Yuexiu Property_Upgrade to Buy on active land acquisition

Summary of Yuexiu Property Conference Call Company Overview - Company: Yuexiu Property - Type: State-Owned Enterprise (SOE) developer under the Guangzhou State-owned Assets Supervision and Administration Commission - Established: 1983, listed in Hong Kong in 1992 - 2023 Contract Sales: Rmb142 billion - Total Land Bank: 25.7 million sqm as of end-2023, with over half in the Greater Bay Area (GBA) [9][11] Key Points Industry and Market Dynamics - Market Stabilization: Signs of market stabilization in tier-1 and core tier-2 cities, including recovery in existing property transactions and falling inventory months [1][8] - Land Auction Premiums: Rising land auction premiums and stabilizing secondary listings indicate a potential inflection point similar to the 2014-15 cycle [1][8] - Sales Recovery: Expected recovery in sales in core cities, with national price stabilization anticipated by early 2026 [1][8] Company Performance and Strategy - Upgrade to Buy: Yuexiu Property upgraded from Neutral to Buy due to better land bank vintage, high exposure to core cities, and active land acquisition [1][11] - Land Bank Reshuffle: The company has a flexible land bank structure, with only an 8% YoY decrease in land acquisition in 2024 compared to a sector average of 37% [2][18] - Core City Exposure: As of H124, Yuexiu Property had 22% exposure to five core cities, particularly 12% in Hangzhou [13] Financial Projections - Earnings Revisions: Despite a near-term sales recovery, a downward revision in earnings is expected, with a forecasted 65-70% YoY decline in earnings to Rmb10-11 billion in 2024 [3][11] - Gross Margin Improvement: Anticipated improvement in gross margin in 2025, with a 0.3 percentage point increase in gross margin estimates for 2025-26 [3][11] - Revised Earnings Estimates: 2025-26 earnings estimates revised upward by 5-20%, reflecting expected sales recovery and margin improvement [3][11] Valuation Metrics - Price Target Increase: Price target raised from HK$5.00 to HK$6.50, based on 6.6x normalized earnings [4][11] - Current Trading Metrics: Trading at 9.1x 2025E PE and 0.35x 2024E P/BV, indicating potential undervaluation compared to historical averages [6][11] Additional Insights - Debt Levels: Net debt to EBITDA projected at 19.9x for 2024, indicating high leverage [6] - Dividend Yield: Expected dividend yield of 4.4% for 2025, reflecting a commitment to returning value to shareholders [6][11] - Market Position: Yuexiu Property is positioned as the most active land acquisition developer in 2024, with a focus on enhancing the quality of its land bank [2][11] Conclusion Yuexiu Property is positioned to benefit from a recovering property market in China, particularly in core cities. The company's proactive land acquisition strategy and flexible land bank structure provide a competitive edge, while revised earnings estimates and an increased price target reflect positive market sentiment.