Tag: Shanghai Market

While the spin-off reshapes CCRE into more defined focus in property development, the asset-light business—which enjoys higher price-to-earnings multiples–is carved out of CCRE, which may dampen investor optimism on the post spin- off CCRE. We resume coverage of CCRE post spin-off and revise our fair value estimate to HKD 2.92 per share from HKD 4.40 per share. The shares are undervalued, trading at a depressed price/earnings ratio of about 2.2 times 2021 earnings. In our view, this is attributed to the spin-off mode not improving the balance sheet and the slower-than-peers contracted sales recovery. Moving forward much will depend on how the company’s recently articulated Greater Central China Strategy will pan out to improve growth prospects.

Contracted sales shrank 4.8% year on year to CNY 68.3 billion in 2020, which fell short of the company’s CNY 80 billion target and performance is largely below that of peers. We note that the company attributed the underperformance to a slower pace of saleable resources launched and reiterated its confidence in the Henan market. Nonetheless, CCRE recently articulated its Greater Central China Strategy to cover a large market radius around its Zhengzhou home base to bolster growth. However, we think the geographical expansion strategy may take time to bear fruit as the company enters new markets. For the first four months of 2021, the run rate looks off the pace with contracted sales at 17% of full year target. Hence, we think for this year the CNY 80 billion contracted sales target the company retained from last year looks aggressive, which may dampen share price performance.

Company Profile

Central China Real Estate is a China property developer founded by Chairman Wu Po Sum in 1992 and listed on the Hong Kong Stock Exchange in 2008. Differentiated from most other listed Chinese developers with a nationwide presence, CCRE is focused primarily in Henan province. The company’s coverage is spread across Henan’s prefecture and county-level cities, as well as a small presence in Hainan. Zhengzhou is a key market for the company, contributing the highest contracted sales and salable inventory among cities in Henan. The company has spun off its asset-light project management business and seeks geographical expansion via its Greater Central China Strategy for growth. Wu owns the controlling stake of about 74.9% in CCRE.

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