CR Land:Comfortable visibility

Transparent and recurrent

CR Land posted a good set of results but also provided a great deal ofvisibility. The company guided for a 13% growth in contracted sales inFY16, a Rmb18.6bn net cash inflow despite an increase in capex to fundthe sales growth, and a rental portfolio that is steadily growing in size,with new malls opening with occupancies of 83-100% and existing mallsposting 16% growth in rental income and 18% growth in retail sales.Some 54% of FY16 property development revenue has been secured, andthe margin will likely be maintained at this year’s level. We like thecompany’s transparency and recurrent earnings. BUY maintained.

Good set of results

CR Land delivered a good set of results. Underlying net profit came in atHK$14,210m, up 19% y-y and 12% ahead of our forecast on better-thanexpectedmargin. Revenue grew 15% y-y driven by 1) a 14% y-y increase inproperty development revenue, and, 2) a 22% y-y increase in property rentalrevenue. The strong growth in property rental revenue is partly due to theopening of six shopping malls. DPS was raised by 16% to HK57.4c per share,on an underlying payout ratio of 27%, unchanged from last year.

A sharp improvement in balance sheet

The balance sheet improved, with net gearing falling from 41.7% at Dec 14 to26.3% at Dec 15 with a HK$13.8bn (31% y-y) decline in net debt. Thedecline in net debt is due to two reasons: 1) high cash collection ratio of110% (HK$93.5bn collected vs HK$85.2bn contracted); and 2) in May 2015,placement of 400 million shares at a price of HK$25.25 per share with totalnet proceed of HK$10.1 billion. On current land premium commitment andcontract sales guidance of RMB96bn (13% y-y growth), CR Land still runs aRmb18.6bn of positive cash inflow and hence ample room to grow.

Stable IP

The company’s IP portfolio is stable, with overall rental income up 30% y-y,overall retail sales up also 30% y-y, but overall occupancy down 2.3% y-ydue to replacement of department stores with new tenants. Stripping out the6 new malls, the original portfolio still posted a 16% growth in rental incomeand 18% growth in retail sales. The malls opening in 2015 has posted strongoccupancies of between 83-100%.

Maintain BUY

Our HK$25.25 target price is unchanged and based on a FY15 PE of 11x, orabout 1SD above the historical average of 11x. Stock remains a BUY.