35% discount to our NAV estimate ofRmb9.59/shr, which implies a 2016/17 adjusted PER of 17x/14x. Our targetdiscount reflects its backing by the Beijing government and expectations forfaster execution ahead, which we believe is appropriate and in line withcomparable peers. Key risks: government policies/execution of new projects.

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