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Deutsche Bank Markets Research
Rating
Buy Asia
China
Property
Property
Company
Logan
Date
21 March 2017
Initiation of Coverage
Key Shenzhen player: potential profit CAGR of 34% till FY18F
Reuters Bloomberg Exchange Ticker 3380.HK 3380 HK HSI 3380
Forecasts And Ratios
Year End Dec 31 2014A 2015A 2016E 2017E 2018E
Sales (CNYm) 12,497.9 14,574.0 20,234.9 25,560.2 32,259.6
DB EPS FD (CNY) 0.34 0.38 0.53 0.68 0.85
DB EPS growth (%) -29.5 13.3 38.3 29.1 24.7
PER (x) 5.0 5.9 6.0 4.7 3.7
DPS (net) (CNY) 0.09 0.12 0.18 0.23 0.28
Yield (net) (%) 5.1 5.2 5.5 7.1 8.8
Source: Deutsche Bank estimates, company data
Initiating Buy with 36% upside potential
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/FY16.
Price at 20 Mar 2017 (HKD) 3.58
Price target - 12mth (HKD) 4.61
52-week range (HKD) 3.61 - 2.54
HANG SENG INDEX 24,310
Stephen Cheung
Research Analyst
(+852 ) 2203 6182
Jeffrey Gao, CFA
Research Analyst
(+852 ) 2203 6256
Foo Leung
Research Associate
(+852 ) 2203 6239
Price/price relative
1.6
2.0
2.4
2.8
3.2
3.6
4.0
3/15 9/15 3/16 9/16
Logan
HANG SENG INDEX (Rebased)
Performance (%) 1m 3m 12m
Absolute 9.1 22.2 30.0
HANG SENG INDEX 0.7 11.9 17.6
Source: Deutsche Bank
We initiate Buy on Logan with a target price of HKD4.61. We like Logan for its 1) quality landbank (>50% GAV from Shenzhen) with average land cost low about CNY3.8k/sqm, which provides large gross margin buffer; 2) strong earnings growth (34% earnings CAGR in FY15-18F) driven by strong property sales in Shenzhen; and 3) cheap valuation (4.6x FY17F P/E and 58% discount to NAV) but likely decent dividend yields of >6%. We see this as attractive compared to the sector median of 7.6x FY17E and 46% NAV discount.
Quality Shenzhen landbank to support double-digit sales growth in FY17-18F Logan is a key Shenzhen player with a total land bank of >11mn sq (including 4.8mn sqm that targets Shenzhen buyers) in FY16F, providing a total of RMB230bn saleable resources. We expect its quality land bank to boost sales growth by 26% to RMB36.3bn in FY17F (~50% from Shenzhen). We believe its strong sales are sustainable, considering: 1) its cheap land cost (e.g. Logan City with ~3mn sqm unsold GFA at <RMB300/sqm vs. latest ASP of RMB16k/sqm) provides a large margin buffer; and 2) the company is seeking redevelopment opportunities in Shenzhen and Zhuhai to replenish its landbank.
34% earnings CAGR alongside gross margin expansion; decent dividend yield Thanks to strong sales, we expect Logan to deliver 30% revenue CAGR over FY15-18F. Coupled with potential gross margin expansion to 33-35% (due to a low land cost of ~RMB3.8k/sqm, good cost control at ~RMB4k/sqm of construction cost, and the strong ASP rally in FY16), we believe Logan will deliver a 34% earnings CAGR over FY15-18F. With management keen to maintain at least a 1/3 payout ratio, we expect it to offer a 6-9% dividend yield.
Improving borrowing cost and decent gearing to support land banking Logan has lowered its average financing cost to ~6% (vs. 6.8% in FY15 and 8.8% in FY14). With the potential redemption of its high-yield bonds, we expect its financing cost to drop <6% in FY17F. Also, given strong sales and high cash collection rate of ~90%, we expect net gearing to remain decent at <70% at end-FY16F. With a rich cash balance of ~RMB13bn at end-FY16F, we believe this should support Logan’s land banking this year. Valuation and risks Our TP of HKD4.61 is based on a 45% discount to end-FY17F DCF-based NAV of HKD8.39. The stock trades at 4.6x FY17F P/E and a 58% discount to NAV. Key risks: weaker sales from Shenzhen and slower margin expansion. (See p. 8 for details.)
Distributed on: 20/03/2017 21:00:00 GMT
21 March 2017
Property
Logan
Page 2 Deutsche Bank AG/Hong Kong
Model updated:18 March 2017
Running the numbers
Asia
China
Property
Logan Reuters: 3380.HK Bloomberg: 3380 HK
Buy Price (20 Mar 17) HKD 3.58
Target Price HKD 4.61
52 Week range HKD 2.54 - 3.61
Market Cap (m) HKDm 19,677
USDm 2,535
Company Profile
Logan Property Holdings Group Limited, a leading integrated property developer in the PRC, focuses on residential property development mainly in the economically prosperous market in Shenzhen and the Pearl River Delta region. Its products target primarily first-time homebuyers and upgraders. As at 30 June 2016, the group had a land bank aggregate GFA of 14.08 msqm and over 70% of its saleable resources cater to Shenzhen.
Price Performance
1.6
2.0
2.4
2.8
3.2
3.6
4.0
Mar 15Jun 15Sep 15Dec 15Mar 16Jun 16Sep 16Dec 16
Logan HANG SENG INDEX (Rebased)
Margin Trends
20222426283032
13 14 15 16E 17E 18E
EBITDA Margin EBIT Margin
Growth & Profitability
0
10
20
30
40
0
20
40
60
80
13 14 15 16E 17E 18E
Sales growth (LHS) ROE (RHS)
Solvency
0
20
40
60
80
100
-20
0
20
40
60
80
13 14 15 16E 17E 18E
Net debt/equity (LHS) Net interest cover (RHS)
Jeffrey Gao, CFA
+852 2203 6256 [email protected]
Fiscal year end 31-Dec 2013 2014 2015 2016E 2017E 2018E
Financial Summary
DB EPS (CNY) 0.48 0.34 0.38 0.53 0.68 0.85
Reported EPS (CNY) 0.47 0.47 0.52 0.53 0.68 0.85
DPS (CNY) 0.09 0.09 0.12 0.18 0.23 0.28
BVPS (CNY) 1.5 2.2 2.4 2.8 3.3 3.9
Weighted average shares (m) 4,275 5,000 5,055 5,552 5,496 5,496
Average market cap (CNYm) 6,422 8,517 11,353 17,511 17,511 17,511
Enterprise value (CNYm) 10,913 19,375 23,825 34,824 21,499 11,615
Valuation Metrics P/E (DB) (x) 3.1 5.0 5.9 6.0 4.7 3.7
P/E (Reported) (x) 3.2 3.6 4.3 6.0 4.7 3.7
P/BV (x) 1.04 0.79 0.83 1.13 0.97 0.83
FCF Yield (%) nm nm nm nm 86.6 72.7
Dividend Yield (%) 5.8 5.1 5.2 5.5 7.1 8.8
EV/Sales (x) 1.0 1.6 1.6 1.7 0.8 0.4
EV/EBITDA (x) 3.2 6.7 7.5 6.6 3.0 1.2
EV/EBIT (x) 3.2 6.7 7.5 6.6 3.0 1.2
Income Statement (CNYm)
Sales revenue 11,119 12,498 14,574 20,235 25,560 32,260
Gross profit 4,116 3,804 4,430 6,720 8,632 11,333
EBITDA 3,385 2,892 3,174 5,283 7,098 9,559
Depreciation 0 0 0 0 0 0
Amortisation 0 0 0 0 0 0
EBIT 3,385 2,892 3,174 5,283 7,098 9,559
Net interest income(expense) -92 -36 57 33 32 15
Associates/affiliates 0 0 0 0 -21 -77
Exceptionals/extraordinaries 15 862 943 3 6 9
Other pre-tax income/(expense) 0 0 0 0 0 0
Profit before tax 3,309 3,718 4,174 5,319 7,115 9,506
Income tax expense 1,252 1,297 1,486 1,981 2,760 3,519
Minorities 32 73 39 396 593 1,296
Other post-tax income/(expense) 0 0 0 0 0 0
Net profit 2,024 2,348 2,649 2,942 3,762 4,691
DB adjustments (including dilution) 21 -660 -714 -2 -4 -7
DB Net profit 2,045 1,687 1,935 2,940 3,757 4,685
Cash Flow (CNYm)
Cash flow from operations -1,755 -8,302 -691 -3,449 15,187 12,757
Net Capex -85 -97 -370 -26 -29 -32
Free cash flow -1,840 -8,399 -1,060 -3,475 15,159 12,725
Equity raised/(bought back) 1,218 0 1,289 0 0 0
Dividends paid 0 -68 -434 -970 -1,240 -1,546
Net inc/(dec) in borrowings 2,392 8,996 3,230 6,282 -4,398 -8,795
Other investing/financing cash flows -479 1,221 -58 0 -7,442 -513
Net cash flow 1,292 1,750 2,967 1,837 2,080 1,871
Change in working capital -3,619 -8,988 -1,233 -6,811 10,810 6,747
Balance Sheet (CNYm)
Cash and other liquid assets 4,506 7,514 11,191 13,028 15,107 16,978
Tangible fixed assets 3,890 4,807 6,283 6,286 6,292 6,300
Goodwill/intangible assets 0 0 0 0 0 0
Associates/investments 0 0 0 0 7,503 7,503
Other assets 19,416 32,515 39,298 52,133 50,767 45,142
Total assets 27,812 44,836 56,772 71,447 79,670 75,924
Interest bearing debt 8,983 16,265 19,751 26,033 21,635 12,840
Other liabilities 11,480 15,253 19,560 25,584 35,029 36,150
Total liabilities 20,462 31,519 39,311 51,617 56,664 48,990
Shareholders' equity 7,336 11,210 13,549 15,521 18,043 21,188
Minorities 14 2,107 3,912 4,308 4,963 5,746
Total shareholders' equity 7,350 13,317 17,461 19,829 23,006 26,934
Net debt 4,477 8,751 8,560 13,005 6,528 -4,138
Key Company Metrics
Sales growth (%) 68.8 12.4 16.6 38.8 26.3 26.2
DB EPS growth (%) -99.8 -29.5 13.3 38.3 29.1 24.7
EBITDA Margin (%) 30.4 23.1 21.8 26.1 27.8 29.6
EBIT Margin (%) 30.4 23.1 21.8 26.1 27.8 29.6
Payout ratio (%) 18.3 18.6 22.4 33.3 33.0 33.0
ROE (%) 35.4 25.3 21.4 20.2 22.4 23.9
Capex/sales (%) 0.8 0.8 2.5 0.1 0.1 0.1
Capex/depreciation (x) nm nm nm nm nm nm
Net debt/equity (%) 60.9 65.7 49.0 65.6 28.4 -15.4
Net interest cover (x) 37.0 79.6 nm nm nm nm
Source: Company data, Deutsche Bank estimates
21 March 2017
Property
Logan
Deutsche Bank AG/Hong Kong Page 3
Table Of Contents
Investment Thesis ............................................................... 4 Outlook ............................................................................................................... 4 Valuation............................................................................................................. 4 Risks ................................................................................................................... 4
Land bank and contracted sales analysis ............................ 5 Quality land bank with high exposure in Shenzhen to provide ample salable resources to support double-digit sales growth ................................................. 5 Double-digit contracted sales growth to continue .............................................. 5
Financial analysis ................................................................ 6 Profitability ......................................................................................................... 6 Liquidity and cashflow ........................................................................................ 7 Financial statements and forecasts .................................................................. 10
Valuation and risks .............................................................. 8 Valuation methodology ....................................................................................... 8 Investment risks ................................................................................................. 8 Historical valuation chart .................................................................................... 9
Shareholding Structure and managements profile ........... 13 Shareholding structure ..................................................................................... 13 Management profile ......................................................................................... 13
21 March 2017
Property
Logan
Page 4 Deutsche Bank AG/Hong Kong
Investment thesis
Outlook
We initiate coverage of Logan with a Buy rating and a target price of HKD4.61.
We like Logan for its: 1) quality land bank with over 50% GAV contributed by
Shenzhen; 2) strong earnings at a 34% CAGR in FY15-18F, driven by strong sales
growth and gross margin expansion due to an ASP rally and lower interest cost
(reduced to ~6% at end-FY16F from 6.8% in FY15 and 8.8% in FY14); and 3)
cheap valuation at 4.6x FY17F P/E, 1.1x FY16F P/B and a 58% discount to NAV,
yet offering a decent dividend yield of >6% versus the sector average of ~4%.
Valuation
Our end-FY17F NAV estimate of HKD8.39/share comprises HKD9.59 from
development properties, HKD0.13 from investment properties, and
HKD1.34 from net debt. Our NAV estimate values existing land bank and
properties using a sum-of-the-parts methodology: 1) we use DCF to value the
company’s development properties, with a WACC of 10.8% (we applied risk-
free rate of 3.0%, beta of 2.0, risk premium of 6.0% and cost of debt at 6.3%);
and 2) we use a cap-rate approach (5-9%) to value investment properties. We
assume full prepayment of the land appreciation tax.
In terms of property price assumptions, we assume prices in T1 and T2 cities
would drop 5% in FY17F and remain flat thereafter. In T3 cities, we assume 3%
property price growth in FY17F and flat thereafter.
We initiate coverage of Logan with a Buy rating and a 12-month target price of
HKD4.61, implying 30% upside from the current level. Our target price is based
on a 45% discount to our NAV estimate of HKD8.39/share. The rationale for
such target discount is based on eight key measures of the companies we
covered. Our target price implies 6.0x FY17F P/E (EPS: RMB0.68) and 1.2x
FY17F P/B. The benchmark index for the stock is MSCI China. Please refer to
p.20-21 of our sector report “The party is not over; buy small-cap winners after
correction” for details in valuation methodology.
Risks
Macro risks
Government property tightening measures may be stricter than expected,
which could result in volatile housing transaction volumes, housing prices,
land prices, and the financing available to developers and homebuyers.
Unexpected economic fluctuations in the Chinese economy would also add
risk to the sector. In addition, potential RMB depreciation could result in an FX
loss for developers with offshore financing.
Company-specific risks
Key risks for Logan include: 1) a weaker-than-expected sales contribution from
Shenzhen due to further potential policy tightening; 2) a slower-than-expected
gross margin expansion; and 3) a higher net gearing ratio due to over-
aggressive land acquisitions.
21 March 2017
Property
Logan
Deutsche Bank AG/Hong Kong Page 5
Land bank and contracted sales analysis
Quality land bank with high exposure to Shenzhen provides ample saleable resources to support double-digit sales growth
Starting out as a regional player in Shantou in the Guangdong province, Logan
has been on a fast-growth track to strategically expand its geographical
exposure to Shenzhen since 2013. Over the past three years, Logan has
acquired 2.6mn/2.4mn/1.4mn sqm land to reach a total land bank of ~14mn
sqm by end-FY16F, with an average land cost of RMB3.4k/sqm (equivalent to
27% of its FY16 ASP). We estimate that T1/T2/T3 cities account for
44%/6%/50% GFA and 60%/7%/33% GAV of its total land bank.
Figure 1: Land bank breakdown by GAV (2017F) Figure 2: Contracted sales value
Shenzhen50%
Nanning10%
Shantou10%
Hong Kong8%
Foshan5%
Zhuhai4%
Chengdu4%
Lingshui3%
Others6%
118%
36%
1%
54%
40%
27%
0%
20%
40%
60%
80%
100%
120%
140%
0
5
10
15
20
25
30
35
40
2012 2013 2014 2015 2016 2017F
(CNY bn) Sales value (LHS) YoY %
Source: Company, Deutsche Bank
Source: Company, Deutsche Bank estimates
Double-digit contracted sales growth should continue
Thanks to its strategic expansion into Shenzhen and other T1/T2 cities in Pearl
River Delta, and its appropriate product market positioning (targeting mostly
upgrade and first-home buyers), Logan sailed at full speed to achieve a 45%
sales CAGR during FY10-16 to reach RMB28.7bn of contracted sales in FY16.
Supported by strong execution and ample saleable resources (more than 70%
from T1/T2 cities), we expect Logan’s existing land bank to grow contracted
sales by 26% in FY17 to RMB36.3bn, and maintain flattish sales in FY18F
(assuming no land banking in FY17F), despite a weaker physical market.
We expect T1 and T2 cities to continue to account for about 60% of contracted
sales, with Shenzhen/Nanning/Shantou as major sales contributors, accounting
for 73% of total sales in FY17F and 77% in 2018F.
21 March 2017
Property
Logan
Page 6 Deutsche Bank AG/Hong Kong
Financial analysis
Profitability
Thanks to strong properties sales over the past few years (31% CAGR since
FY13), the company delivered a strong revenue CAGR of 30% to reach
RMB14.6bn between 2012 and 2015. We expect that revenue will continue to
grow 39%, 26% and 26% to RMB20.2bn in FY16F, RMB25.6bn in FY17F and
RMB32.3bn in FY18F, respectively. For FY17F, we expect 99% of revenue to
come from property development and 1% from recurring income.
Figure 3: Revenue and ROE Figure 4: Gross margin and net margin
28.8% 27.9%
15.1% 14.3%
18.9%20.8%
22.1%
0%
5%
10%
15%
20%
25%
30%
35%
-
5
10
15
20
25
30
35
2012 2013 2014 2015 2016F 2017F 2018F
(CNY mn)Revenue (LHS) ROE (RHS)
38.9%37.0%
30.4% 30.4%33.2% 33.8% 35.1%
17.9% 18.4%
13.5% 13.3% 14.5% 14.7% 14.5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2012 2013 2014 2015 2016F 2017F 2018F
Gross margin Net margin
Source: Company, Deutsche Bank estimates
Source: Company, Deutsche Bank estimates
The company reported 30-37% gross margin in FY13-15. Given the nationwide
ASP rally last year and lowered average financing cost, we expect the
company’s gross margin to improve to 33.2%/33.8%/35.1% in FY16/17/18F.
The company reported strong core profit growth of 15% in FY15 and we
forecast core earnings will grow 52% to RMB2.9bn in FY16F, then 28% to
RMB3.8bn in FY17F, and 25% to RMB4.7bn in 2018F.
Figure 5: Core net profit growth
96%
74%
-17%
15%
52%
28% 25%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2012 2013 2014 2015 2016F 2017F 2018F
(CNY bn) Core profits (LHS) YoY % (RHS)
Source: Company, Deutsche Bank estimates
21 March 2017
Property
Logan
Deutsche Bank AG/Hong Kong Page 7
Liquidity and cash flow
Due to aggressive land acquisitions, we expect the company’s net gearing
ratio to increase from 49% in FY15 to 66% in FY16, with total net debt of
RMB13.0bn, despite strong sales and a high cash collection ratio.
In addition, we estimate short-term debt would have accounted for only 16%
of total interest bearing debt in FY16F (31%/24%/20% in FY13/FY14/FY15). We
believe the current level of short-term debt poses minimal liquidity risk to the
company, given its abundant cash balance of RMB13.0bn in FY16, equivalent
to 3.2x of short-term debt.
Also, Logan re-tapped the capital market in 2015 (IPO in 2013) via a placement
(~10% dilution) of HKD1.55bn at HKD2.78/share to fund a fast scale expansion.
Figure 6: Net gearing ratio
78.6%
60.9%65.7%
49.0%
65.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2012 2013 2014 2015 2016F
(CNY bn) Net debt (LHS) Net gearing (RHS)
Source: Company, Deutsche Bank estimates
Figure 7: Short-term debt and % of S/T debt to total
30.4% 30.7%
23.5%
20.5%
15.5%
0%
5%
10%
15%
20%
25%
30%
35%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2012 2013 2014 2015 2016F
(CNY bn)S/T debt (LHS) S/T debt ratio (RHS)
Source: Company, Deutsche Bank estimates
21 March 2017
Property
Logan
Page 8 Deutsche Bank AG/Hong Kong
Valuation and risks
Valuation methodology
Our end-FY17F NAV estimate of HKD8.39/share incorporates HKD9.59 from
development properties, HKD0.13 from investment properties, and -HKD1.34
from net debt. Our NAV estimate values existing land bank and properties
using a sum-of-the-parts methodology: 1) we use DCF to value the company’s
development properties, with a WACC of 10.8% (we applied risk-free rate of
3.0%, beta of 2.0, risk premium of 6.0% and cost of debt at 6.3%); and 2) we
use a cap-rate approach (5-9%) to value investment properties. We assume full
prepayment of the land appreciation tax. In terms of property price
assumptions, we assume prices would drop 5% in T1 and T2 cities in FY17F
and remain flat thereafter. For T3 cities, we assume 3% property price growth
in FY17F and flat thereafter. We initiate coverage of Logan with a Buy rating
and a 12-month target price of HKD4.61, implying 30% upside from the
current level. Our target price is based on a 45% discount to our NAV estimate
of HKD8.39/share. The rationale for such target discount is based on eight key
measures of the companies we covered. Our target price implies 6.0x FY17F
P/E (EPS: RMB0.68) and 1.2x FY17F P/B. The benchmark index for the stock is
MSCI China. (Please refer to p.20-21 of our sector report “The party is not over;
buy small-cap winners after correction” for details in valuation methodology )
Figure 8: GAV breakdown
NAV breakdown (share price currency) 2017EDevelopment properties 52,714
Residential 47,707 Retail 5,007 Office - Hotel -
Investment properties 728 Residential - Retail 321 Office 407 Hotel -
GAV 53,442 Net debt (7,343) Adjustment for perpetuals -
NAV 46,099 Number of shares - basic (mn) 5,496 NAV per share 8.39 Discount to NAV 45%Target price 4.61
Source: Deutsche Bank estimates
Investment risks
Macro risks: Government property tightening measures may be stricter than expected, which could result in volatile housing transaction volumes, housing prices, land prices, and the financing available to developers and homebuyers. The unexpected economic fluctuations in the Chinese economy also add risks to the sector. In addition, the potential RMB depreciation may result in an FX loss for developers with offshore financing.
Company-specific risks: 1) a weaker-than-expected sales contribution from Shenzhen due to further potential policy tightening; 2) a slower-than-expected gross margin expansion; and 3) a higher net gearing ratio due to over-aggressive land acquisitions.
21 March 2017
Property
Logan
Deutsche Bank AG/Hong Kong Page 9
Historical valuation chart
Figure 9: NAV discount chart
Latest: -58%
Average: -59%
+1 S.D.: -55%
-1 S.D.: -64%
-80%
-60%
-40%
Oct
-15
Oct
-15
No
v-1
5
De
c-1
5
De
c-1
5
Jan
-16
Feb
-16
Feb
-16
Mar
-16
Ap
r-1
6
Ap
r-1
6
May
-16
Jun
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Sep
-16
Oct
-16
No
v-1
6
No
v-1
6
De
c-1
6
Jan
-17
Jan
-17
Feb
-17
Mar
-17
Source: Bloomberg Finance LP, Deutsche Bank
Figure 10: 12-month rolling forward P/E chart
Latest: 4.4x
Average: 5.0x
+1 S.D.: 5.7x
-1 S.D.: 4.2x
3
4
5
6
7
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-1
6
Jan
-17
Mar
-17
(x)
Source: Bloomberg Finance LP, Deutsche Bank
Figure 11: Price to book value chart
Latest: 1.1x
Average: 1.0x
+1 S.D.: 1.1x
-1 S.D.: 0.9x
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
Jan
-14
Mar
-14
May
-14
Jul-
14
Sep
-14
No
v-1
4
Jan
-15
Mar
-15
May
-15
Jul-
15
Sep
-15
No
v-1
5
Jan
-16
Mar
-16
May
-16
Jul-
16
Sep
-16
No
v-1
6
Jan
-17
Mar
-17
(x)
Source: Bloomberg Finance LP, Deutsche Bank
21 March 2017
Property
Logan
Page 10 Deutsche Bank AG/Hong Kong
Financial statements and forecasts
Figure 12: Income statement (RMB mn)
Income Statement 2014A 2015A FY16F FY17F 2018F
Revenue 12,498 14,574 20,235 25,560 32,260
Cost of sales (8,694) (10,144) (13,515) (16,928) (20,926)
Gross profit 3,804 4,430 6,720 8,632 11,333
SG&A (940) (1,161) (1,437) (1,534) (1,774)
Other operating income/expenses 28 (96) - - -
Operating profit (EBIT) 2,892 3,174 5,283 7,098 9,559
Interest expenses (94) (36) (112) (150) (181)
Interest income 57 93 145 182 196
Share of results of associates and JCE - - - (21) (77)
Other non-operating income/expenses - - - - -
Pre-tax exceptional items 862 943 3 6 9
Profit before tax 3,718 4,174 5,319 7,115 9,506
Income tax (1,297) (1,486) (1,981) (2,760) (3,519)
Profit before minority interests 2,421 2,688 3,339 4,355 5,987
Interest expense for perpetual bonds - - - - -
Minority interests 73 39 396 593 1,296
Reported net profit 2,348 2,649 2,942 3,762 4,691
Core net profit 1,687 1,935 2,940 3,757 4,685 Source: Company, Deutsche Bank estimates
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Figure 13: Balance sheet (RMB mn)
Balance Sheet 2014A 2015A FY16F FY17F 2018F
Investment properties 4,685 6,118 6,120 6,126 6,135
Properties under development + Land (L/T) - - - - -
Interests in associates and JCEs - - - 7,503 7,503
Property, plant and equipment 122 166 166 166 166
Other non-current assets 803 385 385 385 385
Non-current assets 5,610 6,668 6,671 14,180 14,189
Completed properties held for sale 4,436 6,249 5,712 6,040 6,045
Properties under development + Land (S/T) 24,390 30,296 43,326 41,632 36,002
Trade and other receivables (S/T) 141 96 115 115 115
Other current assets 2,745 2,272 2,595 2,595 2,595
Pledged bank deposits + Restricted cash + Time deposits 1,938 2,555 2,555 2,555 2,555
Cash and cash equivalents 5,576 8,635 10,472 12,552 14,423
Current assets 39,226 50,103 64,775 65,490 61,735
Total assets 44,836 56,772 71,447 79,670 75,924
Pre-sale deposits 6,391 11,008 17,033 25,568 26,689
Accruals, trade and other payables 3,521 4,544 4,544 5,453 5,453
Other current liabilities 4,091 3,024 3,024 3,024 3,024
Bank and other borrowings (S/T) 3,824 4,045 4,045 4,045 4,045
Current liabilities 17,827 22,621 28,646 38,090 39,211
Bank and other borrowings (L/T) 12,441 15,706 21,988 17,590 8,795
Deferred tax liabilities 814 984 984 984 984
Other non-current liabilities 437 - - - -
Non-current liabilities 13,691 16,689 22,972 18,574 9,779
Total liabilities 31,519 39,311 51,617 56,664 48,990
Issued capital + share premium and reserves 393 440 440 440 440
Retained earnings 10,817 13,109 15,081 17,603 20,748
Attributable equities 11,210 13,549 15,521 18,043 21,188
Perpetual bonds - - - - -
Minority interests 2,107 3,912 4,308 4,963 5,746
Total equities 13,317 17,461 19,829 23,006 26,934
Total liabilities and equities 44,836 56,772 71,447 79,670 75,924 Source: Company, Deutsche Bank estimates
21 March 2017
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Figure 14: Cash flow statement (RMB mn)
Cash Flow Statement 2014A 2015A FY16F FY17F 2018F
Operating cash flows before working capital 2,939 3,239 5,309 7,106 9,513
Pre-sale deposits - - 6,024 8,535 1,121
Properties under development + Land (ST/LT) (8,178) (6,344) (13,030) 1,693 5,630
Completed properties held for sale - - 537 (328) (5)
Inventories - - - - -
Receivables and prepayments 187 (18) (342) - -
Payables and accruals (998) 5,129 - 909 -
Others - - - - -
Cash generated from operations (6,049) 2,006 (1,502) 17,915 16,260
Interest received 57 76 145 182 196
Interest paid (897) (1,530) (112) (150) (181)
Investment income - - - - -
Tax paid (1,414) (1,242) (1,981) (2,760) (3,519)
Net operating cash flow (8,302) (691) (3,449) 15,187 12,757
Disposal (purchase) of subsidiaries 182 (2,083) - - -
Disposal (purchase) of associates and JCEs - - - (7,503) 0
Disposal (purchase) of property, plant and equipment (45) (73) (23) (23) (23)
Disposal (purchase) of investment properties (52) (297) (3) (6) (9)
Other investing cash flows (2,863) (617) - - -
Net investing cash flow (2,779) (3,070) (26) (7,532) (32)
Debt financing 8,996 3,230 6,282 (4,398) (8,795)
Perpetual financing - - - - -
Equity financing - 1,289 - - -
Cash advances (repayments) of loans due to related parties - - - - -
Minority shareholders of subsidiaries 3,903 2,642 (0) 62 (513)
Dividends paid and distribution of paid-in capital (68) (434) (970) (1,240) (1,546)
Other financing cash flows - - - - -
Net financing cash flow 12,831 6,728 5,312 (5,576) (10,854)
Other cash flows (1) 92 - - -
Increase in cash and cash equivalents 1,749 3,059 1,837 2,080 1,871
Cash brought forward 3,827 5,576 8,635 10,472 12,552
Cash carried forward 5,576 8,635 10,472 12,552 14,423 Source: Company, Deutsche Bank estimates
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Deutsche Bank AG/Hong Kong Page 13
Shareholding structure and management profile
Shareholding structure
Figure 15: Shareholding structure of Logan Property Holdings Co. Ltd.
Kei Hoi PangManagement and public
shareholders
Logan (3380.HK)
76.58% 23.42%
Source: Hong Kong Stock Exchange, Deutsche Bank
Management profile
Mr. Kei Hoi Pang, 50, is the founder, Chairman, CEO and Executive Director of
the Group. He is primarily responsible for the overall strategic planning of the
Group’s business. Mr. Kei has 20 years of experience in the property
development industry and possesses experience in corporate strategic
planning and management, as well as project management. He is also the
elder brother of Mr. Ji Jiande and father of Ms. Perenna Kei Hoi Ting.
Mr. Ji Jiande, 42, is Vice President, Executive Director of the Group. He is
primarily responsible for managing the business of the Shantou region and is
in charge of the construction and material procurement of the Group. He is the
younger brother of Mr. Kei Hoi Pang.
Mr. Lai Zhuobin, 45, is Executive Director and CFO of the Group. He is mainly
responsible for the financial management and capital markets functions. He is
also a member of the Chinese Institute of Certificate Public Accountants.
21 March 2017
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Page 14 Deutsche Bank AG/Hong Kong
Appendix 1
Important Disclosures
*Other information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Logan 3380.HK 3.58 (HKD) 20 Mar 17 1,7,14 Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
Important Disclosures Required by U.S. Regulators
Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.
Important Disclosures Required by Non-U.S. Regulators
Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=3380.HK
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Stephen Cheung
21 March 2017
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Deutsche Bank AG/Hong Kong Page 15
Historical recommendations and target price: Logan (3380.HK) (as of 3/20/2017)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.
Newly issued research recommendations and target prices supersede previously published research.
54 %
36 %
10 %17 % 17 % 21 %
050
100150200250300350400450500
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
21 March 2017
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Page 16 Deutsche Bank AG/Hong Kong
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21 March 2017
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Deutsche Bank AG/Hong Kong Page 17
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21 March 2017
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Deutsche Bank AG/Hong Kong Page 19
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