报告名称：Country Garden Holdings(02007.HK)PCS to cause short-term volatility
报告类型：港股研究
报告日期：2016-03-16
研究机构：摩根大通
股票名称：碧桂园
股票代码：02007
页数：22
简介：Country Gardenˇs 2015 result is slightly disappointing mainly due to a lowermargin and the unnecessary perpetual capital securities (PCS). We think themarket will perceive such negatively, and the negative impact could last for 2-3months. However, when CG pays down the PCS, the upward earnings revisionwill also likely be prompt and may cause the stock price to rebound. As a result,we expect another 5-10% downside from here, but would accumulate after suchcorrection on expectation of strong sales momentum and earnings upgrades in2H16. Stay OW with a Dec-2016 PT of HK$3.50, on 6.5x 16E P/E.
Margin squeeze in 2H2015 should be over: While Country Garden has seen amargin squeeze in 2H2015, we think this is coming to an end. Withdevelopment cost stabilizing on the back of lower material costs, and thatunrecognized ASP is higher than the current recognition, CGˇs margin shouldfinally rebound starting 2016E. We expect about 70 bps margin expansion forthe year and with the Malaysia Danga Bay starting to contribute to earnings in2017, earnings momentum could pick up again.
An abnormal PCS: By end 2015, Country Garden has raised Rmb16.5 bnPCS, which management said they were preparing for a major M&A. We thinkthis could be related to the bid for Yurun Property or Dashing Bank, whicheventually did not happen. This leaves plenty of idle cash on CG's balance sheetwith annual carrying cost of Rmb1.6 bn and will decrease equity returns. Moreimportantly, this reflects a weak financial management ability. This, if notrestored promptly, could cause a long-term de-rating of the stock. Looking atthe experience of Evergrande and R&F back in 2014, stock weakness inducedby PCS may cease after downward earnings revision ends, which may takeabout 2.5-3 months. Hence, for CG this could last until June.
70% of landbank remains healthy: While the market has been relating CGwith tier-3 cities and expects its sales to perform badly, its sales figure is thebest evidence that such claims are not true. Among CGˇs portfolio, projectsselling for more than Rmb1 bn a year have seen strong ASP momentum, whichwas up 4% Y/Y. The only problematic one are those selling less than Rmb500mn a year, but that only accounts for less than 30% of total sales. Moreover, CGis aware of such risk and for the new landbank, more than half are located in tier 1/2 cities.

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