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Industry Focus
China Warehouse Sector
Table of Contents
Investment summary 3
Demand is still ahead of supply 4
E-commerce: the key demand driver 8
3PL: another growth driver 13
Cap rate compression to continue 15
Key successful model 17
Emerging China players 22
Players’ competitiveness 24
Valuation and top picks 28
Snapshot of the listed emerging warehouse players in China 30
Stock Profiles 38
Shenzhen Chiwan (200053 CH) 38
Page 2
Industry Focus
China Warehouse Sector
Investment summary Emerging players with a focused strategy may be like GLP
during its earlier years in China. Emerging players we included
The immature nature of China’s warehouse industry implies in our analysis are Chiwan (Blogis), BPHL, CMSTD, CFLD, CSC,
huge growth potential ahead. The e-commerce boom has led Wuzhou. GLP achieved 49% CAGR during the past nine years
warehouse construction to grow at a CAGR of 24% since in terms of completed GFA in China, compared with 81%
2009, yet China still lacks modern logistics facilities. According during the period between 2006 and 2010 when it
to the China Warehousing Industry Bluebook 2015, total commenced operations. Emerging players are those that are
warehouse space in operation had reached 910m sm as of Dec shifting their focus from other businesses to this sector or
2014. However, modern logistics space by the top 10 players diversifying into warehouses. Chiwan (Blogis) and BPHL shifted
is only 16.9m sm or 1.9% of total supply in the market. GLP their business focus from other businesses to warehouse
estimates that all modern logistics warehouses in China occupy investment and operations. Given their focused strategy, we
a GFA of c. 100m sm or just 11% of total stock. believe they are likely to achieve higher growth in the sector
just like GLP during 2006 and 2010. The core businesses of
E-commerce is the main demand driver. Market research firm
CFLD, CMSTD, CSC, and Wuzhou are not warehouses but that
iResearch expects China’s e-commerce GMV (gross
they are involved in industrial parks and trade malls that
merchandise value) to reach Rmb7,300bn in 2018 with a
generate demand for warehouse. The intention is to grow a
CAGR of 27% from 2014. Aliresearch expects online spending
warehouse portfolio alongside their main businesses. Vanke is
per capita per year to reach c.Rmb17,900 p.a. in 2020F,
an exception as it commenced its warehouse business from
representing a c.16% CAGR over 2014E-2020F.
scratch, after missing the opportunity to build up an
Rural e-commerce holds great potential. In 2014, >35% of the investment portfolio in the office and retail segments. Vanke is
urban population in China had made online purchases, but determined to grow its warehouse portfolio fast, with the
only c.10% of rural population had ever used e-commerce potential to spin it off in the coming years.
(source: Aliresearch). Given rising income in the low-tier
Emerging domestic players have better access to land to
markets, Aliresearch estimates rural online sales to reach
underpin high growth. Emerging players in the sector we
Rmb460bn in 2016F, translating into a c.60% CAGR. This
included in our analysis are Chiwan (Blogis), BPHL, CMSTD,
implies potential warehouse demand in transportation modes
CFLD, CSC, Wuzhou. Among them, SOE players like Chiwan
with closer links to lower-tier cities.
(Blogis), BPHL, and CMSTD may have a better chance to
3PL is another major demand driver for public warehouses. acquire land within their jurisdiction or catchment areas. CFLD,
These include LTL logistics (less than truckload) and CEP CSC, and Wuzhou have flexibility in utilising land in their
(Courier, Express and Parcel) firms. The growth of e-commerce industrial parks or trade mall projects for warehouse purposes.
has pushed up the demand for these two services and is hence Vanke has a presence in 60 cities through its residential
spurring leasing demand for public warehouses. The rapid projects, and should be able to have easier access to land than
growth of reverse logistics and cold-chain logistics also drive others given limited land supply in most cities.
demand for warehouses spaces.
Reduce funding cost, building up tenant base, and establishing
Cap rates set to compress. As a result of supply shortage, an operations team are also necessary. Among the emerging
annual rentals grew at 4-17% in the 14 cities we tracked in the domestic players, only BPHL’s funding cost is low, averaging
past four years. Due to the rapid warehouse construction over 4.3%. Borrowing cost for the others are above 6% with
the past two years, rental growth may slow a bit in 2015/16. Wuzhou and CFLD’s standing at 10.1% and 9.6% respectively.
Yet, we expect rents to see a stronger growth subsequently In comparison, GLP and Malpetree’s average funding cost are
due to (1) falling industrial land supply since 2013, and (2) much lower at 3.4% and 2.1%. Blogis and BPHL have an
growing focus on customer satisfaction, which will lead to established tenant base and are refining the mix along with
demand for modern logistics facilities. Capital value will grow increasing demand from e-commerce and coldchain operators,
faster than rentals, in our estimate, as more players enter the respectively. CFLD, CSC, and Wuzhou will mainly serve existing
market to compete for land and warehouse assets. As such, tenants in their industrial parks/trademalls.
the cap rate is likely to be compressed from the current 6-7%
Chiwan (Blogis), BPHL, and CSC are our top picks for emerging
and 8-10% in tier I and lower tier cities, respectively.
warehouse plays. SOE-backed Chiwan owns Blogis, which has
Entry barriers to the sector are high, so leading players will the second largest warehouse land reserve and potential for B-
have a higher chance to succeed. Our analysis shows that to-H conversion. BPHL, another SOE-backed company, is
access to land, low-cost funding, talents and tenants are key focusing on cold chain and bonded logistics services, and it
success factors. As local governments have lower incentives to should outperform peers given the promising outlook of this
supply industrial land, this creates high entry barrier to niche segment. CSC is dominant in the trade centre segment in
newcomers. As a result, even well-known global players, such tier 1/2 cities and has a fast growing e-commence platform
as GLP, need to consistently look for JV with or invest in and logistics properties business that is supported by Tencent
Chinese firms that have access to warehouse land. Some have (700.HK, BUY). We continue to like GLP for its leading position
even set up JVs with e-commerce players in order to secure in China. Vanke’s logistics business also has strong growth
land. potential which is worth of note if spun off.
Page 3
Industry Focus
China Warehouse Sector
Page 4
Industry Focus
China Warehouse Sector
Fixed asset investment in warehouse sector, 2009 to Logistics area comparison, key players
2014 (bn)
mm sqm
bn
12 GLP stake: 19.9%
600 GLP stake: 53.1%
10
500 8
6
400
4
300 2
0
Mapletree
Yupei
e-Shang
Goodman
Beijing Properties
Vipshop
GLP
Prologis
ACL
Blogis
200
100
0
2009 2010 2011 2012 2013 2014
Source: GLP; DBS Vickers
Source: China Warehousing Industry Bluebook 2015
Page 5
Industry Focus
China Warehouse Sector
Comparison of logistics areas (2014E) 2014, much higher than matured countries such as the US
(<9%). China was ranked 28th out of 155 countries by the
World Bank in 2014 in terms of its logistics development
8
Strategic partners of Alibaba (based on Logistics Performance Index), lagging behind most
western countries and also Hong Kong, Taiwan and Malaysia.
4 High warehouse cost and imbalance of supply. According to
China Warehouse Industry Bluebook 2015, costs for
warehouses accounts for >30% of total logistics cost in China.
0 A key reason for the high warehouse cost comes from the
China Dangdang
VIPshop
Amazon (US
EMS
S.F.Express (順豐速運)
JD.com
operations)
falling supply of industrial land. As warehouse landlords often
generate lower tax revenue and employment, local
governments have little incentive to supply land to them. They
would rather sell land for commercial and residential uses
which bring in much higher revenue and employment to
support local GDP growth. Moreover, many firms tend to build
their own warehouses to fulfil their own needs. This leads to a
mounting supply of lower quality warehouses in transportation
Note: Alibaba Group rides on the logistics capability of its strategic modes.
delivery partners. Its China Smart Logistics (“Cainiao”) has secured
several locations in China to develop key distribution centres. Yet, the inefficient and immature nature of China’s logistics
Source: Companies, DBS Vickers sector implies huge room for growth. Despite the above,
China still sees huge growth potential in its logistics
Logistics facilities are more concentrated in Northern and development and warehouse sector. One key growth driver for
Eastern China due to the development of China’s highway and the sector is the bright growth outlook of China’s e-commence
railway systems. According to CBRE, tier 1 cities and Tianjin, industry.
and other cities in Guandong, Jiangsu and Liaoning saw the
highest supply of modern warehouses that meet international Logistics expenses as % of GDP, 2009 to 2014
standards.
Modern warehouse distribution in China (by 2016E) RMB bn
12,000 19%
10,000 18%
8,000 18%
6,000 17%
4,000 17%
2,000 16%
0 16%
2009
2010
2011
2012
2013
2014
Page 6
3.20
3.40
3.60
3.80
4.00
4.20
Germany
Netherlands
Belgium
United Kingdom
Singapore
Sweden
Canada
France
Switzerland
Hong Kong
Australia
Denmark
Spain
Taiwan
Italy
Korea, Rep.
Austria
New Zealand
Finland
Malaysia
Portugal
United Arab Emirates
China
Page 7
Industry Focus
China Warehouse Sector
Industry Focus
China Warehouse Sector
100
GMV of China’s online retail sales, 2011 - 2018
0
Dec-98
Dec-05
Dec-12
Jun-95
Jun-02
Jun-09
Oct-97
Feb-00
Oct-04
Feb-07
Oct-11
Feb-14
Apr-94
Apr-01
Apr-08
Aug-96
Aug-03
Aug-10
RMB bn %
8,000 80%
Source: iResearch
6,000 60%
Online shoppers as % of netizen population (2014)
4,000 40%
120%
2,000 20%
100%
0 0%
2014E
2015E
2016E
2017E
2018E
2011
2012
2013
80%
More netizens are shopping online but still behind matured 20%
countries. Thanks to the promotion of computers and mobile
devices, improvements in telecom facilities, and cultivation of 0%
online buying habits, the number of e-commerce customers in UK US Japan China
China had reached 361m in 2014, accounting for 56% of the
total netizen population. This is still far below that in Japan Source: CNNIC, UK Statistics Bureau, A.T.Kearney, Statista.com
(75%), the US (76%), and the UK (97%). According to
Aliresearch, the number of e-commerce customers in China
could sustain decent growth to reach c.540m in 2020F, and
>25m new customers would start to buy online each year. In
2014, on-line shopping for the first time accounts for >10% of
total retail sales in China.
Page 8
Industry Focus
China Warehouse Sector
China online shopping users, 2011 to 2014 Study on new online shoppers in China
Y ear N u mb er o f n ew O n lin e s h o p p in g
mn % o n lin e s h o p p ers ex p erien c e b y n o w
400 60% ( n o . o f y ears )
350 2008 & before 74 7.5
50%
300 2009 34 5.5
250 40% 2010 53 4.5
200 30% 2011 33 3.5
150 2012 48 2.5
20% c.230m
100 2013 60 1.5
50 10% 2014E 88 0.5
0 0% A v erag e 3.5
2011
2012
2013
2014
16,000 36%
RMB 26.2 trillion GMV RMB 2.8 trillion 26%
12,000 21% 27%
10.3% Growth (%) 48.7%
7,153
8,000 6,173 18%
Source: iResearch 4,905
4,045 16%
4,000 2,872 9%
0 0%
Online spending to grow rapidly. Based on iResearch data, we
2010
2011
2012
2013
2014E
2020F
Page 9
Industry Focus
China Warehouse Sector
According to our estimates, online shoppers in rural areas on Large potential in rural e-commerce, given low spending
average spent c.Rmb2,600 last year, or merely 1/3 of the per capita
amount spent by their urban counterparts. Given rising income 2014E
in the low-tier markets, we believe the gap could narrow over
O nline shopper populat ion:
the medium term. Based on iResearch, Guangdong was ranked
m Urban Rural T ot al
No.1 in quantity of online orders in 2013; yet Hebei saw the
Population 293 69 361
fastest growth rate in the number of online orders. Aliresearch
estimates that online sales in the rural markets amounted to Spending per online shopper:
Rmb180bn last year. With improvements in payment channels RMB Urban Rural A v erage
and logistics facilities, rural online sales are expected to reach Spending 8,922 2,628 7,728
Rmb460bn in 2016F, implying a c.60% CAGR. K ey assumpt ions:
1) Rural e-commerce sales account for c.6% contribution
2) c.10% of rural population shops online
Source: iReserach
E-commerce players expand fast to rural areas. In view of the actually encourage customers to spend more. Hence, with the
strong e-commerce potential in the rural markets, Alibaba evolution of rural e-commerce, we believe retail sales growth in
Group plans to invest a total of Rmb10bn within 3-5 years to China could be enhanced over the medium term.
enhance its rural exposure. Specifically, it aims to open c.1,000 Development of online sales lifts total consumption
rural operating centres and c.100,000 service stations in
villages. This would allow the e-commerce giant to penetrate For every ¥1 spent online
1/3 of the counties in China. JD.com has also been rolling out
its rural service centres (“京東幫服務店”) since 2014, and aims ¥1.00
to build c.2,000 service centres by 2017F. We believe the
= Replacing offline sales + Additional Sales
expansions of the leading e-commerce operators could
improve both infrastructure and customer awareness in the
Overall market ¥0.61 ¥0.39
rural markets, thereby helping to stimulate user demand ahead.
Rural e-commerce drives retail sales. Contrary to conventional
belief, development of rural e-commerce in China has not been 3rd & 4th- tier
cities ¥0.43 ¥0.57
fully carried out at the expense of offline retail sales, in our
view. An analysis by McKinsey shows that for every Rmb1
spent online in the rural markets, Rmb0.57 could be additional Note: E-commerce is more effective in stimulating retail sales in 3rd &
4th tier markets, as e-commerce offers greater convenience,
spending by the customers. This is mainly due to the lack of promotion and social networking effects to rural users.
retail infrastructure in the rural areas, and online sales could Source: McKinsey research (2013)
Page 10
Industry Focus
China Warehouse Sector
2015E
2016E
2017E
2018E
2011
2012
2013
Suning
3.2%
Vipshop
2.9%
Gome
JD 1.7%
18.6%
YHD
1.4%
Dangdang
1.3%
Tmall
61.4% Amazon China
Others 1.3%
6.5%
Yixun
1.1%
Jumei
0.7%
Source: iResearch
Page 11
Industry Focus
China Warehouse Sector
Warehouse Delivery
Pickup
Station
Source: Companies
sm
10
8.7
2 1.4
0
China US
Page 12
Industry Focus
China Warehouse Sector
Source: GLP
CEP service providers have also become key tenants for it signed nine new leases of a combined size of 143K sm with
warehouse landlords. In developed countries, commercial GLP in early 2014, becoming one of GLP’s key customers.
express accounts for a big part of CEP business volume. Yet, in
The emergence of new segments also increases demand for
China, consumer goods express represented >70% of total
warehouses. As China’s logistics segment evolves to become
CEP volume, based on CBRE's report. Differing from the LTL
more mature, some specialized segments such as reverse
market, the CEP market in China is much more concentrated
logistics and cold-chain logistics will gradually emerge.
with the top 6 players, including Three Tongs and One Da (三
According to a new regulation implemented in March 2014, a
通一达), S.F. Express and China Postal Express having >80%
consumer shall have the right to return most commodities
market share in total. The strong growth in e-tailing segment
purchased via the internet within seven days upon receipt of
has led to the strong growth of CEP service providers, which
the goods without giving any reason. This has created demand
create strong warehouse-related expenditures.
for reverse logistics and generates demand for warehouses.
The rapid expansion of 3PL companies generates additional
Cold-chain logistics are also growing more and more rapidly.
demand. We have seen both LTL and CEP service providers
According to China Warehousing Industry Bluebook 2015, the
tapping into each other’s businesses. For example, S.F. Express
cold-chain warehouse grew at 15% in 2014 to 24m tonnes.
is expanding into the bulky goods segment while LTL-focused
The growth rates in 2012 and 2013 were 7% and 10%
Deppon has lately ventured into the courier business. The new
respectively. While cold chain warehouse space per capita grew
trend in the 3PL market is to focus more on customer
rapidly from 53 litres in 2011 to 70 litres in 2014, the number
experience and product upgrading. All these efforts are
is still substantially lower than 372 litres in the US, implying
creating more demand for public warehouse space. A case in
strong growth potential.
point is Best Logistics, an integrated logistics service provider
set up in 2007. As a result of its fast expansion into nine cities,
Page 13
Industry Focus
China Warehouse Sector
Liter
400
350
300
250
200
150
100
50
0
China Shanghai US
Page 14
Industry Focus
China Warehouse Sector
Rents have seen decent growth over the past four years, as a %
7
result of strong demand. In the 14 cities we track, warehouse
rentals have grown at a CAGR of between 1% and 19% over 6
the past four years. While most expected tier I cities to see
stronger rental growth, tier II cities such as Nanjing and 5
Hangzhou witnessed the strongest growth at 19% and 17%
respectively. 4
3
Rental growth in selected cities, 2011 to 2015
2
RMB/sm/month
19% 1
45 17% 20%
40 18% 0
35 16%
11% 14% Shenzhen Guangzhou Shanghai Beijing
30 10%
25 12%
7% 7% 7% 7% 7% 10%
20 8% Source: CBRE; DBS Vickers
15 4% 4% 4%
3% 6%
10 1% 4%
5 2% Yet, growth may accelerate in the mid to long term as
0 0% warehouse users focus more on customer experience which
Shenyang
Shenzhen
Guangzhou
Shanghai
Chengdu
Dalian
Hangzhou
Nanjing
Chongqing
Qingdao
Ningbo
Wuhan
Tianjin
Beijing
40
20
0
1H10
2H10
1H11
2H11
1H12
2H12
1H13
2H13
1H14
2H14
1H15
Page 15
Industry Focus
China Warehouse Sector
Land supply for tier I cities, 2010 to 2H15 Land price in Shanghai, 2007 to 2014
sm RMB m per mu
18,000,000 0.80 0.72
16,000,000
14,000,000 0.70
0.57
12,000,000 0.60
10,000,000
8,000,000 0.50 0.40
0.39
6,000,000 0.40 0.33 0.32
0.31
4,000,000 0.27
2,000,000 0.30
0 0.20
1H10
2H10
1H11
2H11
1H12
2H12
1H13
2H13
1H14
2H14
1H15
0.10
Shanghai Beijing 0.00
2007
2008
2009
2010
2011
2012
2013
2014
Guangzhou Shenzhen
0 4
1H10
2H10
1H11
2H11
1H12
2H12
1H13
2H13
1H14
2H14
1H15
3
2
Tianjin Shenyang Qingdao 1
Dalian Nanjing Hangzhou
0
Ningbo Chengdu Chongqing
Industrial Office Shopping Residential
Wuhan Center
Beijing Shanghai
Source: DBS Vickers; E-house
Source: CBRE
Capital value to grow faster
Page 16
Industry Focus
China Warehouse Sector
Key successful model even global brands such as GLP need to consistently either look
for Chinese JV partners or invest in Chinese companies that
Entry barrier is getting higher have access to land to tap into China’s logistics market. Global
PE funds are also taking the same approach to enter China’s
Access to land is the most difficult entry barrier. Although the
logistics market. For example, Warburg Pincus and APG each
central government has been supportive of building a
has a big stake (>50% and 20% respectively) in the emerging
nationwide modern logistics system, local governments are less
warehouse player, E-Shang. Carlyle and Seatown (under
in favour of offering land for logistics properties. This is due to:
Temasek) also have big stakes in Yupei, another fast-growing
(i) logistics properties usually need a large parcel of land, but
warehouse landlord.
tax revenue from leasing warehouses is limited, and (ii) there is
limited contribution to the local economy and tax collections as
retail/online sales usually take place elsewhere. As a result,
Both domestic and global investors are keen to invest in warehouse players/assets in China
Low-cost funding is another obstacle. As a result of the big of a “built-to-suit” model is required, we expect companies
initial investment required, access to low cost funding is also an with expertise in this area to be more likely to acquire tenants.
important factor for warehouse developers to succeed. Similar
to office and commercial properties, the payback period for a
warehouse investment is long. The rental yield for a typical
warehouse is about 6-7% in Beijing and Shanghai, and 8-9% in
lower-tier cities. Low-cost funding could ensure a higher return.
Access to talents is also critical. As a result of the rapid
expansion of leading warehouse players, the competition for
talents is becoming increasingly intensive, which also pushes up
the labour cost. According to DTZ, in Shenzhen and Qingdao,
wages have been increasing by 17% and 14% respectively per
year since 2009. This indicates a significant imbalance between
the demand and supply of labour. Many domestic developers
such as Vanke and CSC, and e-commerce players such as
Alibaba and JD.com, have also started their warehouse
businesses in recent years, which has resulted in a significant
shortage of professionals in this field. Without a strong brand
name, warehouse players would find it very difficult to locate
and attract talents. Even with right talents on board, new
market players will also need some time to cultivate the right
culture and accumulate knowledge on operation management.
Tenant acquisitions also take time to materialise. As a result of
greater focus on customer satisfaction, e-commerce or 3PL
players tend to choose well-known warehouse providers to
ensure service quality. This is why global brands such as GLP
and Goodman often find repeat customers. We have also seen
a trend that developers are increasingly signing master leases
with key tenants to provide services across the country. As more
Page 17
Industry Focus
China Warehouse Sector
While the industry is fragmented, major players are growing Dat e Ev ent
faster than smaller ones. As discussed above, the top 10 players Dec-10 GLP acquired 19.9% stake in Chiwan (Blogis)
account for only 1.9% of China’s warehouse market. GLP is (200053.CH) at HK$11.75/share or total
consideration of HK$547m or SG$92.7m
the largest player with nearly 60% market share in the modern
Apr-11 GLP acquired 53.1385% stake in Airport City
logistics space, followed by Blogis, Goodman, Prologis,
Dev elopment at Rmb2,483m (or
Mapletree and Yupei. Due to their strengths in the above-
US$375m/SG$485m)
mentioned areas, these industry leaders are growing their Aug-11 GLP acquired 90% stake in V ailog
warehouse GFA at a fast pace. Oct-11 GLP acquired 49% stake in Yupei from Equity
International (Equity International acquired 49%
Growth of key logistics property plays (2010-2014) stake in Yupei at US$46m in 2008) at US$53.6m
Mar-12 GLP acquired 1% stake in Yupei
(m sm) 2010 2011 2012 2013 2014 CAGR Early -2013 Yupei bought back 50% stake from GLP
GLP 3.2 4.6 5 6.3 10.7 27% J un-14 Wuzhou and GLP formed a J V (Wuzhou:GLP,
Blogis 0.7 0.7 0.9 0.9 1.4 16% 20:80) to co-dev elop logistics properties in China
Goodman 0.3 0.4 0.5 0.7 1.3 34% Aug-14 GLP announced to acquire 15.34% stake in
Mapletree 0.6 0.6 0.6 0.8 0.8 6% CMSTD at Rmb2bn or US$324m
Yupei 0.4 0.2 0.3 0.3 0.7 12% GLP also announced to form a J V with CMSTD
Prologis (AMB) 0.4 0.4 n.a. 0.6 0.7 12% (49:51) to dev elop logistics properties in China
e-Shang n.a. n.a. n.a. 0.3 0.6 100% with initial pipeline up to 1.3m sm
Airport City Dev 0.3 0.3 0.3 0.4 0.5 11%
Source: CBRE, GLP
Source: CBRE
Page 18
Industry Focus
China Warehouse Sector
Vailog n.a. Manages logistics properties in Shanghai, Chongqing, Chengdu, Nanjing, Beijing, Shenyang, and Langfang
90.0% owned by GLP
Source: Company, DBS Vickers
Page 19
Industry Focus
China Warehouse Sector
China Dangdang
VIPshop
Amazon (US
EMS
S.F.Express (順豐速運)
JD.com
operations)
routes, and logistics partners such as S.F. Express (順豐速運)
and EMS provide the deliveries. China Smart Logistics has also
secured lands in key locations (e.g. Hangzhou, Guangzhou,
Wuhan, Chengdu, Beijing and Tianjin), to develop logistics
hubs for its network. As of June 2014, China Smart Logistics
had the capability to deliver c.17m parcels per day; the
ultimate goal is to deliver >100m parcels daily, which would
reach the buyers within 24 hours of order placement. Note: Alibaba Group rides on the logistics capability of its strategic
delivery partners. Its China Smart Logistics (“Cainiao”) has secured
JD.com pursues own logistics model. Aiming to offer timely several locations in China to develop key distribution centres.
and accurate deliveries to customers, JD.com has been
operating its own fulfilment infrastructure (i.e. warehousing Source: Companies, DBS Vickers
and delivery facilities) since 2007. As of Sep 2014, JD.com Yet, not all e-tailers are able to build their own logistics space
operated 118 warehouses (total GFA of c.2.3m sm), 2,045 as entry barriers to the industry are quite high. As a result, such
delivery stations and 1,045 pick-up stations across 1,855 a trend may not necessarily pose a great threat to standard
counties and districts. warehouse developers. Most small- and mid-sized e-tailers still
Besides, the company has been constructing highly-automated have to lease public warehouses.
warehouses, “Asia No.1 (亞洲一號)”, in key locations. The first
“Asia No.1” warehouse in Shanghai was launched in Oct 2014,
with c.100,000 sm of GFA (the 1st phase). It has also started to
build “Asia No.1” warehouses in Guangzhou, Wuhan and
Shenyang, to be launched this year. There are plans for more
“Asia No.1” warehouses in Beijing, Chengdu and Xi’an, to
improve JD.com’s logistics capability.
Page 20
Industry Focus
China Warehouse Sector
E- t ailin g E- c o mmerc e
mark et en t erp rises L o g ist ic s D ist rib u t io n T ren d s o n lo g ist ic s/ d ist rib u t io n o p t io n s
C2 C Taobao Self-operating Third party • Looking to build self-operated warehouses and set up a logistics
and third party distribution and installation sy stem for home appliances and large-sized
items with Haier RRS Express
• 3PL
B2B A libaba Self-operating Third party • Looking to build self-operated warehouses and set up a logistics
and third party distribution and installation sy stem for home appliances and large-sized
items with Haier RRS Express
• 3PL
B2C V ancL Self-operating Self-operating • Built ov er 350,000 sm warehouses in ten cities such as Beijing, Shanghai,
Guangzhou, Xi'an, Chengdu and Wuhan as of end-2012
• Distributed by RF D Express and opened platform to third party
Uniqlo Third party Third party • 3PL
• Third-party distributors such as EMS, Yamato and S.F . Express
Haier Self-operating Self-operating • RRS, with 9 shipment bases and 90 distribution centers nationwide,
and third party cov ering a total GF A of 2 million sm.
• Large home appliances mainly distributed by RRS, and small ones by S.F .
Express and EMS.
J D.com Self-operating Self-operating • 7 logistics centers, 6 distribution centers in Tier I cities, and warehouses for
and third party large-sized commodities in another 21 cities.
• Mainly distributed by its own distribution team. License obtained in J une,
2012.
Suning.com Self-operating Self-operating • Logistics bases in 15 cities put into use as of 1H 2013. 14 logistics bases are
under construction and another 13 hav e acquired the land. 12 small-
commodities auto-sorting warehouses are under construction. 60 logistics
bases, 12 auto warehouses and 500 city distribution sites are scheduled to
complete by 2015.
• A cquired international express business license in J anuary 2014, and plan to
expand the number of couriers into 50,000 by 2015.
Sfbest.com Self-operating Self-operating • It has its warehouses in 26 cities and 3 integrated temperature-controlled
warehouses in eastern, southern and northern China
• S.F . Express
J umei.com Self-operating Self-operating • Ov er 40,000-sm warehouses with constant temperature located in Beijing,
and third party and third party Shanghai, Chengdu and Guangzhou
• Commodities are distributed by its own distribution team in Beijing, while by
3PL in other areas.
Page 21
Industry Focus
China Warehouse Sector
Page 22
Industry Focus
China Warehouse Sector
k sm k sm
14,000 4,000
12,000 3,500
10,000 3,000
2,500
8,000
2,000
6,000
1,500
4,000
1,000
2,000 500
0 0
Malpetree
Malpetree
Vanke
Yupei
Vanke
CMSTD*
Wuzhou
CMSTD*
BPHL^
Wuzhou
GLP
CSC
CFLD
GLP
CSC
BPHL
CFLD
Blogis
* The company has footprints in the city but we don’t have exact numbers.
Page 23
Industry Focus
China Warehouse Sector
Players’ competitiveness Access to capital – GLP, Mapletree and BPHL stand out
due to low funding cost, while others have to reduce
As mentioned in the previous section, access to warehouse funding cost to be competitive
land, low-cost capital, talents and tenant acquisitions are
critical for a player to succeed in this sector. Our comparison GLP and Mapletree have access to the lowest cost of funding.
shows that. GLP has access to stock market funding, both onshore and
offshore bank loans, overseas bond market, and established PE
Access to land – CFLD stands out but GLP, Blogis and funds. Mapletree has access to stock market funding and both
Vanke are competitive too onshore and offshore bank loans. Their funding cost is as low
as 3.4% and 2.1% respectively.
The companies have different channels in obtaining warehouse
land in the limited warehouse land supply environment. BPHL also enjoys low-cost borrowing of 4.3% at this moment.
It has access to onshore and offshore bank loans and capital
Overall, we consider CFLD, GLP, Blogis, and Vanke as having
injections from partners. It may also explore onshore corporate
better access to land than others.
bonds and offshore bonds issuance, given its SOE background.
CFLD has the best access to warehouses in the catchment area
Blogis and CMSTD can borrow at around the PBOC benchmark
of tier 1 cities. It is the operator of 22 industrial parks in the
rate. They have access to domestic MTN and bank loans, and
catchment areas of tier 1 cities, controlling the zoning, master
their current average funding cost is around 6% to 7%.
plan, and land sales of these parks. It has the advantage in
Limited by its B-share listing status, Blogis has limited access to
acquiring the warehouse land in these parks if it sees sufficient
the equity market, but if it can convert the B-shares into H-
demand.
shares, it may help the company to access the overseas lending
GLP and Mapletree, which are foreign players, are welcomed market. CMSTD has access to the A-share equity market,
by the cities that would like to attract foreign investments. As proven by its proposal to place new shares to GLP, but the
international brand names with connections to foreign timing is out of the company’s control.
companies, local governments may favour them in supplying
CSC’s average funding cost is 6.8% at present after four to
land in anticipation that they can bring in foreign companies as
five years’ of debt restructuring efforts. It currently has access
good tax sources for the park. However, our conversation with
to domestic mid-term loans, bank loans, offshore bank loans
industrial experts unveiled that such an advantage may
and bond markets, and the H-share equity market. However, in
dissipate as China is transforming from export-oriented
our view, it might need to further reduce fund cost to improve
economy to domestic consumption-driven economy. GLP has
its competitiveness in warehouse sector.
been forming JV or partnership with various local players to
enhance its access to land. Given GLP’s much larger scale than Vanke has the most diversified funding channel but still has
Malpetree, we view GLP is better than Malpetree in room to reduce funding cost for warehouse business. Vanke
accessibility to land. has access to both the A- and H-share stock markets, onshore
and offshore lending markets, including onshore MTN,
Blogis, BPHL, CMSTD are local warehouse operators with SOE
property PE funds, and extra cash from the residential
background. Showcases of well-run existing warehouses and
development business. However, Vanke’s current funding cost
the connections of parent companies are their advantages in
of 7.3% is still high in the context of warehouse rental yield.
land banking.
Wuzhou and CFLD’s funding costs are as high as 10.1% and
CSC and Wuzhou have similar channels to source warehouse
9.6% respectively, which are excessive for a warehouse play.
land. These two companies own or acquire large-scale
They have to reduce their funding costs and expand their
suburban land to develop trade malls and related supporting
funding channels to beat the competition.
facilities, which local governments encourage. They can use a
portion of their mega-sized sites for warehouse use. Given that Access to human resources: SG and HK listed companies
CSC’s current presence is mainly in tier 2 cities and Wuzhou's may have better chance to attract high quality talent
mainly in tier 3 cities, we view CSC’s ability as being better
than Wuzhou's. GLP, Mapletree, Blogis, and BPHL have well-established teams
for warehouse business. As newcomers enter the market, they
Vanke, although new to the warehouse sector, is the leader in
may face challenges in retaining their team, especially
the property sector with existing footprints in 60 cities. That
experienced senior staff.
will translate into familiarity with 60 cities’ local zoning and
land supply plans. Vanke’s brand name will also help the Vanke and CFLD can be competitive in assembling a new team.
company to access land. Given their corporate culture and disclosed management
remuneration, we believe they are competitive in the
recruitment process. However, Vanke’s management team may
need to change their mindset from fast asset turn to
warehouse development cycel. In order to adopt to the new
Page 24
Industry Focus
China Warehouse Sector
Page 25
Industry Focus
China Warehouse Sector
Competitive advantages
Access to land Accessibility to capital Accessibility to tenants Accessibility to talent
Overall Score Comments Score Comments Score Comments Score Comments
GLP 19 4 Foreign player with good track record; 5 Low average funding cost of 3.4%; 5 Strong access to both MNCs and local 5 Senior managers can be
established network in China; Cash rich; tenants including JD.com, Deppon, Best from headquarters; MNC
partnership with local players access to equity market including REITs, Logistics, Sinotrans, brand name; competitive
overseas bank loans and bond markets; Schenker and Haier Logistics compensation packages
good access to property funds
Malpetree 17 3 Foreign player with good track record 5 Low average funding cost of 2.1%; 5 Strong access to both MNCs and local 4 Senior managers can be
access to equity market, overseas bank tenants like DHL, New Times Intl, APEX, from headquarters; MNC
loans and bond markets; Guangzhou Eastern American Steel brand name; competitive
access to property funds Structure Manufacturing, Shanghai Dia compensation packages
Retail, Zhengming, Digital China, etc.
BPHL 16 4 Focused business strategy will help the company 5 Low funding cost of 4.3%; 4 Current tenants include Nippon, Yamato, 3 Tough competition in
concentrate on sourcing for warehouse land; potential to access overseas bond MOL, Kerry, LF, SF, Vancl, DHL, Interlog, attracting talents.
SOE background and partnership with international market/bank loan with SOE background; KWE, Best Express, Yi Teng Zhong,
players will be helpful for accessing land too introduced foreign investors as partners Expeditors, Cosco, China Railway, Amazon,
for warehouse projects Sinotrans, and other food chain providers.
Chiwan 15 4 Focused business strategy; 3 Average funding cost of 6%-7%; 4 Current tenants include L&F, Volkswagen, 4 Enjoy self-trained talent
(Blogis) Good track record in warehouse operations will help access to onshore MTN; SF Express, Cardianal Health, Deppon, Ting pool, but will face
the company to source for warehouse land; proposed to issue RMB bonds; Tong, TOLL, ANE, Decathlon, Wastons, DHL, competitors' competition in
SOE background limited access to equity market JD, Nike, Mercedes-Benz, etc. maintaining them
CSC 13 4 Currently has large-sized land zoned for industrial 4 Average funding cost of 6.8%; 3 Mainly to serve SMEs who are users of their 2 Tough competition in
use in tier 2 cities, which can be partially used as Access to overseas bond market; trademalls, and e-commerce players. attracting talents.
warehouse facilities domestic loans and MTNs
Wuzhou 11 3 Currently has large-sized land zoned for industrial 3 Average funding cost of 10.1%; 3 Mainly to serve SMEs who are also owners 2 No warehouse operation
use in tier 3 cities, which can be partially used as currently borrowing through CBs, senior or tenants of their trademalls team in place yet; tough
warehouse facilities; notes, and domestic bank loans competition in attracting
partnering with GLP talents.
Vanke 14 4 Brand name in property sector; 4 Average funding cost of 7.3%; 3 Strategic cooperation with China Railway 3 Competitive compensation
In-depth knowledge on city zoning plan and land cash rich; Logistics Group; potential to bring in real packages
supply domestic and overseas equity/bond estate suppliers
market;
potential to bring in foreign property fund
CMSTD 10 3 The company has aged warehouses in 16 key cities 4 Average funding cost of 6% to 7% 2 Mainly raw materials producers; trying to 1 Traditional SOE culture;
including some in core areas. Upon relocation mainly bank loans; broaden its tenants base to consumer uncompetitive packages
requests made by the government, the company no MTN yet but may be able to do so; companies; if GLP is introduced as strategic
may be able to get larger sized land sites for modern proposed A-share placement to GLP shareholder, tenant mix may change
warehouse developments. But timing is uncertain. significantly
CFLD 12 5 As an industrial park operator in 22 cities including 2 Average funding cost is 9.6%; 3 Established strategic partner with JD to help 2 Competitive compensation
Beijing, Shanghai and catchment of key tier 1 cities, mainly funding through trusts and bank JD establish its national warehouse network packages
it is able to participate in the master planning and loans;
primary development of industrial parks and in turn
be able to access warehouse land.
Source: Companies, DBS Vickers
Page 26
Industry Focus
China Warehouse Sector
Financials
Ch iw an
2014A CSC W u z h o u B PH L CM ST D CF L D V an k e GLP M alp et ree
( B lo g is )
Rev enue 7,806 4,308 162 21,477 26,886 713 137,994 4,354 1,495
Warehouse income-China 77 0 125 389 0 713 0 2,732 304
A s % o f t o p lin e 1% 0% 77% 2% 0% 100% 0% 63% 20%
Ch iw an
2015E CSC W u z h o u B PH L CM ST D CF L D V an k e GLP M alp et ree
( B lo g is )
Rev enue 9,881 5,531 245 20,857 34,167 586 171,805 4,622 1,542
Warehouse income-China 111 0 200 427 44 459 7 3,186 274
A s % o f t o p lin e 1% 0% 82% 2% 0% 78% 0% 69% 18%
Ch iw an
2016E CSC W u z h o u B PH L CM ST D CF L D V an k e GLP M alp et ree
( B lo g is )
Rev enue 10,876 6,391 350 20,313 41,354 633 198,297 5,019 1,625
Warehouse income-China 192 8 306 470 89 519 15 3,795 283
A s % o f t o p lin e 2% 0% 87% 2% 0% 82% 0% 76% 17%
Page 27
Industry Focus
China Warehouse Sector
Cash level, net debt to equity and total debt to total asset ratio
Ch iw an
CSC W u z h o u B PHL CM ST D CF L D V an k e GLP M alp et ree
(B lo g is) *
Cash lev el (Rmb mn) 6,938 1,802 1,242 1,446 16,194 375 62,771 8,891 484
Net debt to equity 65% 86% 37% 27% 83% 123% 5% 16% 0%
Tota debt to total asset 34% 28% 28% 25% 27% 52% 14% -16% 34%
Av erage funding cost 6.8% 10.1% 4.3% 6%-7% 9.6% 6%-7% 7.3% 3.4% 2.1%
* Based on Chinese accounting standard and warehouses are not revaluated. Its net debt ratio and total debt to asset ratio are estimated to be
c. 70%and c. 40%, based on our estimates
Source: DBS Vickers; Company
We believe the companies on our radar can justify 25%- 1.2 Avg: 1.2x
35%discount to NAV for their warehouse business, given
‐1sd: 1.04x
faster growth and promising market conditions, but also taking 1.0
into account their smaller scale and lower trading liquidity. We ‐2sd: 0.89x
applied sum-of-the-parts approach to incorporate these 0.8
companies’ various other businesses such as residential
developments, trade malls and ecommerce. 0.6
Jul-11 Jul-12 Jul-13 Jul-14
Beside GLP, we also like Chiwan (Blogis), BPHL and CSC as
emerging China warehouse plays. Source: Company, DBS Bank
Page 28
Industry Focus
China Warehouse Sector
35% discount to
NA V for 10% discount to
10% 25% 25% w arehouse, 55% NA V for industrial
V aluation On par w ith
discount Non-rated discount discount for other IP, 6.8x PE park business and Non-rated 12.5x PE
method NA V
to NA V to NA V to NA V for property sales; 10x PE for property
and 25x PE for sales business
ecommerce
TP 3.17 n.a. 21.48 0.70 2.96 1.31 31.60 n.a. 18.91
Upside 25% n.a 18% 17% 24% 16% 19% n.a 23%
Page 29
Industry Focus
China Warehouse Sector
Snapshot of the listed emerging warehouse players Rmb31.60 is based on SOTP valuation, with 10% discount to
in China NAV for industrial park/properties segment (benchmarking to
GLP, given both are leaders despite having different niche
Shenzhen Chiwan Base Petroleum (Chiwan (Blogis), markets) and 11.8x FY15F PE for residential/commercial
200053.CH, BUY). We initiate coverage with a BUY rating and properties segment (benchmarking to A-listed large developers’
HK$21.48 TP, implying 18% upside potential. Through its average). CFLD is now trading at 14.7x FY15F PE, with 2.0%
subsidiary Blogis, the company operates the second largest yield, which is not expensive given its leadership in the niche
portfolio of modern logistics properties in China. We are market and expected earnings CAGR of 30%. Better-than-
positive on the company given its good track record in logistics expected sales driven by ongoing Beijing-Tianjin-Hebei
properties business and solid development pipeline. The integration could be potential catalyst.
nearest comparable would be CMSTD as both are logistics
SOEs with similar size of warehouse portfolios. However, its Vanke (2202.HK / 000002.CH, BUY). We maintain our BUY
market cap is only one-fifth of CMSTD’s, which we think is calls on both Vanke-H/A with TP unchanged at
mainly punished by its B-share status and low liquidity. HK$23.69/Rmb18.91, based on 12.5x FY15F PE, benchmarking
Potential B-to-H conversion, if successful, should broaden its to its nearest comparable COLI’s 2012 peak valuation. Vanke is
funding sources and improve trading liquidity. Our HK$21.48 a newcomer to the logistics property industry, but it is looking
TP is based on 25% discount (larger than 10% we applied for to evolve into the second largest player in China in 3-5 years.
GLP given its smaller size and lower profitability) to its We believe its well establishment network with local
estimated NAV of HK$28.64. The stock’s valuation is attractive governments, partnership with global investors and third party
at 36% discount to NAV. logistics providers should provide easy access to land, fund and
tenants. Vanke-H/A shares are now trading at 10.5x/10.2x
Beijing Properties (Holdings) Limited (925.HK, BUY). We initiate FY15F PE, which is undemanding. Potential spin-off of property
coverage with a BUY and HK$0.70 TP. The company is now a management business and faster-than-expected growth in
pure warehouse play after its successful restructuring. To logistics properties could serve as re-rating catalysts.
differentiate itself from other logistics property developers, it
has a clear strategy focusing on bonded and cold chain CMST Development (600787.CH, not-rated). We do see
warehouses, which may enable it to command better pricing improvements in upgrading its aged warehouses. It will also
and profitability than peers. Our TP of HK$0.70 is pegged at a benefit from land relocation and land revaluation as some aged
25% discount (larger than 10% we applied for GLP given warehouses are located in the city centre. In addition, it will
smaller size and lower profitability) to its estimated NAV of likely bring in GLP as a strategic investor and co-develop its
HK$0.92. NAV could potentially go up to HK$1.70/share if it warehouse business with GLP. However, we think these
successfully obtains all the land use rights for the projects in positives are already in the price as the share is now trading at
the acquisition pipeline, which could serve as re-rating catalyst. 104x FY15F PE. We prefer Chiwan (Blogis) over CMSTD due to
It is now trading at 35% discount to NAV, which looks much cheaper valuation despite similar warehouse space.
undemanding. Wuzhou International (1369.HK, not-rated). The company has
China South City (1668.HK, BUY). We initiate coverage with over 10 years’ development in the logistic trade centre business
BUY and HK$2.96 TP, implying 24% upside potential. It enjoys in tier 2/3 cities. It has tapped into logistics properties business,
leading position in trade centres in tier 1/2 cities as well as a partnering with GLP and Ping An. However, the potential
fast growing e-commence platform and a logistics properties cooperation with these partners will take time to come to
business supported by Tencent (700.HK, BUY). Given its easy fruition. The development path looks similar to CSC, but we
access to land in tier 1/2 cities, it enjoys higher margins and prefer CSC over Wuzhou as CSC has better assets with a focus
profitability. Our SOTP-based TP of HK$2.96 is based on 35% on tier 1/2 cities. In addition, its current valuation of 20x PE
discount to NAV for warehouses, 55% discount for trademall, looks rich compared to CSC’s 8.9x.
25x FY15F PE for e-commerce (benchmarking to e-retailers’ PE GLP (GLP.SP, BUY). We maintain our BUY call on GLP, given its
valuation) and 6.8x FY15F PE for property sales business market leadership and potential growth driven by its robust
(benchmarking the average PE of mid-cap Chinese developers). development pipeline, established network and strong funding
CSC is attractively trading at 54% discount to NAV and 8.9x capabilities. Currently, GLP has 185 logistics projects in 35
FY15F PE. cities with total operating area of 11.8m sm in China, much
China Fortune Land Development (600340.CH, BUY). We larger than the second player’s 1.5m sm. Our TP of SG$3.17, is
initiate with a BUY and Rmb31.60 TP, implying 20% upside based on 10% discount to estimated NAV of SG$3.52.
potential. Its business model of building industrial cities Potential catalysts include better than expected new
surrounding Beijing and Shanghai, will greatly benefit from the development starts or new land acquisitions.
government’s new urbanisation plan and Beijing-Tianjin-Hebei
integration. Its easy access to land enables it to enjoy an asset-
light model and expand logistics properties. Our valuation of
Page 30
Industry Focus
China Warehouse Sector
Mapletree Logistics Trust (MLT.SP, BUY). We upgraded the of 38.6% is still well below management’s comfortable level of
stock from HOLD to BUY as its recent acquisitions exceeded 40-45%, providing headroom to acquire quality assets from its
expectations. Our DCF-based TP is SG$1.31, implying 16% Sponsor, Mapletree Investments. Better-than-expected
upside and 6.6% yield. Currently, it has a diversified portfolio acquisitions could be potential catalyst.
of 117 logistics properties in pan-Asia area, with 9 properties
located in China (total GFA of 421k sm). Current gross gearing
Page 31
Industry Focus
China Warehouse Sector
Peers valuation
~ Core PE
Page 32
Industry Focus
China Warehouse Sector
PE charts
x x
25
30
25 20
20 15
+1SD: 14.3x +1SD: 11x
15
Avg: 9.8x 10
Avg: 7.3x
10
-1SD: 5.3x 5 -1SD: 3.6x
5
0 0
Sep-13
Dec-10
Nov-11
Oct-12
Jul-15
Feb-10
Aug-14
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
x x
20 12
18
11
16 +1SD: 9.8x
14 10
12 Avg: 8.9x
10 +1SD: 8x 9
8 8
6 Avg: 5x
-1SD: 8x
4 7
-1SD: 2x
2
6
0
May-15
Oct-14
Feb-15
Aug-14
Dec-14
Jun-14
Jul-15
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
x x
12
400
10 +1SD: 8.5x 350
300
8 Avg: 7.3x
250
+1SD: 175.7x
6 200
-1SD: 6x 150
4 Avg: 110.6x
100
2 50
0 -1SD: 45.6x
0
May-08
May-14
Oct-10
Mar-07
Mar-13
Jan-06
Aug-09
Dec-11
Jul-15
May-11
May-12
May-13
May-14
May-15
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Page 33
Industry Focus
China Warehouse Sector
PE charts (continued)
Global Logistic Properties (GLP SP) Mapletree Logistics Trust (MLT SP)
x x
20 9
18
+1SD: 14.8x 8
16 +1SD: 6.3x
7
14
6 Avg: 5.1x
12 -1SD: 6.7x
10 5
8 4
6 3 -1SD: 4x
4 Avg: 10.7x 2
2 1
0 0
Jan-11
Jan-14
Jul-12
Jul-15
Oct-11
Oct-14
Apr-13
Oct-11
Oct-14
Apr-13
Jan-11
Jan-14
Jul-12
Jul-15
Shenzhen Chiwan (200053 CH) Wuzhou Int’l (1369 HK)
x x
80 35
70 30
60 +1SD: 24.3x
25
50
20 Avg: 18.4x
40
+1SD: 30.4x
30 15
Avg: 19.2x
20 10
-1SD: 8.1x
10 5 -1SD: 12.5x
0
0
May-09
Feb-03
Mar-06
Jan-00
Jun-12
Jul-15
Mar-14
Mar-15
Sep-13
Sep-14
Dec-13
Dec-14
Jun-15
Jun-13
Jun-14
Page 34
Industry Focus
China Warehouse Sector
PB charts
Sep-13
Dec-10
Nov-11
Jul-15
Feb-10
Oct-12
Aug-14
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Feb-15
Aug-14
Dec-14
Jun-14
Jul-15
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
x x
2.0 18.0
1.8 +1SD: 1.6x 16.0
1.6 14.0 +1SD: 10.1x
1.4 Avg: 1.3x 12.0
1.2 10.0
1.0 8.0
-1SD: 1.1x Avg: 7.9x
0.8 6.0
0.6 4.0 -1SD: 5.7x
0.4 2.0
0.2 0.0
May-08
May-14
Oct-10
Mar-07
Mar-13
Jan-06
Aug-09
Dec-11
Jul-15
0.0
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
May-11
May-12
May-13
May-14
May-15
Page 35
Industry Focus
China Warehouse Sector
PB charts (continued)
Global Logistic Properties (GLP SP) Mapletree Logistics Trust (MLT SP)
x x
6.0 2.0
1.8
5.0
1.6
4.0 1.4 +1SD: 1.2x
+1SD: 2.9x 1.2
3.0 1.0 Avg: 0.8x
Avg: 1.8x 0.8
2.0
0.6
1.0 0.4 -1SD: 0.4x
-1SD: 0.6x
0.2
0.0 0.0
Oct-11
Oct-14
Apr-13
Jan-11
Jan-14
Jul-12
Jul-15
Oct-11
Oct-14
Apr-13
Jan-11
Jan-14
Jul-12
Jul-15
Shenzhen Chiwan (200053 CH) Wuzhou Int’l (1369 HK)
x x
2.0
7.0
1.9
6.0 1.8
5.0 1.7
+1SD: 3x 1.6
4.0 +1SD: 1.5x
1.5
3.0
Avg: 2.2x 1.4 Avg: 1.3x
2.0 1.3
1.0 1.2 -1SD: 1.1x
-1SD: 1.3x
0.0 1.1
1.0
May-09
Feb-03
Mar-06
Jan-00
Jun-12
Jul-15
Mar-14
Mar-15
Sep-13
Sep-14
Dec-13
Dec-14
Jun-14
Jun-15
Jun-13
Page 36
Industry Focus
China Warehouse Sector
STOCK PROFILES
Page 37
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Bloomberg: 200053 CH Equity | Reuters: 200053.SZ Refer to important disclosures at the end of this report
31.2
(51.79%). Its track record along with its SOE connections may
260
26.2
240 provide it with better chances of obtaining land for warehouse
use.
220
21.2 200
180
16.2 160
140
Successful B-to-H share conversion will strengthen access to
11.2 120
100
overseas bond market in the short term. Chiwan is proposing to
6.2
Jul-11 Jul-12 Jul-13 Jul-14
80
Jul-15 convert its current listing status as B-share to H-share this year. If
Shenzhen Chiwan Petroleum (LHS)
Relative SHSZ300 Index (RHS)
the proposal is approved at its shareholder meeting, the
conversion may take place in 2016. The conversion would help
Forecasts and Valuation increase awareness of the company among investors and improve
its trading liquidity. In addition, the conversion would also
F Y D ec ( R M B m) 2014A 2015F 2016F 2017F
enhance its ability to access the overseas bond market and in turn,
Turnov er 713 586 633 745
EBITDA 586 460 485 548 lift capital constraints for expansion purposes.
Pre-tax Profit 279 185 181 211
Net Profit 207 104 96 110 Valuation:
Core Net Profit 189 104 96 110 The company’s share price is trading at 36% discount to NAV.
EPS (RMB) 0.95 0.45 0.42 0.48 Compared with GLP’s 29%, we believe the valuation is attractive
EPS (HK$) 1.18 0.56 0.52 0.60 and the strong potential growth in rental income has not been
Core EPS (RMB) 0.82 0.45 0.42 0.48
Core EPS (HK$) 1.02 0.56 0.52 0.60
priced in. We rate the counter as BUY with a TP of
EPS Gth (%) 1.8 (44.9) (7.8) 15.1 HK$21.48/share based on 25% discount to NAV, representing
DPS (HK$) 0.16 0.06 0.05 0.06 18% upside.
BV Per Share (HK$) 9.15 9.66 10.13 10.66
Core PE (X) 17.8 32.4 35.1 30.5 Key Risks to Our View:
EV /EBITDA (X) 13.4 17.1 17.7 16.6 B-to-H share conversion, if unsuccessful, may restrict the
Net Div Yield (%) 0.9 0.3 0.3 0.3 company’s access to capital.
P/Book V alue (X) 2.0 1.9 1.8 1.7
Net Debt/Equity (X) 1.2 1.1 1.4 1.5
At A Glance
ROA E (%) 13.1 6.0 5.2 5.7
Issued Capital (m shrs) 350
EPS Rev (%) New New New Mkt Cap (HK$m/US$m) 6,374 / 822
Consensus EPS (HK$) 0.39 0.43 0.50 Major Shareholders (%)
Other Broker Recs: B:12 H:4 S:0 Shenzhen Nanshan Dev elopment 51.8
ICB Industry: Financials GLP 19.9
ICB Sector: Real Estate Holding & Development F ree F loat (%) 28.3
Principal Business: Warehouse development and operation 3m Av g. Daily V al. (US$m) 1.8
Source of all data: Company, DBSV, Thomson Reuters
www.dbsvickers.com
ed-JS / sa- AH
Company Focus
Shenzhen Chiwan Petroleum
INVESTMENT THESIS
Profile Rationale
Incorporated in 1984, Shenzhen Chiwan Petroleum (Chiwan Focused business strategy on logistic properties and services
Base) was listed on the Shenzhen Stock Exchange and traded Second largest warehouse player in China at present
as B-shares in June 1995. Starting from 2003, the company
Likely to maintain in the top 3 in the coming five years based
expanded its logistic services from specialised services to
on current acquisition pipeline
model logistics by establishing Shanghai (Baoshan) Blogis.
After more than ten years of development, Blogis is now the GLP holds a 19.9% stake in the company
second largest modern warehouse provider in China. Based Good track record in warehouse operations and SOE
on its current plan, it is likely to remain within the top three background enable the company to access land
in the next five years. Matured properties are operating at high occupancy rates
51.79% owned by SASAC
Potential B-to-H conversion to enhance access to capital and
stock trading liquidity
Announced B-to-H conversion plan pending shareholders’
approval
If this materialises, it will help the company to access
low-cost offshore funding for expansion
In Vanke’s B-to-H conversion case, trading liquidation
increased 5.8x one year after the conversion compared with
one year before
Valuation Risks
Our TP is based on a 25% discount to our estimated NAV. Policy risk
B-to-H conversion may be prolonged due to unexpected
reasons
Execution risk
Aggressive expansion may stretch balance sheet
May hit talent bottleneck during expansion
Page 39
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
SWOT Analysis
Strengths Weakness
Strong expertise in warehouse and related logistics services Although the company (through Blogis) is the second
as well as operating specialized petroleum logistics base. largest player in the modern logistics sector, its scale is
far smaller than the number 1 player
Good track record in existing warehouses
High gearing ratio may constrains its expansion
Better chance of good corporate governance with GLP on its
Board
Opportunities Threats
Solid pipeline for expansion in the next two to three years Competition from new players entering the business
SOE background can be helpful for land acquisitions Fast expansion may stretch the balance sheet
Page 40
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
BACKGROUND, MANAGEMENT & STRATEGY Decline in petroleum logistics demand; more effort to grow
Blogis. The decline in oil price has led to a decline in production,
Two business lines derived from specialised logistics services for and in turn, demand for related services. CNOOC’s own
petroleum and natural gas exploration. Incorporated in 1984, petroleum supply base started to operate this year. A certain
Chiwan was listed on the Shenzhen Stock Exchange and traded amount of Chiwan’s existing customers moved to CNOOC’s
as B-shares in June 1995. The company’s main business was to base. Earnings from this business are expected to decline by
provide specialised logistics services for petroleum and natural 50% y-o-y in 2015. Although Chiwan may acquire new projects
gas exploration and production operators in South China Sea. in Chengdu and Brunei to drive growth in the specialized
Leveraging on its expertise in logistics property and services built logistics services, the timing of acquisitions is not certain yet.
up from years of experience in serving needs of petroleum and Hence, Blogis is expected to drive the company’s earnings
natual gas exploration, it extended its business lines into general growth in the coming two to three years.
logistics property development and marine engineering. General Tenants are from both matured and emerging sectors. Blogis’
logsitics property development is growing and will be a key major tenants are 3PL, E-commerce players and manufacturing
contributor to the company’s revenue and profit. companies. L&F and Volkswagen are key customers, accounting
Sizeable logistics property business hidden in the illiquid B-share for 6.6% and 4.4% of Chiwan’s 2014 revenue.
listco. Starting from 2003, the company expanded its logistics SOE under Shenzhen government with GLP as a major
services from specialised services to model logistics by shareholder. Nanshan Development Group which is indiretly
establishing Shanghai (Baoshan) Blogis. After more than ten owned by State-Owned Assets Surpervision and Administration
years of development, Blogis is now the second largest modern Commission (SASAC), holds 51.79% of Chiwan. In 2010, GLP
warehouse provider in China. As of end 2014, Blogis has a bought 19.9% in Chiwan from Offshore Joint Services
warehouse landbank of c. 2.1m sm, including nearly 1.4m sm Company of Singapore at HK$11.75 per share. Blogis is
warehouse space completed, c. 386k sm under construction, 77.36% owned by Chiwan and 22.64% owened by Nanshan
and c. 343k sm of projects with land use rights but in the Development Group.
master planning stage. In addition, it has c. 1.7m sm GFA in the
acquisition pipeline. Blogis expects to expand its warehouse
landbank to 5m sm by 2019, through two to three new projects
each year.
Page 41
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Projects by status GFA by city excluding those pending land use rights
Ezhou 7% Nanjing 6%
Completed
9% Wuhan 7% Shenyang 6%
In operation Zhenjiang 6%
26%
Under Tianjin 9% Kunshan 5%
construction
10% Qingdao 4%
Shanghai
Pending 12% Guangzhou
land use 3%
Got land Suzhou 3%
right Chengdu
use right Xi'an 13%
46% 14% Wuxi 3%
9%
Changsha 2%
Shenyang 4%
Nanjing 6% Zhenjiang 4%
Ezhou 6%
Kunshan 4%
Wuhan 6% Qingdao 3%
Guangzhou 3%
Suzhou 3%
Tianjin 9%
Wuxi 3%
Changsha 3%
Shanghai 8% Chongqing 3%
Hefei 2%
Langfang 2%
Xi'an 9%
Zhengzhou 2%
Changzhou 2%
Chengdu 13% Jiaxing 2%
Shenzhen 2%
Nantong 1%
Page 42
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Page 43
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Board members
N ame an d Po s it io n Ex p erien c e
Mr. Tian J uny an Mr. Tian holds a Master's degree in Management from Huazhong Univ ersity of Science and Technology . He w as
Chairman prev iously an A ssociate Professor of School of Management of Huazhong Univ ersity of Science and Technology .
Since 1996, he had serv ed as Manager of Research & Dev elopment and Executiv e Senior V ice President of
Nanshan Group. Mr. Tian has been a Director since May -10. He is presently General Manager of Nanshan Group
and Chairman of the Sev enth Board of Directors of the company .
Mr. Ming Zhi Mei Mr. Ming holds a Bachelor's degree in F inance from Indiana Univ ersity and an MBA from Northw estern Univ ersity
V ice Chairman and The Hong Kong Univ ersity of Science and Technology . Since 1996, he has held important positions in the
departments of finance, manufacture, sales, market, strategic planning and integrated management of Owens
Corning. He joined ProLogis in 2003. A t present, he is the joint founder and CEO of Global Logistic Properties and
V ice Chairman of the Sev enth Board of Directors of the company .
Mr. F an Zhaoping Holds a Bachelor's degree in Economics from China F inance College and a Master's degree in Economics from the
Director Research Institute of the Ministry of F inance of China. Mr. F an has successiv ely held posts of F inancial Manager
and Superv isor of the company . He was also F inancial and Inv estment Manager of China Nanshan Dev elopment
(Group) Incorporation in 1991. He was Chairman of the sixth Board of Directors. A t present, he is Senior V ice
President of Nanshan Group and the Director of the Sev enth Board of Directors of the company .
Mr. Wang Shiy un Holds a PHD in F inance from Cambridge Univ ersity . He has worked in ICBC, The Univ ersity of Manchester,
Director/GM Univ ersity of Sheffield, Univ ersity of Southampton before joining China Nanshan Dev elopment (group)
Incorporation in 2004. He worked as Chief Economist and V ice General Manager of the Group and w as appointed
GM of the company in A pr 2015.
Mr. Shu Qian Graduated from Hunan Institute of F inance (merged Hunan Univ ersity in 2000) majoring in A ccounting, and
Director/Deputy - GM obtained a Master's degree in Maritime Economics and Logistics from Rotterdam Univ ersity in 2004. Since 2000,
Mr. Shu has worked in the finance department in Shenzhen Chiwan International F reight F orwarding Co., Ltd.,
w hich is part of Shenzhen Chiw an Wharf Holdings Limited. He joined China Nanshan Dev elopment (Group) Co.,
Ltd as A ssistant General Manager. Currently , he is General Manager of Research and Dev elopment Department of
Nanshan Dev elopment (Group) Co., Ltd. He has serv ed as a Director of the company since May 2013. He was
appointed as the company 's V ice General Manager in A pr 2015.
Mr. Kent Yang Mr. Yang has a Bachelor's degree in A rchitecture from Univ ersity of California, Los A ngeles and a Master's degree
Director in Real Estate Dev elopment from Columbia Univ ersity . He was the directing designer in Mark Lintott Design in
1993; professional consultant in Colliers J ardine in 1996; special assistant to Chairman and General Manager-China
in Taiwan F u J i Manufacture Co., Ltd. since 1997; General Manager of Wuxi Huay ang High Tech Inv estment Co.,
since 2005. He was the General Manager of GLP Park Lingang in 2005 and F irst V ice President of Global Logistic
Properties in 2007. A t present, he is the President of the China region of Global Logistic Properties and Director of
the Sev enth Board of Directors of the Company .
Mr. He Liming Holds a Master's degree. He has prev iously serv ed as Deputy Director of the Materials Department, the Personnel
Director Div ision of the Ministry of Domestic Trade, general manager of China Nonferrous Metal Materials Corporation, V ice
President and Secretary General, Executiv e V ice President of the China F ederation of Logistics and Purchasing. A t
present, he is President of the China F ederation of Logistics and Purchasing, President of China Society of Logistics,
the 42nd President of China International Trade Promotion's logistics industry branch, Chairman of A sia Pacific
Logistics A lliance. Since May 2013, he serv ed as an Independent Director of the company .
Mr. Chen Weijie A professor-lev el senior economist. He successiv ely serv ed the post of Manager of F inance Department of the
Independent Director Eastern Oil Company CNOOC Nanhai, F inance Department Manager of CNOOC Shenzhen Branch, President of
CA CT Operators Group, Deputy General Manager and Deputy Party Secretary of CNOOC Shenzhen Branch,
General Manager of China National Offshore Oil Corporation, Ministry of Planning. Currently , he is Deputy Director
of the Professional Committee of China's Economy Petroleum Institute; member of CNOOC/Shanghai J iaotong
Univ ersity Engineering Research Center's technical committee of new energy ; V ice Chairman of Tianjin Intercity
Railway Co and Tianjin Binhai New A rea High-tech Dev elopment Company . Since May 2013, he has serv ed as an
Independent Director of the company .
Source: Company
Page 44
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Source: Company
Page 45
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Management team
N ame an d Po s it io n Ex p erien c e
Mr. Wang Shiy un PHD in F inance from Cambridge Univ ersity . He worked in ICBC, The Univ ersity of Manchester, Univ ersity of
Director/GM Sheffield, Univ ersity of Southampton before joining China Nanshan Dev elopment (group) Incorporation in 2004.
He was Chief Economist and V ice General Manager of the Group and was appointed at GM of the company in
A pr 2015.
Mr. Shu Qian Graduated from Hunan Institute of F inance (merged with Hunan Univ ersity in 2000) majoring in A ccounting, and
Director/Deputy GM obtained a Master's degree in Maritime Economics and Logistics from Rotterdam Univ ersity in 2004. F rom 2000,
Mr. Shu w as in the financial department in Shenzhen Chiwan International F reight F orw arding Co., Ltd., under
Shenzhen Chiw an Wharf Holdings Limited. He joined China Nanshan Dev elopment (Group) Co., Ltd as A ssistant
General Manager. Currently , he is General Manager of Research and Dev elopment Department of Nanshan
Dev elopment (Group) Co., Ltd. He has serv ed as a Director of the company since May 2013. He w as appointed as
the company 's V ice General Manager in A pr 2015.
Mr. Wang J ianjiang Doctorate in Hy draulic Structure Engineering from Wuhan Water Resources and Electric Univ ersity . He worked in
Deputy GM/Chief Xinjiang Shihezi Univ ersity (the former Shihezi A gricultural College) from Mar 1985 to A ug 1992. He also worked
Engineer in the planning department, general engineering and department of planning and construction management in
China Nanshan Dev elopment (Group) Incorporation. He has been Deputy GM & Chief Engineer of the company
since F ebruary 2011.
Mdm. Yu Zhongxia Receiv ed a Bachelor's degree from Shan'xi F inance and Economics College, qualify ing as an A ccountant. Mdm. Yu
Deputy GM & CF O has taught at Xi'an Road Management College. She joined the company in 1992 and held the posts of F inancial
Manager A ssistant, F inancial Manager of CSE, Sy stem/A udit Manager A ssistant, Deputy F inancial Manager,
F inancial Manager, A ssistant GM, Deputy CF O and CF O. She is Deputy GM & has been CF O of the company
since Nov ember 2011.
Mr. Zhang Xiang Holds a Master's degree from Wuhan Marine Traffic Engineering College. He has serv ed as superv isor, assistant
Deputy GM manager, deputy manager of operation of the company . F rom October 2005 to May 2015, he serv ed as deputy
GM and GM of Guangzhou Baowan. Since F ebruary 2011, he w as GM of Offshore Oil Logistics Serv ice Div ision
of the company and Shenzhen Baow an. He had also serv ed as Superv isor of the Board of Superv isors of the
company . Deputy GM of the company since A pril 2014.
Mr. Song Tao Holds a Bachelor's degree in International F inance from Dalian Univ ersity of Technology and Master's in
Board Secretary Technology and Economic Management from Hebei Univ ersity of Technology . He held the posts of F inance
Superv isor and Deputy Manager of finance department in Shenzhen Baow an in A pril 2004. F rom A pril 2005 to
March 2012, he was the Securities Representativ e of the company . A t present, he is the Board Secretary and
Manager of Inv estment Department of the company .
Source: Company
Page 46
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Shareholding structure
SASAC SASAC
100%
China
Merchants
Group
54.62% 100%
China
Merchants
Holdings Shenzhen Guangdong
CNOOC
SASAC SASAC
(Internationa
l)
China Guangdong
China Ocean Clifford
Merchange Shenzhen Guangye
Yinchuan CNOOC Oilfields Wong
(Nanshan) Investment Investment
Limited Holding Services Investments
Holding Holding Holding
(HK) Ltd Ltd.
19.9% 51.79%
Blogis
Source: Company
Page 47
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Net profit margins of the projects in operation Y-o-y revenue growth rates of the projects in operation
Page 48
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Yield on cost based on our estimation by 2014 even smaller. In our view, B-to-H conversion will help the
company to increase its accessibility to the overseas bond
Es t imat ed market. In the longer term, the company may be able to try for
y ield o n
H+A share dual listing, which is more technically feasible than a
c ost
direct H-to-A share conversion. In Vanke’s case, share price
Shanghai Blogis 17.9%
went up by over 60% one year after the conversion. Trading
Mingjiang Blogis 15.1%
Kunshan Blogis 18.0% volume during the year after the conversion was 5.8x of that
Langfang Blogis 9.8% before the conversion.
Tianjin Blogis 17.0%
Net debt ratio higher than peers but no alarm bells. The
Xindu Blogis 14.2%
company’s net debt ratio has been over 100% in the past five
Longquan Blogis 18.9%
Guangzhou Blogis 10.4%
years. Based on China’s accounting standard, the company’s
investment property has not been revalued. Our estimate of
Source: Company, DBS Vickers Chiwan’s net debt ratio based on the same accounting base as
peers is c. 70%, which is higher than peers but not significantly.
Its total liability to total asset ratio was c. 63% by end-13 and
Increasing contribution from Blogis. Overall, we expect the end-14. We expect the company’s net debt ratio to increase
company’s revenue to fall 16% in 2015, dragged by a decline in further in the next two to three years. Total debt to total asset
Petroleum base business, but should start to rise from 2016 due ratio may increase as well but the company intends to keep this
to increasing contribution from Blogis. Revenue is expected to ratio below 70%. Short term debt as percent of total debt stays
grow 8% and 18% in 2016 and 2017 respectively. In the past at the level of low teens, which means no short term debt
four years, the contribution from Blogis to the company’s repayment pressure.
revenue increased from c. 43% in 2011 to 52% in 2014. We
expect the percentage to increase to 81% by 2017. New funding channels needed to fund the fast growth in Blogis.
Given the company’s SOE background and GLP as its major
Core earnings of Chiwan may start to grow in 2017. The shareholder, we believe the company has an advantage in
decline in petroleum base operations may result in core earnings securing domestic loans without a premium to the PBOC rate
declining by over 50% in 2015 based on our estimates. and mid-term notes. It has the potential to tap into the overseas
However, core earnings may start to rise again, by 15% in 2017 bond market with parent company’s credit enhancement. In
driven by rental income from new warehouses. Nanjing Blogis, addition, based on We believe it has the potential to increase
Nantong Blogis Phase 1, and Wuhan Blogis are expected to start total debt level if listed as H-shares.
operations in 2015. Wuxi Blogis, Zhenjiang Blogis, and Tianjin
Bingang Blogis are scheduled to start operations in 2016. We Share Price Drivers
expect Qingdao, Jiaxing, and Changzhou projects to generate
revenue in 2017. The company’s dividend policy is to pay no Successful acquisitions. There is a risk that potential projects in
less than 30% of its total net profit for the coming three years the pipeline cannot be acquired as planned due to various
or an average dividend payout ratio of 10% per annum. reasons. In our valuation of the company, we have not factored
in contribution from potential projects to be conservative.
Gross margins of Chiwan likely to stay high, but net profit Hence, successful acquisitions can serve as share price catalyst.
margins may be lower. Gross margins had been above 60% in Re-rating is possible along with scale expansion. Currently, GLP
the past and we believe this is sustainable. However, net profit is trading at 29% discount to NAV, while Blogis is trading at
margins may be compressed due to start-up costs of new 36% discount. We believe the gap is likely to narrow as Blogis’
projects in new cities and higher interest cost as borrowings scale is expanding and it is on its way to becoming a major
have increased. player in the sector.
Balance Sheet:
Valuation
Seeking B-to-H conversion in 2016. The company suspended
trading in its shares for one year from late Apr-14 and Our NAV is estimated to be HK$28.64/share. It is currently
announced its B-to-H conversion plan. The plan is awaiting trading at 36% discount to NAV. We believe valuation is
approval from shareholders. The company believes that B-to-A undemanding. If Blogis can successfully acquire the projects in
share conversion is technically more difficult than B-to-H. After the pipeline, its NAV can be boosted to HK$35.35/share. We
the recent fall in the A-share market and suspension of new believe there is substantial upside.
IPOs, the chance for B-to-A share conversion to take place is
Page 49
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
Key Risks:
NAV
Acquisition risks. There is a risk that potential projects in the
Current pipeline cannot be acquired as planned due to various reasons.
projec t s Pipeline T ot al
Financial risks. The company is on a fast expansion track in
GA V (Rmb mn) 9,695 4,953 14,648
these two years. Capital requirements for M&As and
-Unpaid land premium 1,987 3,715 5,701
construction are high.
-Net debt 2,426 2,426
NAV 5,283 1,238 6,521 Operation risks and competition risks. Competition in land
No. of shares 231 231 231 acquisitions in key cities is intensifying as more players are
NAV per share HKD 28.64 6.71 35.35 entering the market. There is also great competition in
attracting tenants.
Source: Company, DBS Vickers
Page 50
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
R ev en u es
Blogis 441 370 414 479 605
Chiwan base - 90 45 40 36
Handling 102 119 59 53 48
Port admin 81 66 33 26 21
Office renta 53 60 30 30 30
Others 15 9 4 4 4
T o t al 692 713 586 633 745
Page 51
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
2013A
2014A
2015F
2016F
2017F
Net Interest (Exp)/Inc (114) (114) (117) (138) (159)
Exceptional Gain/(Loss) 0 0 - - -
Pre- t ax Pro f it 268 279 185 181 211 Operating margin
Tax (53) (52) (43) (42) (49) Net margin
Minority Interest (16) (20) (39) (44) (52)
Profit attri. to PSCS
N et Pro f it 199 207 104 96 110
Invts in
ST Debt 311 301 1 1 1
Assocs &
Other Current Liab 382 563 563 563 563 JVs Net Fixed
LT Debt 2,259 2,518 2,818 3,318 3,818 10% Assets
43%
Other LT Liabilities 19 19 19 19 19
Shareholder's Equity 1,470 1,690 1,784 1,870 1,970
Minority Interests 278 298 337 380 433
T o t al Cap . & L iab . 4,719 5,390 5,522 6,152 6,804
Page 52
China / Hong Kong Company Focus
Shenzhen Chiwan Petroleum
2013A
2014A
2015F
2016F
2017F
Inv ts. in A ssoc. & J V - - - - -
Div from A ssoc. & J V - - - - -
Other Inv esting CF
N et In v est in g CF (755) (399) (271) (960) (800)
Div Paid (116) (84) (34) (54) (76)
Chg in Gross Debt (338) (104) (300)
Capital Issues 0 - - - -
Other F inancing CF 180 249 300 500 500
N et F in an c in g CF (275) 60 (34) 446 424
Net Cashflow (595) 76 18 (164) 29
Page 53
China / Hong Kong Company Focus
Beijing Properties Holdings
Bloomberg: 925 HK Equity | Reuters: 0925.HK Refer to important disclosures at the end of this report
www.dbsvickers.com
ed-TH / sa- AH
Company Focus
Beijing Properties Holdings
INVESTMENT THESIS
Profile Rationale
In 2009, Beijing Enterprises Group (which is 100% owned by Pure warehouse play
Beijing SASAC) bought a 67.42% stake in 925.HK (which The main business focus of the company is on warehouse
was formerly named Peaktop) to consolidate and reorganise investment operations
all its property-related businesses and renamed it Beijing
Rental income account for c.90% of its revenue in 2017
Properties Holding Limited (BJHL). It also brought in Kerry
Global as a strategic investor in the same year. After A combination of SOE background and foreign investors
exploring opportunities in residential development and 67.4% owned by Beijing Enterprises Group which is under
commercial properties, BJHL has gradually established its the Beijing Government
business focus on logistics properties. At present, BJHL has Kerry is a partner at both equity and project levels
streamlined its real estate business into four business lines,
Mitsui and Mitsubishi at project level
namely (1) e-commerce and bonded logistics, (2) cold chain
and food supply chain logistics facilities, (3) specialised Ability to beat the competition in acquiring land and tenants
wholesale markets, and (4) other real estate. SOE background helps in accessing land
Partnership with foreign investors aid in sourcing for tenants
They are also building a tenant base in the cold chain niche
Valuation Risks
Our TP is based on a 25% discount to our estimated NAV. Policy risk
VAT reform is a sector-wide risk that may eat into
developers' margins and cash flows.
Execution risk
BJHL faced execution risk during its past expansion stage.
Financial risk
Balance sheet may be stretched if expansion is not well
paced.
Page 55
Company Focus
Beijing Properties Holdings
SWOT Analysis
Strengths Weakness
Opportunities Threats
Solid pipeline to expand in the coming two to three years Competition from new players entering the market
Emerging market opportunities in both general warehouse Fast expansion may strain balance sheet
and cold chain businesses
Page 56
Company Focus
Beijing Properties Holdings
BACKGROUND, STRATEGY & MANAGEMENT Toncheng wholesale centre project which will be completed and
begin operations in 2H15. The Tianjin Zhongyu project is fully
leased to the project’s partner while the Quzhou Tongcheng
SOE with Kerry Holdings as a major shareholder too. In 2009, project is expected to start operations in September with 90%
Beijing Enterprises Group (which is 100% owned by Beijing occupancy rate.
SASAC) bought a 67.42% stake in 925.HK (which was formerly
named Peaktop) to consolidate and reorganize all its property- Acquisition of key Beijing Majuqiao project to bear fruit this
related businesses and renamed it Beijing Properties Holding year. Another key project that BPHL has been negotiating with
Limited (BPHL). It also brought in Kerry Global as a strategic the government on and planning since 2011 is the Beijing
investor in the same year. Majuqiao project located near South 6th Ring Road with a total
estimated GFA of over 600k sm. This project is considered the
Clear business focus. After exploring opportunities in residential
last logistics site in Beijing, as well as the largest integrated
development and commercial properties, BPHL has gradually
logistics facility in North China. BPHL is expecting the first phase
established its business focus on logistics properties. At present,
of the land (366k sm) to be taken over from the government in
BPHL has streamlined its real estate business into four business
2H15. Preleasing rate has reached 65% at present. It has also
lines, namely (1) e-commerce and bonded logistics, (2) cold
recently announced the acquisition of Wuhan Jianghe project
chain and food supply chain logistics facilities, (3) specialized
with 115k sm rental area.
wholesale markets, and (4) other real estate.
Mid-scale existing landbank. Excluding the non-warehouse
Three e-commerce and bonded logistics projects in operation.
space, our calculation shows that BPHL has 1m sm existing
As of end-14, BPHL had three projects in operation generating
warehouse landbank on hand. Although the current scale is
rental income, namely Shanghai Phoenix WGQ, Tianjin WSL
small compared with major players in the sector, it has the
Logistics, and Tianjin Transwealth Logistics with a total
potential to grow big.
completed floor space of c.250k sm. All three projects are
enjoying high occupancy rates, stable rent, and good tenant Solid acquisition pipeline, scale likely to expand fast in 2015. It
mixes. SF Express took up the entire space in phase I of Tianjin has eight normal warehouse projects, three cold chain projects,
Transwealth Phase I and has signed a preleasing agreement for and one wholesale market project with warehouse components
all the space in Phase II. In addition, it also has a small-scale in the pipeline. Five out of the eight normal warehouse projects
shopping centre in Guangzhou and a Holiday Inn hotel in are completed and expected to be acquired in 2015. Two cold
Beijing in operation. Both are profitable. chain projects are expected to be acquired in 2015 as well. If
the acquisitions come through as planned, the company will
Two self-built projects to start operating in 2H15. BPHL also has
own a c. 2m sm landbank including 1m sm completed by end-
a cold chain warehouse (Tianjin Zhongyu project) and a Quzhou
2015. Landbank scale may reach c. 3m sm by end-2017.
Page 57
Company Focus
Beijing Properties Holdings
Solid pipeline:
Pla nne d
La nd a re a re nta bl e Compl e te d
Proj e c t Sta tus Owne rshi p (sqm) a re a (sqm) GFA (sqm)
E-c omme rc e a nd bonde d l ogi sti c s 1,897,430 1,650,055 611,205
1. Beijing Majuqiao Project Current project 76% 401,300 549,200 -
2. Shanghai Phoenix WGQ Current project 100% 153,618 211,985 211,985
3. Tianjin Airport Project Current project 70% 92,868 59,836 36,836
4. Wuhan Jianghe Project Acquisition announced 100% 198,668 115,300 -
5. Wuhan Economic Development Zone Project Expected to be acquired in 2016 70% 231,840 152,478 -
6. Shenyang Yuhong Project Expected to be acquired in 2017 72% 74,000 47,861 -
7. Xiamen Project Expected to be acquired in 2015; 100% 140,915 93,600 81,600
construction completed
8. Meishan Project Expected to be acquired in 2015; 100% 146,512 99,929 99,929
construction completed
9. Nanning Project Expected to be acquired in 2015; 38% 86,670 54,905 54,905
construction completed
10. Guangdong Foshan Project Phase I expected to be acquired in 2015; 80% 188,733 176,789 37,778
construction completed
11. Shanghai Songjiang Project Expected to be acquired in 2015; 85% 87,849 88,172 88,172
construction completed
12. Wuhan Caidian Project Expected to be acquired in 2017 100% 94,457 -
Col d c ha in a nd food suppl y c ha in l ogisti c s 320,682 343,678 72,142
13. Tianjin Zhongyu Cold Chain Logistics Park Current project 60% 85,638 67,986 67,986
14. Beijing Huitong Shiye Expected to be acquired in 2015 70% 97,800 144,732 4,156
15. Qingdao Jingchangshun Project Expected to be acquired in 2015 80% 15,351 15,000 -
16. Beijing Pinggu Mafang Expected to be acquired in 2016 N/A 121,893 115,960 -
Spe c ia li se d whole sa l e ma rke ts 951,107 885,400 342,000
17. Quzhou Project Current project 100% 284,437 286,000 342,000
18. Quzhou Aolai Project To be acquired N/A 666,670 599,400 -
Spe c ia li se d re a l e sta te 13,065 41,818 86,056
19. Holiday Inn Downtown Beijing Current project 75% 7,057 N/A 26,963
20. Guangzhou Metro Mall Current project 99% 6,008 41,818 59,093
Tota l a re a 3,182,284 2,920,651 1,111,403
Attri buta bl e a re a 870,674 1,039,454 699,286
Source: Company
Page 58
Company Focus
Beijing Properties Holdings
Page 59
Company Focus
Beijing Properties Holdings
Ex ec u t iv e D irec t o rs
M R. Y U LI 51 V ice chairman, Mr. Yu is the chairman and an executiv e director of the Beijing Enterprises Group Real-
Estate Co., Ltd ("BE Real Estate"). Mr. Yu obtained an Executiv e MBA degree from the Peking
Univ ersity . Mr. Yu has extensiv e experience in corporate management. Mr. Yu joined the Group in
J anuary 2011.
M R . Q IA N X U 51 Chief executiv e officer, Mr. Qian is the general manager and an executiv e director of the BE Real Estate.
Mr. Qian graduated from the Economics and Management F aculty of the Beijing Industrial Univ ersity
with a Bachelor's degree in Economics and has obtained his EMBA degree from Tsinghua Univ ersity . Mr.
Qian has extensiv e experience in mergers and acquisitions, corporate restructuring and financial
management. Mr. Qian is a director of Brilliant Bright Holdings Limited ("Brilliant Bright"), w hich is a
controlling shareholder of the Company . Mr. Qian joined the Group in J uly 2009.
M R . SIU K IN W A I 46 Chief financial officer and company secretary , Mr. Siu graduated from the City Univ ersity of Hong Kong
with a Bachelor's degree in A ccountancy and is fellow members of the A ssociation of Chartered
Certified A ccountants and the Hong Kong Institute of Certified Public A ccountants and a member of
the Institute of Chartered A ccountants in England and Wales. Mr. Siu has extensiv e experience in
financial management and corporate adv isory . Mr. Siu is a director of Brilliant Bright, w hich is a
controlling shareholder of the Company and also serv es as the chief financial officer of Beijing Holdings
Limited ("BHL"). Mr. Siu was appointed as the chief financial officer of Genv on Group Limited
("Genv on", SEHK stock code: 2389) on 23 September 2014, and has resigned as the chief financial
officer of the Genv on w ith effect from 27 March 2015. Mr. Siu also serv es as the independent non-
executiv e director of A gritrade Resources Limited (SEHK stock code: 1131) since A ugust 2010. Mr. Siu
joined the Group in J uly 2009.
M R . J IA N G X IN H A O 50 V ice general manager of the Beijing Enterprises Group Company Limited ("BE Group"), an executiv e
director of BE Real Estate, an executiv e director and a v ice president of Beijing Enterprises Holdings
Limited ("BEHL") (SEHK stock code: 392) and an executiv e director of Beijing Enterprises Water Group
Limited ("BE Water") (SEHK stock code: 371), BEHL and BE Water are respectiv ely subsidiaries and
associated companies of the BE Group. Mr. J iang graduated from F udan Univ ersity in 1987 with a
Bachelor's degree in Law , and then in 1992 with a Master's degree in Law . Mr. J iang w as a lecturer at
Peking Univ ersity betw een 1992 and 1994. F rom 2000 to 2005, Mr. J iang was a manager of the
inv estment dev elopment department of BHL, and the general manager of Beijing BHL Inv estment
Center, a wholly ow ned subsidiary of BHL. He serv ed as a policy analy st of the Chinese State
Commission for Restructuring Economic Sy stem from 1987 to 1989. Mr. J iang has extensiv e experience
in corporate finance and corporate management. Mr. J iang joined the Group in J anuary 2011.
M R . Y U L U N IN G 53 Graduated from the Economics and Management F aculty of the Beijing Industrial Univ ersity with a
Bachelor's degree in Economics. Mr. Yu has extensiv e experience in property dev elopment, corporate
restructuring and financial management. Mr. Yu joined the Group in J anuary 2011. MR. LIU XUEHENG
A ged 41, obtained his MBA from the Cambridge Univ ersity of the United Kingdom. Mr. Liu has
extensiv e experience in the equity inv estment, corporate finance, IPO listings, and mergers and
acquisitions. Mr. Liu is a co-founder of Partners Capital International Limited and V ision F inance Group
Limited and is currently an executiv e director of V ision F inance Group Limited. Mr. Liu also serv es as an
executiv e director of Genv on. Mr. Liu also serv es as an independent non-executiv e director of
Guangshan Railw ay Co., Limited (SEHK stock code: 525). Mr. Liu joined the Group in J anuary 2011.
M R . A N G R EN Y I 29 Holds a Bachelor's degree in Env ironmental Engineering from the Harv ard Univ ersity . Prior to joining our
Board, Mr. A ng Reny i had been an analy st of energy and natural resources group in J .P. Morgan A sia
Pacific. He has extensiv e experience in the areas of banking and capital markets. Mr. A ng joined the
Group in December 2012.
Source: Company
Page 60
Company Focus
Beijing Properties Holdings
Source: Company
Page 61
Company Focus
Beijing Properties Holdings
Shareholding structure
Source: Company
Page 62
Company Focus
Beijing Properties Holdings
CRITICAL DATA POINTS TO WATCH Fast rental income growth expected in the coming three years.
We expect the company to achieve a 35% CAGR for its revenue
Projects in operation achieved high occupancy rate and high
in the coming three years based on current land bank, driven by
margins. The company has three projects contributed rental
new warehouse facilities entering into operational stage.
income in 2014, recording 95% to 100% occupancy rate.
Although it is likely to continue to make loss in 2015 and 2016
Phase II of Transwealth project in Tianjin has been full preleased
due to high interest costs and expenses for expansion, core net
to SF Express and Tianjin Zhongyu, cold chain project, has been
profit is expected to turn black in 2017. If the pipeline comes in
100% preleased to Quzhou Fruit and Vegetable Association.
as planned, as some of the targeted projects are completed
Based on our estimation, most of the company’s projects record
ones, revenue CAGR in the coming three years may be boosted
rental yield of 6% to 11% at present. New projects are
to 57% and FY17 core earnings may exceed HK$180m.
expected to generate 6% to 7% yield when matured.
Cold chain space may help achieve better margins than peers. If
High gross margins expected despite of slight decline from
BPHL’s acquisition pipeline goes through, it will have 12% of
2013 and 2014 level. Gross margins of these projects came in
the landbank for cold chain warehouses which usually charge
as high as 94% to 100%. Blended with a small hotel operation
more than twice the common warehouse rental and hence
and warehouse related management fee, the company’s gross
generate higher margins.
margin stayed above 80% in 2013 and 2014. We expect as
new projects came in, its gross margins may decline slightly but
still above 75% in the coming three years.
O c c u p an c y rat e R en t al G ro ss marg in s
Plan n ed
N ame o f G ro u p In t eres t ren t ab le
c o mp an y (% ) area ( sm) 2014 2013 2014 2013 2014 2013 M ajo r t en an t s
BIPL* 76 549,200 0 0 n.a n.a n.a n.a InterLog, Best Express, DHL, China
Railway Group, etc.
Shanghai Phoenix 100 211,985 94 79 106,815 19,878 94 98 Nippon Express, Kintetsu
WGQ Express, MOL Logistics, Mitex
Logistics, DCH, etc.
WSL Logistics 70 24,922 96 97 17,740 6510 97 97 Kintetsu Express, Nippon
Express, Kerry Logistics,
Transw ealth 70 34,700 100 - 1,286 0 100 - SF Express
Logistics
Tianjin Zhongy u 60 66,497 F ully preleased to Mr. Zhang, the
partner of the project
Page 63
Company Focus
Beijing Properties Holdings
NAV
Page 64
Company Focus
Beijing Properties Holdings
Rev enues
Sale of properties
Gross rental income 36 156 251 382 449
Serv ices fees earned from a - 44 55 55 55
Management fee 0 3 - - -
T ot al 36 203 306 437 504
Page 65
Company Focus
Beijing Properties Holdings
2013A
2014A
2015F
2016F
2017F
Net Interest (Exp)/Inc 7 (97) (47) (74) (98)
Exceptional Gain/(Loss) 882 464 - - -
Pre- t ax Pro f it 776 298 (30) 43 153 Operating margin
Tax (53) (107) - (11) (38) Net margin
Minority Interest (22) (24) (28) (32) (34)
Profit attri. to PSCS - - - - -
N et Pro f it 701 167 (59) (0) 81
Page 66
Company Focus
Beijing Properties Holdings
2013A
2014A
2015F
2016F
2017F
Inv ts. in A ssoc. & J V (205) (535) - (661) (661)
Div from A ssoc. & J V 29 20 22 22 29
Other Inv esting CF (145) (241) 78
N et In v est in g CF (1,497) (1,377) (697) (1,081) (812)
Div Paid (30) (66) (116) (159) (213)
Chg in Gross Debt 67 2,244 2,000 500
Capital Issues 0 8 - - -
Other F inancing CF 172 (76) 421 - -
N et F in an c in g CF 208 2,111 305 1,841 287
Net Cashflow (1,316) 760 (276) 935 (356)
Page 67
China / Hong Kong Company Focus
China South City
Bloomberg: 1668 HK EQUITY | Reuters: 1668.HK Refer to important disclosures at the end of this report
www.dbsvickers.com
ed-JS / sa- AL
Company Focus
China South City
INVESTMENT THESIS
Profile Rationale
China South City (CSC) is a leading developer and operator Strong exposure in Tier1 and 2 cities
of integrated logistics and trade centres in China in terms of CSC is a leading developer of mega trade centre projects
land bank size, project size and city exposure. Along with its which owns 29m sm land bank in 8 Tier 1 and 2 cities. It’s
core business, CSC has also extended to warehouses, outlet strong city exposure will facilitate its growth into the logistics
malls and e-Commerce sector since 2008/ 2011 & 2012 warehouse and e-Commerce sector.
respectively. CSC owns 29m sm land bank with 8 large scale
integrated trade centres, all located in Tier I/II cities. On top Building up logistics portfolio in existing projects
of that, it also has land bank of another 49m sm GFA under GFA of CSC’s logistics and warehouse facilities in operation
a framework agreement with local government that it can has reached 465k sm and management targets to grow it
acquire in the coming years. further to 1m sm in 2-3 years. Given management’s plan to
allocate 15% of its land bank for logistics and warehouse
facilities, we believe CSC has the potential to grow its
logistic portfolio quickly at reasonable land costs.
Valuation Risks
Our TP is based on SOTP valuation by applying: Macroeconomic risks. If China’s economy slows down faster
(1) 6.8x FY15/16 PE to its property sales segment, than expected and triggers a hard landing, the trade centre
benchmarked the average PE of mid-caps in the China market will be significantly affected.
property sector.
(2) 35% NAV discount to the warehouse investment Municipal risks. The take-up of its integrated trade centres
properties benchmarked the valuation of GLP (10% may depend on the relocation of existing wholesale malls by
NAV discount). Given GLP is the leading player in the local governments; a slower relocation pace may affect
warehouse sector, we believe CSC’s ramping up CSC’s property sales and occupancy.
warehouse portfolio would justify a wider discount.
(3) 55% NAV discount to other investment properties Earnings risks. Property development contributes the
benchmarked to the average of mid-cap Chinese majority of its revenue and earnings. As such, fluctuation in
developers. property sales may significantly affect earnings over the next
(4) 25x FY15E PE for e-Commerce segment, two years.
benchmarked to HK-listed e-Commerce player’s
27xPE.
Page 69
China / Hong Kong Company Focus
China South City
SWOT Analysis
Strengths Weakness
Leading developer of integrated trade centres in China Acquisitions of new projects may depend on the
through replicating its CSC Shenzhen model to Tier 1/2 cities government’s plan on land development and
relocation
CSC’s trade centre segment has received strong support Sales and/or rentals of its trade centres may be
from the government to relocate old wholesale centres to adversely affected if the global economy slows and
well-integrated trade centres outside prime locations affects China’s trade surplus
Has a low cost land bank in key Tier 1/2 cities (average: It may take longer to cultivate new businesses before
Rmb293/sm). Further land supply in existing cities secured these can be spun off at good valuation
through framework agreements with local governments
Strong growth of recurring income through e-commerce
related businesses.
Building a ‘Physical + online + logistics’ trading platform that
has potential for spin off in the future to unlock intrinsic
value
Strong support from Tencent as strategic partner to develop
its O2O platform
Lower policy risks compared with residential developers
Opportunities Threats
Continue on its expansion plan to broaden national
exposure. Pipeline to build a CSC in Guangzhou Sales outlook may be affected by slowing economic
growth in China as well as government’s delays in
Further strengthened its B2B platform in 2014 by acquiring relocation of existing wholesale malls
19.05% of Markepolo Inc., which operates one of the
leading B2B procurement trading platforms in China Possibility of rising land costs and SG&A may erode
margins
Building up its warehouse portfolio and the logistic
information system , LIEP, to capture increasing logistic Increasing the number of mega size projects in more
demand from urbanisation and e-commerce cities may pose higher risk on execution
Diversified funding channels (eg: PRC domestic bond, Short
Term Notes and Medium Term Notes) at reasonable funding
costs to support expansion.
Page 70
China / Hong Kong Company Focus
China South City
Comparison – HK listed trade centre developers Since the success in Shenzhen, CSC has strategically replicated
its integrated trade centre models to seven other key cities in
China Sout h Cit y Hy doo Wuz hou
China. As at Jun-15, CSC’s exposure has extended to cities
1668 HK 1396 HK 1369 HK
including Shenzhen, Zhengzhou, Xi’an, Harbin, Hefei, Nanning,
Land bank ('000 sm) 28,815 9,603 8,052
Nanchang and Chongqing. CSC has also signed a framework
No. of projects 8 12 39
agreement with the Guangzhou government to develop a new
No. of cities 8 12 28
integrated trade centre project.
Major focus Tier 1,2 Tier 3 Tier 2,3
Av g proj. size ('000 sm) 10,228 800 297
Strategic cooperation with Tencent to cultivate its O2O platform
Year commence business 2002 1995 2004
IPO 2009 2013 2013
In Jan-14, Tencent formed a strategic cooperation with CSC and
F irst project Shenzhen Ganzhou Wuxi
invested HK$1.5bn for a 9.9% stake. In Sept-14, Tencent
PE (X) 8.90 4.94 19.69
increased its stake in CSC to 11.55% through exercising its
PB (X) 0.77 0.83 1.27
share options in full. The strategic cooperation will focus on
Source: Bloomberg, Companies, DBS Vickers developing an O2O eco-system by connecting an online
* CSC’s land bank included GFA not yet acquired as at end-Mar platform to CSC’s physical trade centres and ancillary facilities.
2015 So far, CSC has launched the B2B e-commerce platform for trial
run in Zhengahou CSC, which has accumulated over 13,000
members and over 3,000 online shops. On the other hand, the
B2C platform which supports its outlet business is also on trial
in Shenzhen CSC and Nanning CSC. Revenue from e-commerce
has increased to HK$202m in FY15 from HK$189m in FY14. We
believe Tencent’s expertise in establishing online eco-systems
with its strategic partners (ie: JD.com, Wechat, TenPay,
dianping.com, WEBANK) will facilitate the development of
CSC’s O2O system in the coming years.
Page 71
China / Hong Kong Company Focus
China South City
there is another 4.4m sm either under construction or marked warehouse’s demand.CSC targets to utilize 15% of each project
for future development. The integrated trade centre business for logistics and warehouse. We expects its logistics portfolio to
model has made it easier for CSC to accumulate logistic continue to expand with its large landbank on the acquisition
properties than pure logistic developers. The strong base of pipeline.
existing SME occupants in CSC’s trade malls will also support
Corporate Structure
Founding Shareholders
39.4%*
China South City Holdings Limited
* On 15 September 2013, Mr. Cheng Chung Hing, Mr. Cheng Tai Po and Mr. Leung Moon Lam, together with their respective associates, holding
approximately 39.43% in aggregate (or assuming all the share options held by Mr. Leung Moon Lam are fully exercised, approximately 40.30% in
aggregate) of the total number of shares in issued of the Company as at 31 March 2015, have entered into an alliance agreement that a written
approval from the other two alliance parties for any transfer of CSC shares. Certain first right of refusal and tag-along right are also granted to the
alliance parties in respect of such transfer
Page 72
China / Hong Kong Company Focus
China South City
Source: Company
Notes:
4. Included a total planned GFA of approx. 3,017,000 sq.m. from the Nanchang E-commerce and Logistics project, which the Group signed
agreements with Honggutan New District Administrative Committee and Xinjian Country Government of Nanchang on 20 May 2014
5. MOU of Guangzhou project with estimated GFA of 10.0 mn sq. m. signed on 28 Mar 2014
Page 73
China / Hong Kong Company Focus
China South City
Page 74
China / Hong Kong Company Focus
China South City
Page 75
China / Hong Kong Company Focus
China South City
Advancing its e-commerce platform with Tencent As at end of Mar-15, the number of registered online members
Since its strategic cooperation with Tencent last year, CSC has participating in the trial operations increased to over 13,000,
established an online platform to connect its B2C (outlets) and with > 3,000 launching their online shops on CSC86.com and
B2B (trade centres) physical businesses to the e-commerce another 7,000 registered users in the process of setting up their
market. Riding on Tencent’s expertise in internet and mobile online stores. The E-commerce segment has generated revenue
apps, CSC is well on the way to integrate with Tencent’s of HK$189m/HK$202m in FY14/15, mainly from the one-time
platforms including: (1) O2O Eco-system, (2) Financial Services, joining fees (Rmb25,000/user) and annual fees (Rmb6,250/year)
(3) Tencent Public Space, (4) E-commerce & logistics and (5) Wifi from the trial membership program in CSC Zhengzhou. As
Intelligent Solution System (see the details in the chart below) CSC’s E-commerce segment is still at its early stage of
development, we believe it will take time for earnings
Currently, CSC has linked its e-platform to Wechat and the
contribution to be significant, probably beyond FY16/17. We
Wechat payment system. It has also set up online stores at
JD.com to promote its outlet products. estimate CSC’s revenue from e-Commerce to grow at 18%
CAGR in the coming two years to reach HK$282m by 2017.
Strengthen cooperation with Tencent
The physical + online platform
Source: Company
Page 76
China / Hong Kong Company Focus
China South City
Trade centre business – unique business with lower policy attractiveness of its trade centres as the barrier to acquiring land
risks in Tier1/2 cities is high for smaller developers.
What is the value add from integrated trade centres? Low cost land reserve. Although CSC’s projects located in Tier
1/2 cities, they are located in city outskirts and as all of its
T rad it io n al w h o lesales CSC' s in t eg rat ed t rad e projects are in large scale (average size 10.2m sm), the average
mark et s c en t ers land cost is lower than its peers. Also, as most of the land is
Located in downtown areas Located in suburban areas
earmarked for industrial or commercial use, which is cheaper
Temporary buildings and may not Modern buildings with saleable
than residential lands. The average land cost for its existing
hav e official land use right units
certificates for resale landbank is low at c.Rmb293/sm, which is low among peers.
Tenants face traffic problems as Better traffic supported by This gives CSC more financial flexibility given the low up-front
located in downtown surrounding transport investment and also enhances CSC’s competitiveness to
infrastructure maintain margins at 50% level which is above peers’ 35-45%.
Small market scattered through Centralized and categorized
the city trading platform
Land costs and margins comparison
Limited support of ancillary Integrated ancillary facilities
serv ices and facilities and serv ices (eg: warehouses,
A v g p ro j siz e L an d c o st s G P marg in
logistics serv ices, adv ertising,
O2O platform..etc) ' 0 0 0 sm R mb / sm F Y 13 F Y 14
CSC 4,118 293 49% 53%
Source: Company, DBS Vickers Wuzhou 297 944 44% 35%
Hy doo 800 300 62% 42%
High concentration in Tier 1/2 cities ensures competitiveness Source: Company, DBS Vickers
Page 77
China / Hong Kong Company Focus
China South City
‘One-Body-Two-Wings’ business model 20% residential, 15% for logistics & warehousing and 15% for
CSC is targeting towards a balanced growth profile for its trade other commercial facilities (eg: outlets, offices, convention &
centre business (‘one body’) and ancillary services (‘two wings’) exhibition and hotels). The development of CSC’s e-commerce
in order to establish a sustainable business. In the long run, CSC platform will further enhance growth of its ancillary services.
plans to have a portfolio with 50% exposure to trade centres,
Large scale projects support a continued pipeline of work sales dropped by 20% in FY15, missing its sales target for the
CSC is developing mega projects ranging from 2.6m sm to first time since listing. We believe the lower sales was mainly
17.5m sm (including GFA planned but not acquired yet), with due to slower than expected relocation progress of existing
an average project size of 10.2m sm. Due to the large scale of wholesale centres and government’s recent economic reforms
each project, CSC acquires land plots in phases. Out of its total which had caused buyers to delay their purchasing decisions.
planned GFA of 81.8m sm, land for 32.9m sm or 40% has been Management believes this situation may continue in the
acquired as at end-Jun. Its current project pipeline is equivalent medium term and has set its FY15/16 sales target at HK$11-
to over 8 years of development. 12bn, flat from FY14/15. Despite the cloudy medium term
outlook, we believe the trend of relocating existing wholesale
Selling properties in early phases to fund development.
malls to new integrated trade centres should remain in the
CSC plans to grow its recurring income by keeping 50%-70% longer term given the limited availability of land in core areas,
of each project for rental in the long run. But at the early stages which will limit the expansion of wholesale centres.
of development, CSC will sell the trade centres to fund property
development development. This reduces CSC’s funding needs Sales in 1QFY16 (quarter ended Jun-15) reached HK$2.5bn,
for project development, and allows it to speed up its expansion which was 3% higher q-o-q but 6% lower y-o-y. CSC has
pace. locked in 21-23% of its sales target (HK$11-12bn) which is in
line with last year’s 23%. ASP, on the other hand, was up by
Flat sales outlook in the medium term
24% q-o-q and 8% y-o-y. While we have yet seen improvement
CSC achieved contracted sales of HK$11.3bn in FY15, which in sales sentiment, we think sales in 1Q is on track to its sales
represents 40% CAGR during FY12-15. However, contracted
Page 78
China / Hong Kong Company Focus
China South City
FY2014/15 FY2013/14
Shenzhen Nanchang
6% 8%
Nanning
8%
Hefei Nanning
Zhengzhou Chongqing 32% 6%
37% 8%
Shenzhen
Harbin 3%
9% Xian
Harbin 12%
9%
Xian Zhengzhou
9% 30%
Nanchang
12% Hefei
11%
FY2014/15 FY2013/14
Trade
Trade center Trade
center (Mall) center
Trade (Mall)
(Detached) 25% center Office
50% Office 16%
(Detached) 1%
2%
78%
Residential
property Residential
23% property
5%
Page 79
China / Hong Kong Company Focus
China South City
Potential spin-off of HOBA Furnishing on the NEEQ More outlets outside Shenzhen commence operations
In July-2013, CSC acquired 37.5% of HOBA Furnishing at CSC’s first outlet mall in CSC Shenzhen (c.64.8k sm GFA)
Rmb522.2m. HOBA Furnishing is a home furnishing chain store commenced operations in 2011. After the completion of outlet
in China which currently has 9 established stores in Shenzhen, malls in Xi’an, Nanning, Nanchang and Harbin in 2014 and
Zhuhai, Zhongshan, Fuzhou, Changshai and Nanning. It has 2015, GFA in operation has increased to 150k sm. Average
opened a store in CSC Nanning which currently running trial rents in CSC Shenzhen reached c.Rmb50/sm/month, while
operation. HOBA is also planning to open another store in CSC outlets in other cities are charging c.Rmb20-30/sm/month. This
Shenzhen towards the end of 2015. Since its consolidation into represents rental yield on costs of 10-12% for Shenzhen and 5-
CSC as a subsidiary, HOBA has contributed c.HK$220m to 6% for other cities. Revenue from the outlet has grown by
CSC’s rental income in FY14/15. CSC is preparing to list HOBA c.96% CAGR over the past two years to reach HK$93m in FY15.
Furnishing for potential quotation on the NEEQ (新三版) It would take time to grow rental income from the new outlet
currently. malls, so we expect its outlet revenue to grow at a moderate
5% CAGR in the coming two years to reach HK$102m by 2017.
Stable rental growth when more projects become more
matured
Outlet malls in operation
CSC has 5.5m sm completed properties which include mainly
'0 0 0 s m
trade centres with the rest consists of outlets, warehouse and
CSC Shenzhen 92
residential ancillary. Average rent of trade centres in CSC CSC Nanning 20
Shenzhen and other cities are at Rmb50/sm/month and CSC Nanchang 10
Rmb30/sm/month respectively, which represents 14%/7% yield CSC Xi'an 23
on cost. Rental income increased by 88% yoy in FY14/15 mainly CSC Harbin 5
due to the contribution from HOBA Furnishing. Excluding that, To ta l 150
rental income from CSC’s portfolio still grew by 16% mainly
from rental reversion in CSC Shenzhen as well as contributions Source: Company, DBS Vickers
from CSC Nanchang, Nanning and Xi’an which started to
mature from its trial operations since 2010-2012. Last year, CSC
Zhengzhou had also commenced their trial operations.
Although it normally takes 3-4 years time for CSC’s trade mall
to mature and contribute significant rental, we believe CSC’s
rental will see a stable 22% CAGR in the coming two years to
reach HK$852m by 2017 supported by increase in GFA under
full operation.
Page 80
China / Hong Kong Company Focus
China South City
Sustainable earnings growth through visible expansion Expect to maintain margins above peers
pipeline
CSC’s GP margin decreased from an average of 59% between
FY11-13, to 53% in FY14/15 due to the addition of sales from
Stable earnings growth in the next two years projects outside Shenzhen with lower GP margins. However,
ASP growth from its key projects, esp. in Nanning and
CSC recorded core earnings of HK$1.8bn in FY14/15 which was
Nanchang, had been stable in the past two years. Although
32% lower y-o-y due to the slower than expected contracted
sales sentiment had not yet picked up from last year, ASP
sales. Despite the moderate sales growth outlook in the short-
in1QFY16 has increased by 24% q-o-q and 8% y-o-y. We
term, we expect CSC’s earnings to grow steadily from
expect the stable ASP and low land costs will help CSC maintain
increasing contribution from trade centres in Zhengzhou, Hefei
margins at around 50% which is above its peers.
and Chongqing as these projects mature. CSC’s continual
expansion pipeline and growing recurring income base will
underpin earnings as well. We expect core earnings over the GP margins of peer trade centre developers
next two years to grow by 16% CAGR to HK$2.4bn.
F Y 13 F Y 14
Growing recurring income, but take time to reach significant CSC* 49% 53%
contribution to total revenue Wuzhou 44% 35%
Hy doo 62% 42%
CSC’s recurring income has increased by 89% CAGR over the
Source: Company, DBS Vickers
past 2 years to HK$1.1bn (11% of total revenue) in FY14/15
after the development of e-commerce, outlet and warehouse * CSC’s margin represents FY13/14 and FY14/15 figures
segments. We expect CSC’s recurring income to grow at a 2-
Year CAGR of 24% to reach c.HK$1.7bn (13% of total revenue)
High gearing likely to remain at support growth
in FY16/17, mainly from (1) maturing investment properties as
trade centres in Nanning, Nanchang, Xi’an and Zhengzhou have CSC’s net debt ratio increased to 65.3% as at end-FY15, which
been more matured, (2) growing fee income from e-commerce, is higher than its average of 25.5% in the past three years,
outlet and logistic services. mainly due to slower than expected sales. Given the recent
moderate sales trend in 1Q16 and the CAPEX need for business
Revenue breakdown by segment expansion, we believe CSC’s net debt ratio may maintain at a
higher level of 80% in the medium-term.
Page 81
China / Hong Kong Company Focus
China South City
BUY for attractive valuation and 24% potential upside Risk analysis
Macroeconomic risks. If China’s economy slows down faster
Pegging TP to SOTP valuation. than expected and triggers a hard landing, the trade centre
market will be significantly affected.
We derived CSC’s TP with SOTP valuation by applying PE
valuation for property sales and e-commerce segments, NAV Municipal risks. The take-up of its integrated trade centres may
method for property rental segment. depend on the relocation of existing wholesale malls by local
governments; a slower relocation pace may affect CSC’s
China developers’ property sales business are moving towards a property sales and occupancy.
quick asset turn model by launching standardised products to
drive sales volume. As this ‘production line’ type of business Earnings risks. Property development contributes the majority of
model is prevalent in the sector, we believe a PE valuation is its revenue and earnings. As such, fluctuation in property sales
more relevant for CSC’s property sales business verus the may significantly affect earnings over the next two years.
traditional NAV valuation. We apply 6.8x FY15/16 PE to its
property sales segment, benchmarked the average PE of mid- Execution risks. As CSC is actively expanding its integrated trade
caps in the China property sector. centres national-wide, future operations is highly dependent on
management’s execution and whether the trade mall models
On the other hand, rental income is recurring in nature and we can be replicated successfully in other cities. In addition, as
use the traditional NAV method to value its investment CSC’s projects are large and it usually acquires the land sites
properties. We apply a 35% NAV discount to the warehouse from local governments in phases, there is no guarantee that
investment properties benchmarked the valuation of GLP (10% they can acquire all the GFA required at a specified time.
NAV discount). Given GLP is the leading player in the
warehouse sector, we believe CSC’s ramping up warehouse TP HK$2.94, implying 24% upside
portfolio would justify a wider discount. For other investment
properties, including trade centres and outlets, we apply a 55% Segment M et hod olo t y
NAV discount benchmarked to the average of mid-cap Chinese Property sales segment 6.8x F Y15/16 PE 10,811
developers. For its e-Commerce segment, we apply a 25x FY15E Trade mall for rental 55% NAV discount 7,568
PE benchmarked to HK-listed e-Commerce player’s 27xPE. Warehouse for rental 35% NAV discount 1,250
e-Commerce 20x F Y15/16 PE 4,013
TP of HK$2.96 implied 24% upside T o t al 23,64 3
CSC has a large exposure in Tier 1/2 cities and with low land V alu e per share (HK $) 2 .9 6
cost as a percentage of ASP, CSC’s margins should stay at
Source: Company, DBS Vickers
c.50% which is above the sector average. Within the trade
centre sector, we believe CSC’s closest comparable is Wuzhou
Properties (1369.HK) and Hydoo (1396.HK) which are trading at
20x and 4.9x forward PE respectively. As CSC is the leading
player in the sector with projects located in key cities in China
so we believe its current valuation at 8.9x FY15/16F PE is
undemanding. We initiate coverage on CSC with BUY rating
with TP HK$2.96 based on SOTP valuation. Our TP implies 24%
upside from current share price level and offers 5.9% dividend
yield. CSC’s share price has dropped by 33% YTD and
underperformed the sector by 46%.
Page 82
China / Hong Kong Company Focus
China South City
Pro p e rty I n ve s t me n t To t a l
dev p ro p G AV
Sh e nz h e n 2 ,0 9 3 4,50 9 6 ,6 0 3 15 %
Chongqing
Na n c h a n g 4 ,7 6 6 1,78 0 6 ,5 4 7 15 % Zhengzhou Hefei 7%
Na n n in g 5 ,9 0 7 1,27 5 7 ,1 8 2 17 % 13% 13%
Xi'a n 3 ,9 2 8 1,66 8 5 ,5 9 7 13 % Harbin
Ha rb in 1 ,6 0 1 1,28 3 2 ,8 8 4 7% 7%
Z h e ng z h ou 3 ,0 0 2 2,38 7 5 ,3 8 8 13 %
He fe i 4 ,9 1 0 84 9 5 ,7 5 9 13 % Xi'an
Ch o ng q in g 1 ,7 7 4 1,24 1 3 ,0 1 5 7% 13% Shenzhen
To t a l 2 7 ,9 8 2 1 4 ,9 9 3 4 2 ,9 7 5 15%
To ta l GAV (Rmb m) 4 2 ,9 7 5
To ta l GAV (HK$ m) 5 3 ,7 1 9 Nanning Nanchang
Ne t d e b t (HK$ m) (1 6 ,3 3 1 ) 17% 15%
N AV (H K $ m ) 3 7 ,3 8 8
N AV p s (H K $ ) 4 .6 8
Page 83
China / Hong Kong Company Focus
China South City
Mr. Leung Moon Lam CEO& * Co-founder of CSC and has been a Director since 2 A ugust 2002.
(梁 滿 林 ), executiv e * Has more than 32 y ears of management experience in the garment manufacturing, wholesale and
59, director distribution businesses.
2002 * Member of the 2nd, 3rd and the 4th Shenzhen Committee of the Chinese People's Political Consultativ e
Conference
* Member of the Liaoning Committee of the Chinese People's Political Consultativ e Conference.
* Chairman of the 7th Shenzhen Textile Industry A ssociation Committee.
* Member of the National Committee of the Chinese People's Political Consultativ e Conference in
F ebruary 2013.
* Member of the Consultativ e Committee on Economic and Trade Cooperation between Hong Kong and
the Mainland
* V ice chairman of the J iangxi Chinese Ov erseas F riendship A ssociation
* Honorary chairman of the Shenzhen Longgang Charity A ssociation
* Honorary professor of Business of Hang Seng School of Commerce
* Ppresident of the F ederation of Hong Kong Shenzhen A ssociations
* Chairman of Wetter (China) Limited and Kings F aith International Limited.
Dr. Ma Kai Cheung Co-Chairman * Co-founder of CSC and has been a Director since 2 A ugust 2002.
(馬 介 璋 ), & non- * Primarily responsible for adv ising on the formulation of the CSC's general business models and
73, executiv e dev elopment strategies and the resolution of major issues.
2002 director * Has more than 43 y ears of management experience in garment distribution and manufacturing
businesses.
*Was awarded a Bronze Bauhinia Star (BBS) and a Silv er Bauhinia Star (SBS) by the Gov ernment of
HKSA R in 2003 and 2009 respectiv ely .
* Member of the 9th, 10th and 11th National Committee of the Chinese People's Political Consultativ e
Conference.
* Permanent honorary president of Shenzhen Ov erseasChinese International A ssociation
* Permanent honorary president of Hong Kong Chiu Chow Chamber of Commerce
* Chairman of F ederation of Hong Kong Guangdong Community Organizations
* Permanent honorary president of Hong Kong & Kowloon Chiu Chow Public A ssociation
* Permanent honorary chairman of F ederation of Hong Kong Chiu Chow Community Organizations
* Receiv ed an honorary doctoral degree in philosophy from the Morrison Univ ersity in the United States
in 2004.
* Receiv ed a fellowship from the A sian Knowledge Management A ssociation in 2008.
* Honorary Chairman of Carrianna Group Holdings Company Limited (formerly known as Tak Sing
A lliance Holdings Limited) (126.HK).
Page 84
China / Hong Kong Company Focus
China South City
Page 85
China / Hong Kong Company Focus
China South City
Mr. Lin Ching Hua Non- * Has been non-executiv e Director since 28 J une 2014.
(林 璟 驊 ), executiv e * Primarily responsible for adv ising on the formulation of the CSCH's general business models,
42, director dev elopment strategies and the resolution of major issues.
2014 * GM of Tencent Group since A pr 2013
* His responsibilities mainly to establish the strategic platform of Tencent, to formulate the business
dev elopment strategies of the Tencent Group, and to lead the research and dev elopment of v arious
business models in the Tencent Group and the business cooperation with external strategic partners who
the Tencent Group has equity inv estments.
* Has taken a crucial and leading role in promoting Tencent's recent strategic initiativ es, including Weixin
commercialization, important strategic inv estments and cooperations, and the business planning and
dev elopment in internet finance.
* Before joining Tencent, Mr. Lin was a partner at McKinsey & Company , Inc and General Manager of its
branch in Taiwan.
* Mainly serv ed clients and performed research in technology sector, including hi-tech manufacturing,
internet serv ice, telecommunication and media during his 12 y ears with McKinsey & Company , Inc. His
v arious research receiv ed wide cov erage in a number of Business and F inancial media in China.
* Before joining McKinsey , Mr. Lin worked at Deloitte Consulting Inc., Taiwan Office, as a consultant. He
receiv ed his MBA degree from Harv ard Business School in 2001.
Page 86
China / Hong Kong Company Focus
China South City
Page 87
China / Hong Kong Company Focus
China South City
2012A
2013A
2014A
2015A
2016F
2017F
Pre- t ax Pro f it 3,306 4,473 6,169 5,859 4,316 4,913
Tax (1,258) (1,606) (2,472) (2,145) (2,202) (2,445)
M inority Interest 23 (117) (202) 13 (62) (65)
Operating margin
Preference Div idend
N et Pro f it 2,071 2,750 3,494 3,728 2,053 2,404 Net margin
Core net profit 822 1,832 2,616 1,790 2,053 2,404
Page 88
China / Hong Kong Company Focus
China South City
2012A
2013A
2014A
2015A
2016F
2017F
Div from A ssoc. & J V 1 1 1 - - -
Other Inv esting CF 9 29 (27) (12,129) (2,467) (918)
N et In v es t in g CF (2,050) (3,312) (2,729) (12,344) (2,467) (918)
Div Paid (150) (454) (616) (1,086) (1,120) (924)
Chg in Gross Debt 267 4,785 5,056 5,234 2,500 -
Capital Issues - - 1,497 (151) - -
Other F inancing CF (259) (235) (755) 2,815 1,712 1,689
N et F in an c in g CF (142) 4,096 5,182 6,813 3,092 765
Net Cashflow (1,256) 2,898 5,157 (4,145) (124) 287
Page 89
China / Hong Kong Company Focus
China Fortune Land Dev.
Bloomberg: 600340 CH Equity | Reuters: 600340.SS Refer to important disclosures at the end of this report
27.3 690 to be completed this year. Given CFLD’s easy access to land,
22.3
590
especially industrial lands, we believe such cooperation can be
490
17.3
390 replicated in other areas and with other players as well.
12.3
290
7.3 190 Proven execution with cheap valuation. Revenue/net profit has
2.3
Jul-11 Jul-12 Jul-13 Jul-14
90
Jul-15
registered CAGR of 57%/71% in FY10-14, and is projected to grow
China Fortune Land Development (LHS) at CAGR of 24%/30% in FY14-16F. Based on our estimate, 100% of
Relative SHSZ300 Index (RHS)
our property development revenue projection in FY15/16F is locked-in.
Forecasts and Valuation Valuation of 14.4x FY15F EPS is undemanding given its leadership in
F Y D ec ( R mb m) 2013A 2014A 2015F 2016F
this niche market and expected earnings CAGR growth of 30%.
Turnov er 21,060 26,886 34,167 41,354
EBITDA 3,762 5,217 6,880 8,187
Pre-tax Profit 3,586 5,060 6,744 8,028 Valuation:
Net Profit 2,715 3,538 4,768 5,968 Initiating coverage on CFLD with BUY and Rmb31.60 TP. Our SOTP-
Core Net Profit 2,707 3,516 4,768 5,968 based TP represents a 20% discount to our DCF-based NAV estimate
EPS (Rmb) 1.03 1.34 1.80 2.26 of Rmb39.58 or 17.8x FY15F PE. CFLD is trading at 14.7x FY15F PE,
EPS Gth (%) 52.2 30.3 34.8 25.2 compared to A-listed large developers’ average of 11.8x and A-listed
DPS (Rmb) 0.05 0.40 0.18 0.23
BV Per Share (Rmb) 2.51 3.70 5.10 7.18 industrial developers’ average of 36.7x.
PE (X) 25.9 19.9 14.7 11.8
EV /EBITDA (X) 21.5 17.7 13.5 11.5 Key Risks to Our View:
Net Div Yield (%) 0.2 1.5 0.7 0.8 Aggressive expansion could be potential risks. Diversifying into non-
P/Book V alue (X) 10.6 7.2 5.2 3.7 core areas might also hurt its cash flow.
Net Debt/Equity (X) 0.7 0.8 0.7 0.6 Government risks exist. Slower-than-expected cash collection from
ROA E (%) 49.5 43.0 40.9 36.7 local governments could present another risk.
EPS Rev (%) New New
Consensus EPS (HK$) 1.87 2.40 At A Glance
Other Broker Recs: B: 8 S: 0 H: 1 Issue d Ca pita l (m shrs) 2,646
ICB Industry: Industrials Mkt Ca p (RMBm/US$m) 70,298 / 11,324
ICB Sector: Construction & Materials Ma jor Sha re holde rs (%)
Principal Business: Industrial park development China Fortune La nd De v 68.9
Source of all data: Company, DBSV, Thomson Reuters Fre e Floa t (%) 31.1
3m Av g. Da ily Va l. (US$m) 186.2
www.dbsvickers.com
ed- JS / sa- AL
Company Focus
China Fortune Land Development
INVESTMENT THESIS
Profile Rationale
Founded in 1998, China Fortune Land Development (or CFLD) Unique business model
is a leading operator of new industrial cities. Leveraging on its Building new industrial towns surrounding mega cities
success in its first industrial park in Gu’an, Heibei, it has
Partner with local governments
penetrated into several county areas surrounding
metropolitan cities like Shanghai and Beijing. Teaming up Multiple income sources as benefiting from both industrial
with local governments, it engages in integrated industrial city development and migrant housing demand
development including developing primary land, industrial Fits in with government’s new urbanization plan
park and residential/commercial areas that are supplementary Easy access to land
to industrial parks. It was listed in A-share market in 2011, via
Responsible for planning and primary development
a backdoor listing.
Asset light model
Scalable warehouse business
The largest beneficiary of Beijing-Tianjin-Hebei integration
Owns a sizeable portfolio
c.88% of portfolio located in Great Beijing area
Residential business is not subject to home purchase
limitation
Valuation Risks
SOTP valuation. We apply a 10% discount to NAV for Expansion and execution risks
industrial park/properties, on par with the level for Value-added-tax reform may affect its revenue/margin.
Singapore-listed warehouse leader GLP (GLP SP, BUY), given Aggressive expansion and talent bottleneck could be
its leadership in a niche market and 11.8x PER for potential risks.
residential/commercial properties, benchmarking to A-listed
Government risks exist.
large residential plays’ average.
Page 91
China / Hong Kong Company Focus
China Fortune Land Development
SWOT Analysis
Strengths Weakness
Unique business model with huge growth potentials Funding cost is relatively high
Asset light model with fast asset turnover Net profit relies on payment by local governments
Multiple income sources from government, industries and Gearing is relatively high, which would limit expansion
homebuyers
Proven execution
Opportunities Threats
Likely to benefit from Beijing-Tianjin-Hebei integration Value-added-taxes (VAT) reform might affect its tax
expenses
Likely to benefit from Beijing Capital’s second airport
Talent bottleneck during expansion
Providing more value-added services to industries including
industrial incubators, database support, financing and other Any change in local tax/fiscal policies will likely affect
comprehensive industrial services government’s payment ability
Page 92
China / Hong Kong Company Focus
China Fortune Land Development
Company background
Integrated industrial city operator. Founded in 1998, China Largest beneficiary of Beijing-Tianjin-Hebei integration. The
Fortune Land Development (or CFLD) is a leading operator of Chinese government has reiterated the integration of Beijing-
new industrial cities. Leveraging on its success in its first Tianjin-Hebei several times since 2014, raising it to a national
industrial park in Gu’an, Hebei, it has penetrated into several strategy level, which should greatly benefit CFLD as c.88% of its
county areas surrounding metropolitan cities like Shanghai and sizeable portfolio (land area of 1,947 sq km, details on page 6)
Beijing. Teaming up with local governments, it engages in is located in Pan-Beijing areas. It will also benefit from Beijing
integrated industrial city development including developing Capital’s second airport, which will enlarge the catchment area
primary land, industrial park and residential/commercial areas of Beijing.
CFLD’s milestone
Year Events
1998 Founded
2002 The first industrial park in Gu’an, Hebei
2007 The second industrial park in Dachang, Hebei
2011 Backdoor listing
2012 Expanded into Shenyang, Liaoning
2013 Expanded into Pan-Shanghai region
2014 Set up hi-tech incubator in the Silicon Valley in US
Penetrated into Fangshan, Beijing
Leg into warehouse sector and allied with e-commerce leader – JD.com (JD.US, BUY)
2015 Formed strategic cooperation with Sinodata (002657.CH) on Internet Finance
Corporate structure
Wang Wenxue
80% 100%
81% 26.5%
68.88%
0.78%
CFLD (600340.CH)
Page 93
China / Hong Kong Company Focus
China Fortune Land Development
Source: Company
CLFD’s footprint
Beijing circle
Gu’an, Langfang, Hebei
Dachang, Langfang, Hebei
Xianghe, Langfang, Hebei
Yongqing, Langfang, Hebei
Bazhou, Langfang, Hebei
Wen’an, Langfang, Hebei
Renqiu, Cangzhou, Hebei
Baiyangdian, Baoding, Hebei
Changli, Qinhuangdao, Hebei
Luanping, Chengde, Hebei
Huailai, Zhangjiakou, Hebei
Zhuolu, Zhangjiakou, Hebei
Zhangfang, Fangshan, Beijing
Langfang urban, Hebei
Shanghai circle
Wuxi, Jiangsu
Zhenjiang, Jiangsu
Jiashan, Jiaxing, Zhejiang
Lishui, Nanjing, Jiangsu
Economic belt along Yangtze River Fengji, Jinshan, Shanghai
Renshou, Meishan, Sichuan
Page 94
China / Hong Kong Company Focus
China Fortune Land Development
County, City, Province Commencement Industry Clusters / Positioning Area (sq km)
Gu'an, Langfang, Hebei 2002 Biological, e-commerce, heavy machinery, autoparts, 151
aerospace, new energy
Dachang, Langfang, Hebei 2007 Intelligent equipment, new energy, energy equipment, 83
autoparts, digital printing, new media
Xianghe, Langfang, Hebei 2013 Intelligent robot, aviation, e-commerce, autoparts 41
Langfang urban, Hebei 2012 Aviation, hi-tech 9
Yongqing, Langfang, Hebei 2013 Eco-living, healthcare 18
Bazhou, Langfang, Hebei 2013 Hot spring and leisure 124
Wen'an, Langfang, Hebei 2011 Heavy machinery, environmental equipment 24
Renqiu, Cangzhou, Hebei 2014 Manufacturing 240
Baiyangdian, Baoding, Hebei 2014 New energy, heavy machinery, IT 300
Changli, Qinhuangdao, Hebei 2012 High-end manufacturing, manufacturing services 7
Luanping, Chengde, Hebei 2010 Culture, tourism 225
Huailai, Zhangjiakou, Hebei 2008 Aerospace, IT, new energy 122
Zhuolu, Zhangjiakou, Hebei 2014 Eco-living, healthcare 247
Zhangfang, Fangshan, Beijing 2014 Racing, culture, leisure, eco-living, healthcare & senior living 119
Sujiatun, Shenyang, Liaoning 2012 Autoparts, high-end manufacturing 35
Tiexi, Shenyang, Liaoning 2014 n.a. 32
Wuxi, Jiangsu 2012 Internet of things, wireless applications 4
Zhenjiang, Jiangsu 2012 Hign-end manufacturing 3
Jiashan, Jiaxing, Zhejiang 2013 Trading service, logistics & warehouses, IT 12
Lishui, Nanjing, Jiangsu 2013 High-end manufacturing, new material, IT, intelligent housing, 9
healthcare equipment
Fengjing, Jinshan, Shanghai 2015 n.a. 92
Renshou, Meishan, Sichuan 2015 n.a. 50
Total 1,947
Source: Company, DBS Vickers
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China Fortune Land Development
Planning, designing and Sales of land use rights by Industrial park is getting Government receives stable
positioning local government mature taxes from industries and
pays 45% of realised
The usual start-up area of 3- Government receives income Realised industrial industrial investments to
5 sq km from land sales and pays a investments enter into fast CFLD
10-15% mark up to costs to land
Land preparation and CFLD CFLD provides value-added
infrastructure construction Residential properties services to enterprises and
by CFLD Marketing of industrial (residential land inside property management
parks, attracting industrial industrial park usually services to residents inside
Initial costs borne by CFLD investment and acquired by CFLD) sales also the park
agglomeration speed up
Win-win strategy: government’s cashflow is always positive while CFLD’s cashflow usually turns positive in 3 years
Start-up stage: T0-T1 year Acceleration stage: T2-T4 year Mature stage: after T4/T5 year
Cash in: industrial & residential land Cash in: land sales, corporate tax, Cash in: corporate tax, employee
sales employee income tax, property income tax, property sales/LAT tax
Local Cash out: pay on infrastructure costs sales/LAT tax Cash out: pay on realised investment
government Net cash: positive Cash out: pay on infrastructure and Net cash: positive
realised investment
Net cash: positive
Cash in: government’s pay on Cash in: government’s pay on Cash in: government’s pay on realised
infrastructure costs infrastructure and realised investment, property sales, value-add
CFLD Cash out: infrastructure, marketing, investment, property sales services income
residential land acquisition Cash out: infrastructure, marketing, Cash out: infrastructure, marketing,
Net cash: negative development costs development costs
Net cash: turning positive Net cash: positive
Page 96
China / Hong Kong Company Focus
China Fortune Land Development
Residential property Development of residential properties Property sales and rental income from Home buyers and consumers
and operation of commercial properties commercial properties
More value-added services to residents Upcoming Home owners
in the park
Industrial park Attracting industrial investments into the 45% of realised industrial investments, Local governments
operation park settled on yearly basis
Providing one-stop services to Rental of warehouses and factory Enterprises
enterprises in the park areas, incubator and financing
supports
Source: Company, DBS Vickers
Revenue breakdown by segments (FY14) Gross profit breakdown (FY14, excluding others)
Others Infrastucture
3% and primary
land
10%
Infrastucture Residential
Residential
and primary development
development
land 54%
69% Industrial
15%
park
development
Industrial 36%
park
development
13%
Page 97
China / Hong Kong Company Focus
China Fortune Land Development
Key assumptions
Earnings Drivers
Breakdown of land
Strong sales benefiting from ongoing Beijing-Tianjin-Hebei Industrial land 40%
integration. Total sales CAGR was 47.7% in 2011-2014. In Residential/commercial land 40%
Infrastructure area 20%
2015, CFLD is looking at a sales target of Rmb61.5bn, or
20% y-o-y growth. We expect the company to beat this Infrastructure
target as it has in the past. In 1H15, total sales amounted to Development costs
Rmb30.1bn, up 24.4% y-o-y, locking in 49% of its full year Primary land (Rmb m/sq km) 100-150
target. Infrastructure (Rmb m/sq km) 100-150
Government's payments
High revenue locked-in for residential segment. As of end- Government's payments as % of development 110-115%
costs
FY14, advances from home buyers amounted to Rmb40.3bn,
Time period between infrastructure completion 1 year
which is usually lower than unbooked sales. Including 1H15
and government's payment
sales, total unbooked sales for residential segment should be
more than Rmb65.6bn, which is larger than the sum of our Industrial park
estimated development revenue in FY15 and FY16. Our Attracted investments
estimated development revenue of Rmb16.7bn (up 24.5% y- New sign-up investments (“簽約投資額”), >=1.5
o-y) in FY15 is based on its 2015 completion target of 3.8m industrial (Rmb m/mu)
sm (up 21.8% y-o-y). Ratio of sign-up investments transferring to 30%
realised investments (“落地投資額”)
Previous industrial parks gradually contributing. As mentioned Time period of sign-up investments transferring 1.5-2.0 years
to realised investments
earlier, industrial park development revenue is usually 45% of
Government's payments on realised investments
actual realised/completed industrial investments. Generally Government's payment as % of realised 45%
speaking, 30% of newly signed investments will translate into investments
realised investments and it usually takes 1.5-2.0 years for Time period between realised investments and 1 year
such transformation. We have also assumed that payments government's payment (payment is usually based
on the audited numbers of released investment
from the government will come in one year after the realised in the previous year)
industrial investments. We expect industrial development
revenue to grow 28% and 33% to Rmb4.6bn and Rmb6.1bn Source: DBS Vickers
in FY15 and FY16 respectively. Gross margin of this segment
is usually over 95%.
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China Fortune Land Development
Historical new sign-up investments and revenue from industrial park development
Rmb/sm
40%
10,000
35%
30%
9,000 25%
20%
8,000 15%
10%
5%
7,000
0%
2010A
2011A
2012A
2013A
2014A
2015F
2016F
6,000
2011A
2012A
2013A
2014A
Margin trend likely to stay around 30%. We expect gross Debt maturity profile likely to improve. Short term debt
margin to improve slightly to 30.5% in FY15F from 28.8% in accounted for 69% of total debt as of end-FY14, which is
FY14A, primarly due to (i) higher gross margin from property realtively high. The issue of corporate bond, if successful, should
development business to factor in high ASP achieved in extend and improve its debt maturity profile.
2013/2014, and (ii) slightly higher proportion of high-margin
industrial park development business. Dividend payout might not be stable. There was no fixed
dividend payout policy in the past four years; the payout ratio
Funding cost likely to trend down. CFLD’s funding cost was was 30% in FY14. Although management has not fixed this
9.6% in FY14, down from 12% in FY13. We expect its funding ratio, the accumulated cash dividend for the three consecutive
cost to trend down further after gradual retirement of trust years (FY15-FY17) should not be less than 30% of average
financing and current lower interest environment. In addition, it profits realised in those three years. Therefore, we have
has just announced to issue up to Rmb7.5bn onshore corporate assumed 10% dividend payout for each of the next three years.
bonds (7 years at an estimated cost of 4-5%). In addition, the
company also actively seeks for offshore bond opportunities. Valuation
To sum up, we expect revenue to grow 27%/21% to DCF-based NAV of Rmb39.58. We have computed the value
Rmb34.2bn/Rmb41.4bn and core net profit to grow 35%/25% of development property projects and industrial park business
to Rmb4.8bn/Rmb6.0bn in FY15/16F. based on discounted cash flow model and industrial/investment
properties using capitalisation rate method. We estimate CFLD’s
Balance Sheet: GAV at Rmb45.07 and NAV at Rmb39.58, based on the
following assumptions:
Net gearing is high after rapid growth. Net gearing was high at
83% as of end-FY14, after its rapid expansion in 2014. But, net (i) We have assumed property prices will remain flat. Our
gearing will likely go down after strong sales in 2015. estimate only includes residential land acquired.
Page 99
China / Hong Kong Company Focus
China Fortune Land Development
Discount rate
(Rmb) 9% 10% 11% 12% 13%
7% 45.60 42.58 39.86 37.40 35.16
Cap 8% 45.44 42.43 39.70 37.24 35.01
rate 9% 45.32 42.31 39.58 37.12 34.89
10% 45.23 42.21 39.49 37.03 34.79
11% 45.15 42.14 39.41 36.95 34.72
Others Industrial
5% Residential park
properties 68%
Shanghai 31%
region
10%
Industrial
properties
0%
Beijing
Commercial
region
properties
85%
1%
Page 100
China / Hong Kong Company Focus
China Fortune Land Development
*DBS Vickers
Source: DBS Vickers Source: Thomson Reuters, closing price @July24, 2015
Key Risks:
Page 101
China / Hong Kong Company Focus
China Fortune Land Development
R ev en u es
Industry park dev elopment 1,546 2,365 3,568 4,550 6,055
Infrastructure construction 990 1,432 842 922
Primary land dev elopment 2,060 2,053 2,632 3,366 3,686
Property dev elopment 8,310 15,427 18,537 24,663 29,909
Other 161 225 716 748 783
T o t al 12,077 21,060 26,886 34,167 41,354
G ro ss p ro f it s
Industry park dev elopment 1,478 2,307 3,457 4,399 5,876
Infrastructure construction - 211 553 77 84
Primary land dev elopment 524 595 377 306 335
Property dev elopment 2,758 4,013 5,145 7,984 9,121
Other (756) (1,419) (1,783) (2,344) (2,924)
T o t al 4,004 5,707 7,750 10,421 12,491
G ro ss p ro f it marg in s
Industry park dev elopment 95.6% 97.6% 96.9% 96.7% 97.1%
Infrastructure construction 21.3% 38.6% 9.1% 9.1%
Primary land dev elopment 25.5% 29.0% 14.3% 9.1% 9.1%
Property dev elopment 33.2% 26.0% 27.8% 32.4% 30.5%
Other -469.7% -630.9% -248.9% -313.5% -373.7%
T o t al 33.2% 27.1% 28.8% 30.5% 30.2%
Page 102
China / Hong Kong Company Focus
China Fortune Land Development
2012A
2013A
2014A
2015F
2016F
Net Interest (Exp)/Inc 18 (115) (28) (1) (14)
Exceptional Gain/(Loss) 5 5 (4) - -
Pre- t ax Pro f it 2,520 3,586 5,060 6,744 8,028 Operating margin
Tax (653) (900) (1,258) (1,686) (2,007) Net margin
Minority Interest (83) 29 (264) (290) (53)
N et Pro f it 1,784 2,715 3,538 4,768 5,968
Page 103
China / Hong Kong Company Focus
China Fortune Land Development
2012A
2013A
2014A
2015F
2016F
Inv ts. in A ssoc. & J V - - - - -
Div from A ssoc. & J V - - - - -
Other Inv esting CF (1,409) (1,493) (1,444) - -
N et In v est in g CF (2,640) (3,076) (2,728) (1,191) (918)
Div Paid (678) (1,729) (2,787) (1,058) (477)
Chg in Gross Debt 5,158 9,659 13,624 - -
Capital Issues - - - - -
Other F inancing CF (320) 3,173 1,218 - -
N et F in an c in g CF 4,161 11,104 12,055 (1,058) (477)
Net Cashflow 1,738 4,554 4,373 (61) (1,302)
Page 104
China / Hong Kong Company Focus
China Fortune Land Development
Page 105
China / Hong Kong Company Guide
China Vanke
Edition 1 Version 1 |Bloomberg: 2202 HK Equity | 000002 CH Equity | Reuters: 2202.HK | 000002.SZ
20.0
189
13.9
182 end-1H15 is estimated to be Rmb267bn. In addition, funding cost is
18.0
169 11.9 162 expected to drop gradually because of access to more funding options.
149 142
9.9
16.0 129 122
14.0 7.9 Valuation:
109 102
12.0 89 5.9 82
Better risk-reward profiles. Our valuation for Vanke-A/-H is based on
Jun-14 Nov-14 Apr-15 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15
12.5x FY15 PE, on par with closest comparable COLI’s peak multiple
China Vanke - H (LHS) Relative HSI INDEX (RHS) China Vanke-A (LHS) Relative SHSZ300 Index (RHS) in 2012. Vanke-A/H shares are currently trading at 10.2x/10.5x FY15F
PE, with yields of 3.4%/3.4%. Vanke’s NAV is estimated at
Forecasts and Valuation (H Shares) Rmb18.22/HK$22.83 per share. The company recently announced its
FY D e c (R M B m) 2013A 2014A 2015F 2016F 2015 share buyback program (up to Rmb10bn at not more than
Turnove r 127,454 137,994 171,805 198,297
Rmb13.70/share). Maintain BUY rating for Vanke-A/H shares for its
EBITDA 27,783 29,111 32,978 38,313
Pre -ta x Profit 27,847 29,987 33,625 39,449 strong fundamentals and limited share price downside.
Ne t Profit 15,119 15,745 16,694 18,591
Core Ne t Profit 15,060 13,768 16,694 18,591 Key Risks to Our View:
EPS (RMB) 1.37 1.43 1.51 1.68 Key risks include: loss of key personnel and slower-than-expected
EPS (HK$) 1.71 1.78 1.89 2.10
EPS Gth (%) 20.3 4.1 5.8 11.4 growth of new businesses. VAT reform is a sector-wise risk that could
Dilute d EPS (HK$) 1.71 1.78 1.89 2.10 erode developers’ margins.
DPS (HK$) 0.51 0.62 0.66 0.74
BV Pe r Sha re (HK$) 8.71 9.97 11.23 12.67 At A Glance
PE (X) 11.5 11.1 10.5 9.4 Issued Capital - H shares (m shs) 1,315
EV/EBITDA (X) 6.7 5.5 5.2 4.9 - Non H shrs (m shs) 9,723
Ne t Div Yie ld (%) 2.6 3.2 3.4 3.7 H shs as a % of Total 12
P/Book Va lue (X) 2.3 2.0 1.8 1.6 Total M kt Cap (HK$m/US$m) 217,660 / 28,083
Major Shareholders (%)
Ne t De bt/Equity (X) 0.3 0.1 0.1 0.1
China Resources Co. Ltd. 14.94
ROAE (%) 21.5 19.1 17.8 17.6 F oresea Life Insurance 10.00
EPS Re v (%) Nil Nil Major H Shareholders (%)
Conse nsus EPS (RMB) 1.67 1.92 J PM organ Chase & Co. 15.19
Othe r Broke r Re cs: B: 13 S: 0 H: 4 F irst State Inv estment 9.74
Source of all data: Company, DBSV, Thomson Reuters, HKEX UBS A G 8.99
H Shares-F ree F loat (%) 66.08
3m A v g. Daily V al. (US$m) 33.7
ICB Industry : Financials / Real Estate (HK)
Revenue
CRITICAL DATA POINTS TO WATCH RMB m
Earnings Drivers: 250,000
New growth drivers. Vanke wants to be the second largest
200,000
logistics player in China with a total of 10m sm of warehouse
space in three years. 150,000
It has announced two warehouse projects in Guiyang and
100,000
Wuhan with total GFA of 177k sm, and is negotiating for
another 3m sm GFA of warehouse projects across China. 50,000
Vanke’s established ties with local governments, alliance with 0
Blackstone and cooperation with 3rd party logistics providers 2012A 2013F 2014F 2015F 2016F
(China Railway Logistics Group) will give Vanke an advantage Gross Profit
in accessing land, funds and customers; these are the key RMB m %
hurdles normally faced by developers and warehouse operators. 60,000 35
50,000 30
25
Driven by its large sales/delivery scale, property management 40,000
20
30,000
income expanded at 32% CAGR over 2011-14. But segment 15
20,000
profits grew faster at 62% driven by wider margins as services 10,000
10
5
improved. Vanke is also targeting to grow the property 0 0
management business by introducing its management system
2012A
2013F
2014F
2015F
2016F
to projects developed by third parties. The scale of this
Gross Profit (LHS) Gross Margin (%) (RHS)
segment could exceed 170m sm.
Leverage & Asset Turnover (x)
Traditional residential business continues to see decent sales 0.90
0.4
0.4
and revenue growth. Cumulative sales reached Rmb110bn in 0.80
0.4
1H15, up 9% y-o-y. July and August should also see strong 0.70
0.3
sales growth, given improving buying sentiment after the 0.60
0.3
interest rate cut and the low base last year. More importantly, it 0.50 0.3
0.40
has accelerated land-banking activity, having spent Rmb7.0bn 0.30
0.3
0.3
(gross) to replenish its land bank (1.53m sm GFA). YTD 0.20 0.2
acquisitions are valued at Rmb26bn (+46% y-o-y) for a total of 0.10 0.2
6.7m sm GFA (+44% y-o-y). 0.00 0.2
2012A 2013A 2014A 2015F 2016F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
Locked in large portion of revenues. As of end-FY14, Vanke had Capital Expenditure
Rmb195bn in unbooked sales (consolidation, or 17m sm). RM
4,500.0
Including Rmb110bn of contracted sales in 1H15 (assuming 4,000.0
80% consolidation), total unbooked revenue was Rmb267bn at 3,500.0
Land. We expect funding cost to trend down as (i) trust finance Capital Expenditure (-)
5.0%
As such, we expect FY15/16F core net profit to grow 21%/11%
to Rmb16.7bn/Rmb18.6bn.
0.0%
2012A 2013A 2014A 2015F 2016F
Dec-14
May-15
Jun-14
Oct-14
Feb-15
Jul-15
Feb-15
Jul-15
Dec-14
May-15
Oct-14
SWOT Analysis
Strengths Weakness
Market leader with proven execution record Large portion of fitted units raises possibility of
completion slippages
Sufficient landbank to support growth for another 4-5 years
Lower financial transparency in JV projects
Undergoing transformation amid a maturing property
market Fragmented shareholding structure
Quick asset churn with mass-market focus Business partnership program at project level could
drag landbanking pace because of constraints in its
Asset-light strategy with decent ROE partners’ financial planning policies
Strong balance sheet with sufficient war chest to leverage Progress of JV projects may be impacted by partner’s
on growth opportunities financial positions
Opportunities Threats
Tier I 14%
Tier II 66%
Tier III 19%
Total 100%
Source: Company
China Resources Foresea Life Insurance Ying’an Partnership GIC Value Partner
Key Assumption
FY De c 2015F 2016F
Ke y As s u mp ti o n s
Property price growth 0% 0%
Rental for office 5% 5%
Rental for retail 5% 5%
ADR growth for hotel 5% 5%
R e ve n u e s
Sale s of prope rties 94,001 123,546 133,752 167,167 193,173
Construction contra cts 1,416 1,432 1,548 1,631 1,710
Prope rty ma nage ment 807 1,385 1,874 2,029 2,196
and re lated se rvice s
Othe rs 636 1,092 820 979 1,217
To ta l 9 6 ,8 6 0 1 2 7 ,4 5 4 1 3 7 ,9 9 4 1 7 1 ,8 0 5 1 9 8 ,2 9 7
Gro s s Pro fi ts
Sale s of prope rties 30,773 33,392 34,091 41,578 47,832
Construction contra cts 42 40 36 33 34
Prope rty ma nage ment 82 221 268 274 320
and re lated se rvice s
Othe rs 508 986 660 788 980
To ta l 3 1 ,4 0 6 3 4 ,6 3 9 3 5 ,0 5 5 4 2 ,6 7 3 4 9 ,1 6 6
Gro s s Pro fi t M a rg i n
Sale s of prope rties 32.7% 27.0% 25.5% 24.9% 24.8%
Construction contra cts 3.0% 2.8% 2.4% 2.0% 2.0%
Prope rty ma nage ment 10.2% 16.0% 14.3% 13.5% 14.6%
and re lated se rvice s
Othe rs 79.8% 90.3% 80.5% 80.5% 80.5%
To ta l 3 2 .4 % 2 7 .2 % 2 5 .4 % 2 4 .8 % 2 4 .8 %
S.No . Da te Cl o s i n g Ta rg e t R a ti n g
HK$ Pri c e Pri c e
22.0 1: 23-Jun-15 HK$19.32 HK$23.69 Buy
21.0 1 2 2: 6-Jul-15 HK$18.62 HK$23.69 Buy
3 3: 8-Jul-15 HK$19.08 HK$23.69 Buy
20.0
19.0
18.0
17.0
16.0
15.0
14.0
13.0
Jul-14
Jul-15
Oct-14
Feb-15
May-15
Dec-14
S.No . Da te Cl o s i n g Ta rg e t R a ti n g
RMB Pri c e Pri c e
18.0 1: 23-Jun-15 RMB14.27 RMB18.91 Buy
1
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Jan-15
Mar-15
Apr-15
Sep-14
Jun-15
Jul-14
Aug-14
Dec-14
Jul-15
Nov-14
May-15
Oct-14
Feb-15
Page 4
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ed-SGC/ sa- AL
DBSV's discussion of the issuer in this report will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect
additional reports relating to this issuer, unless so decided by DBSV
China Warehouse Sector
CMST Development Co Ltd-A
SWOT Analysis
Strengths Weakness
Traditional logistics SOE with nationwide presence Traditional business run at a low efficiency
Well-established network Outdated warehouses
Strong parentage Trading and logistics related to raw materials will
Strong balance sheet continue to suffer from economic slowdown
Opportunities Threats
Likely to benefit from urban renewal and land Value-added-taxes (VAT) reform might affect its tax
redevelopment expenses
Upgrading warehouses from production-oriented ones to Loss of personnel
consumer-based ones
Mixed ownership via share placement to GLP, which will
likely improve management’s execution and incentives
JV platform with GLP
Page 117
China Warehouse Sector
CMST Development Co Ltd-A
CMSTD’s footprint (including logistic distribution centres, warehouses, open depots, trading offices and others)
Existing
Planning
Page 118
China Warehouse Sector
CMST Development Co Ltd-A
Corporate structure
SASAC
100%
100%
51.09%
15.34%
CMSTD (600787.CH) GLP (GLP.SP)
Source: Company
Page 119
China Warehouse Sector
CMST Development Co Ltd-A
Tianjin
22%
Shanghai
11%
Others
29%
Liaoning
20%
Shanxi Henan
8% 10%
Page 120
China Warehouse Sector
CMST Development Co Ltd-A
Earnings Drivers and 1.4% in FY16F. However, given lower proportion of trading
business, we expect blended gross margin to edge up from
Asset upgrade. Some of the company’s aged warehouses are 3.8% in FY14 to 4.0% in FY15F and 4.2% in FY16F.
now located in city centres, which creates urban
renewal/redevelopment opportunities. Depending on the Overall, we expect FY15/16F revenues to decline by 3% each
outcome of negotiations with local governments, they could year. Core net profit is expected to grow by 10%/13% in
either develop commercial/residential projects at current FY15/16F.
locations, or be compensated with land elsewhere (perhaps in
suburbs) for modern warehouses. Balance Sheet
In 2013, CMSTD started their first property development project Room to gear up for expansion. Net gearing was low at <0.3x
in Nanjing, located on their previous steel storage/market place. at end-2014, which means ample headroom for expansion,
Phase I was completed and disposed in 2014, recording a given their SOE background. The private placement to GLP will
disposal gain of Rmb362m. Phase II is currently under expand the equity base, and GLP may bring in other investors at
development and scheduled to be completed in 2018. project level.
In 2014, they received a relocation compensation of Rmb79m Near-term liquidity is healthy. Short term debt accounted for
from the Nanjing government. They will continue to benefit 17% of total debt and 36% of cash on hand as of end-FY14,
from land revaluation, but the pace of relocation might not be which is healthy.
up to CMSTD. In addition, the positives have been priced in at
current levels. We estimate the current market value of their Low funding costs supported by parentco. Given its SOE
land (assuming all 6.5m sm are owned) is Rmb16.5bn (details background, it usually enjoys a low borrowing costs of 6-7%.
on the next page), only half of its current market cap.
Valuation
The company currently operates 2.1m sm of warehouses that
are generating rents of Rmb0.7-1.2/sm/day. They are upgrading Positives are in the price. The nearest comparable could be
older warehouses to cater to rising sales from e-retailers. This Chiwan (Blogis) as both are logistics SOEs with similar size of
will lift future rents as well as profitability. warehouse portfolios. However, its market cap is nearly five
times of Chiwan (Blogis)’s. Therefore, we prefer Chiwan (Blogis)
JV with GLP. After the share placement to GLP, CMSTD will set
over CMSTD. The stock is now trading at c.104x FY15 PE, which
up a JV with GLP to develop logistics properties, leveraging on
also suggests the positives have been priced.
CMSTD’s advantage in land replenishment and GLP’s strong
financing/operating capabilities. CMSTD will hold 51% stake in
Share Price Drivers
The JV, which will have a registered capital of Rmb3bn. We
have not factored this into our model.
These include faster-than-expected asset transformation and
Weaker outlook for trading business. CMSTD is also involved in cooperation with GLP. The re-rating catalysts include faster-
the trading business (mainly raw materials such as steel and than-expected land redevelopment, and better-than-expected
coal), which has been seeing shrinking revenues and margins in synergies with GLP. However, these could also be a double-
the past few years. This trend is likely to continue as (i) domestic edge sword which could swing the share price either way.
economy and investments have been trending down, (ii) the
government continues to eliminate older production capacity, Key Risks
and (iii) steel makers are registering low profitability, which is
affecting the whole value chain. The logistics and trading businesses involving raw materials will
continue to suffer from a slower economy and the
Margin likely to edge up. We expect gross margin of logistics government’s plan to retire older production capacity.
segment (including warehouse, delivery, forwarding and other
related businesses) to stay at 16%. Trading business has been Only time will tell if GLP fits into the current management
trending down from 1.9% in FY12 to 1.6% in FY14. We expect culture of a traditional SOE and the cooperation with GLP will
the segement gross margin to keep declining to 1.5% in FY15F be successful.
Page 121
China Warehouse Sector
CMST Development Co Ltd-A
Key Assumption
R e ve n u e s
Logistics 2,740 2,637 2,925 3,218 3,539
Trading 24,033 25,196 18,397 17,477 16,603
Others 9 26 155 163 171
To ta l 2 6 ,7 8 2 2 7 ,8 5 9 2 1 ,4 7 7 2 0 ,8 5 7 2 0 ,3 1 3
Gro s s p ro fi ts
Logistics 617.136 467.311 467.632 514.395 565.835
Trading 464.804 417.457 300.3 267.808 237.815
Others 7.639 24.54 79.929 83.9255 88.1217
To ta l 1 ,0 9 0 909 848 866 892
Gro s s p ro fi t ma rg i n s
Logistics 22.5% 17.7% 16.0% 16.0% 16.0%
Trading 1.9% 1.7% 1.6% 1.5% 1.4%
Others 85.7% 95.9% 51.5% 51.5% 51.5%
To ta l 4 .1 % 3 .3 % 3 .9 % 4 .2 % 4 .4 %
Page 122
China Warehouse Sector
CMST Development Co Ltd-A
2015F
2016F
2012A
2013A
2014A
Net Interest (Exp)/Inc (115) (77) (108) (104) (106)
Exceptional Gain/(Loss) 181 51 141 - -
Pre -ta x Pro fi t 557 449 737 274 310
Operating margin
Tax (146) (103) (179) (68) (78)
Minority Interest (9) (10) (11) (4) (5) Net margin
Profit attri. to PSCS
Ne t Pro fi t 402 336 546 201 228
Page 123
China Warehouse Sector
CMST Development Co Ltd-A
2015F
2016F
2012A
2013A
2014A
Invts. in Assoc. & JV - - - - -
Div from Assoc. & JV - - - - -
Other Investing CF - - - 29 27
Ne t I n ve s ti n g CF (7 1 2 ) (2 6 9 ) 51 (2 7 1 ) (2 7 3 )
Div Paid (182) (178) (167) (56) (56)
Chg in Gross Debt 184 1,000 (326)
Capital Issues - - - - -
Other Financing CF 93 (69) (1,247) - -
Ne t Fi n a n c i n g CF 95 753 (1 ,7 4 0 ) (5 6 ) (5 6 )
Net Cashflow 118 268 (330) (101) 169
Page 124
China Warehouse Sector
CMST Development Co Ltd-A
Page 125
China Warehouse Sector
Wuzhou International
Bloomberg: 1369 HK Equity | Reuters: 1369.HK Refer to important disclosures at the end of this report
1.6
151
Wuzhou was able to grow sales by 28% to Rmb6.6bn. Wuzhou
outperformed peers China South City (CSC) and Hydoo which saw
131
1.4 111
1.2 91 sales dropped by 20%/58% y-o-y. We believe this is due to Wuzhou’s
1.0
Jun-13 Dec-13 Jun-14 Dec-14 Jun-15
71 preference on sales volume over margins in some projects. After the
fast sales growth (46% CAGR) in the past three years, management
targets a moderate sales growth of 5-10% in the coming two years.
Wuzhou International (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation Wuzhou recorded a c.Rmb43m loss in core earnings in FY14. Expecting
F Y Dec ( HK $ m) 2013A 2014A 2015F 2016F destocking impact to normalise, we forecast core earnings to pick up to
Turnov er 4,050 4,308 5,531 6,391 HK$245m and HK$309m in FY15 and FY16 respectively. However, it
EBITDA 1,883 907 1,155 1,359 will take time to grow earnings contribution from the new businesses.
Pre-tax Profit 1,789 843 958 1,129
Net Profit 1,020 253 245 309 Valuation:
Core Profit 354 (43) 245 309 The shares are trading at 20x FY15 PE and 1.3x P/BV, which are higher
EPS (HK$) 0.34 0.07 0.07 0.09 than CSC and Hydoo’s 8.9/4.9x PE and 0.77/0.83x PB. We believe its
Core EPS (HK$) 0.12 (0.01) 0.07 0.09 current valuation looks rich.
Core EPS Gth (%) 11.9 (110.7) (648.0) 26.2
DPS (HK$) 0.048 - 0.024 0.031 Key Risks to Our View:
BV Per Share (HK$) 1.04 1.09 1.21 1.27 If China’s economy decelerate worse than expected, the sales and
PE (X) 4.0 18.4 19.7 15.6 operations of its trade centres and multi-functional commercial
Net Div Yield (%) 3.5 - 1.8 2.2
complex may be affected.
P/Book V alue (X) 1.3 1.3 1.1 1.1
Net Debt/Equity (X) 0.6 0.9 0.9 0.9
ROAE (%) 42.3 7.1 6.1 6.9
At A Glance
Consensus EPS (HK$) 0.06 0.10 Issue d Ca pita l (m shrs) 4,990
Other Broker Recs: B: 1 S: 0 H: 0
Mkt Ca p (HK$m/US$m) 6,887 / 889
ICB Industry: Financials Ma jor Sha re holde rs (%)
ICB Sector: Real Estate Mr. Shu Ce che ng a nd Mr. Shu Ce wa n 69.7
Principal Business: Trade centres and warehouses Ping An Insura nce 5.6
Fre e Floa t (%) 30.3
Source of all data: Company, DBSV, Thomson Reuters, HKEX 3m Avg. Da ily Va l. (US$m) 5.0
Page 4
www.dbsvickers.com
ed-TH / sa- AL
DBSV's discussion of the issuer in this report will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect
additional reports relating to this issuer, unless so decided by DBSV
China Warehouse Sector
Wuzhou International
SWOT Analysis
Strengths Weakness
Strategic investment from Ping An Real Estate and PAG will Limited track record as a listed company (since 2013)
enhance the company’s financial resources and corporate for investors to see a consistent earnings and dividend
governance growth.
Diversified exposure in key tier 2/3 cities should give it
Sales or rental of its logistics trade centres may be
advantage to expand its logistics portfolio
adversely affected if the global economy slows
Strategic partnerships with GLP will provide expertise in
building and operating of logistics properties, and further Relatively high funding costs compared with peers
facilitate the growth in the logistics segment
Opportunities Threats
Building an O2O ecosystem by integrating the e-commerce Rising land costs and SG&A may affect its margin
platform “Wuzhouhui” with its physical logistics trade outlook
centres
Fast expansion may cause higher pressure on gearing
Potential to list its e-commerce segment on the National and financial strength. Company may need to extend
Equities Exchange and Quotations System (the “NEEQ”) to its financing channels to strengthen balance sheet
unlock value
Management and execution risks may increase as
Chattel mortgage services (動產融資), with the support of Wuzhou expands into more new cities
Huaxia Bank, may bring new business opportunities in the
financial services sector
Page 127
China Warehouse Sector
Wuzhou International
Corporate profile –Trade logistics centre developer and Wuzhou’s land bank by development stages
operator
Page 128
China Warehouse Sector
Wuzhou International
Page 129
China Warehouse Sector
Wuzhou International
Financing
provider
Supervisor Borrower Source: Company, DBS Vickers
Credit Goods
facilities Supervision
Gross margins of Shops and auxiliary properties
Warehouse of Quality tenants
Bank
Wuzhou in Wuzhou's
(Huaxia Bank) 60%
Business trading centers
48%
50% 46%
Source: Company, DBS Vickers 39%
40%
Page 130
China Warehouse Sector
Wuzhou International
car parks, SOHO and offices) has dropped to 15% from the Share price drivers
25% normal level. Auxiliary property sales also accounted for
a higher proportion of 43% compared with its normal level Potential positive from new logistics projects with GLP and
of 30-35%, adding on to the fall of the blended margins. other strategic partners
However, trade logistics centres and multi-functional Wuzhou is working on acquiring new projects with GLP as
complexes saw a 2-ppt GP margin improvement to 48%. As well as Ping An and PAG. We believe company valuation will
such, we expect the earnings impact from destocking to be driven by whether it can acquire quality projects with the
normalise this year and estimate that margins should stabilise strategic partners.
at 35-40% (vs 45% average margins in FY11-FY14) in the
medium term. Wuzhou recorded a Rmb43m loss in core Applying to list its e-commerce platform on the NEEQ (新三
profit in FY15. On a moderate sales growth outlook, we 版) to unlock value
expect core earnings to pick up to HK$245m and HK$309m
in FY15 and FY16 respectively. We also expect Wuzhou’s In Jun-2015, Wuzhou applied to list the shares of Wuzhouhui
new businesses will take time to grow and will contribute to (五洲匯) on the National Equities Exchange and Quotations
earnings beyond 2018. System (the “NEEQ”). Although the application is still in its
initial stage, we believe a successful quotation on the NEEQ
Balance Sheet will be the first step for Wuzhou to unlock the value of its e-
commerce business in the long run.
Page 131
China Warehouse Sector
Wuzhou Internatinal
Corporate Structure
60% 40%
Public Senior
Boom Win
shareholders Management SPV
Wu zhou
I n ternational
Ho ldings Limited
(1 369-HK)
Wuzhou
Wuzhou Wuzhou Wuzhou Zhouji Taishun Long An Wuzhou
International
Enterprise Limited Commercial International International International Company
Investment
Hong Kong
Hong Kong Hong Kong Hong Kong Hong Kong
Wuzhou
Zhouji Taishun Long An Wuzhou
Lisheng
Offshore
Onshore 100% 100% 100% 100% 100% 100% 100% 100% 100%
Wuxi
Jiangsu Yixing Changchun Longtai
Hangzhou Mudanjiang Wuxi Wuzhou
Tongrun JiangSu Hotel Wuzhou Zhongnan Marketing
Longan Wuzhou Longguang Ornament
Property Lisheng Property Development
City
Over 50
Yixing subsidiaries
Liulongcheng and project
companies
Page132
China Warehouse Sector
Wuzhou International
Management profile
M a n a g e me n t t e a m Cu r r e n t
(a g e , ye a r j o i n e d ) p o s i t i o n B a c kg ro u n d
Mr. Shu Cecheng (舒 策 Chairman * A ppointed as Wuzhou's Director on 22 J une 2010 and was re-designated as an executiv e Director
城 ), 46, 2004 on 14 Nov ember 2012.
* The brother of Mr. Shu Cewan(CEO), Mr. Shu Cey uan (ED) and Mr. Shu Cezhang (head of
operations)
* Established the business of Wuzhou in December 2004 and has been primarily responsible for the
ov erall business, financial and strategic planning of the Group.
* A lso responsible for ov erall dev elopment of the Group's strategic direction and corporate policies
and play s an activ e role in the dev elopment, maintenance and strengthening of client relations.
* Has ov er ten y ears of experience in the real estate dev elopment industry
* Chairman of the Council of China SCMA LL A cademy in October 2009
* Executiv e v ice president of Wuxi Wenzhou Chamber of Commerce since Nov ember 2011.
* Committee member of the Wuxi Committee of the Chinese People's Political Consultativ e
Conference since J une 2012
* Executiv e director of the fourth Wuxi Charity F ederation since May 2011.
* Chairman of the Sixth Council of Wuxi Market A ssociation
* Member of the Elev enth executiv e committee of Wuxi A ssociation of Industry and Commerc
* V ice chairman of Wuxi Chamber of Commerce, v ice chairman of the China Economic and Trade
Promotion A ssociation
* V ice chairman of the F ederation of Priv ate Enterprises of the Chinese Economy
* Chairman of Hong Kong Taishun F raternity A ssociation
Mr. Shu Cewan (舒 策 丸 ), CEO * Was appointed as Wuzhou's Director on 14 Nov ember 2012.
45, 2004 * The brother of Shu Cecheng (chairman), Mr. Shu Cey uan(ED) and Mr. Shu Cezhang (head of
operations).
* Mr. Shu is closely inv olv ed in operations and ov ersees all the key aspects of the operations and
business, including the planning and implementation of different projects.
* Has ov er nine y ears of experience in the real estate dev elopment industry , and he has been with
Wuzhou since December 2004.
* Since 2011, Mr. Shu has been v ice chairman of Wuxi Wenzhou Chamber of Commerce.
* V ice chairman of the F ederation of Chinese Priv ate Enterprises
* Member of the Chong A n District Committee (Wuxi) of the Chinese People's Political Consultativ e
Conference
* Council member of the Chong A n District Industrial and Commercial F ederation in Wuxi.
Mr. Shu Cey uan (舒 策 Executiv e * Was appointed as the executiv e Director on 14 Nov ember 2012
員 ), 41, 2004 director * The brother of Shu Cecheng, the chairman, Mr. Shu Cewan, chief executiv e officer and Mr. Shu
Cezhang, head of operations.
* Has ov er ten y ears of experience in the real estate dev elopment industry .
* Mr. Shu is familiar with the area of property construction and play s a v ital role in the planning and
controlling processes for the construction works.
* Has been with the Wuzhou since March 2004 and has been the v ice president of certain of the
Group companies, primarily in charge of its planning and design center, project management center
and costcontrol
center.
Ms. Wu Xiaowu (吳 曉 Executiv e * Was appointed as the Wuzhou's executiv e director on Nov ember 2012.
武 ), 48, 2009 director, * Has ov er 26 y ears of experience in financial management
CF O *J oined the group in 2009 and was appointed as the chief financial office in 2010, mainly
responsible for ov erseeing the Wuzhou's financial matters, such as management reporting, group
budgeting and forcasting as well as internal control and risk management.
* Prior to joining the Group, Ms. Wu was the director and CF O of Wuxi Huadong Cocoa F ood Co.
Ltd. from 2007 to 2009.
* Between 2001 and 2007, Ms. Wu serv ed as the CF O of Wuxi Taian A utomation Co., Ltd. and was
in charge of ov erall financial management of the company .
* F rom 1988 to 2001, Ms. Wu was the head of the financial department of Wuxi Zhongy a Wool
Spinning and Printing Co., Ltd.
Source: Company
Page 133
China Warehouse Sector
Wuzhou International
M a n a g e me n t t e a m Cu r r e n t
(a g e , ye a r j o i n e d ) p o s i t i o n B a c kg ro u n d
Mr. Zhao Lidong (趙 立 Executiv e * Was appointed as the Wuzhou's executiv e director on 14 Nov ember 2012.
東 ),45, 2011 director * Has ov er 15 y ears of experience in the property dev elopment Industry . * He is familiar with the
area of property construction and superv ises the executiv e director, Mr. Shu Cey uan, in the planning
and controlling for the construction of the project.
* He joined the Group in Nov ember 2011 and was responsible in ov erseeing the planning design
center, project management center, cost- contril center, human resources centre, administrativ e
information centre and the group's commerical managemetn subsidiaries.
* Betweem 2003 and 2011, he held v arious positions in Dallan Wanda Group Co., Ltd including
serv ing as the engineer of Dallan Wanda Group Commercial Property Management CO., Ltd. and
Tianjin Wanda Plaza Commercial Managment Co., Ltd. and as the general manager of the property
management department, construction department and preparatory department of Wanda
Commercial Management CO, Ltd.
* His scope of responsibilities included project management and operational management.
* F rom 1999 to 2003, Mr. Zhao was the project director of Dalian Commercial Construction
Superv ision Company , responsible for ov erseeing different construction projects.
Mr. Wang Wei (王 威 ), 45, Non- * Was appointed as the Wuzhou's non-excutiv e director on 26 September 2014.
2014 ececutiv e * Has ov er 20 y ears of experience in International capital markets.
director * Since early 2013, Mr Wang has been the general manager of Ping A n Real Estate F und manager.
(NED) * F rom late 2009 to early 2013, he was managing director of F orum Partners Inv estment
managment, a United Stated real estate dev elper in second and third-tier Chinese cities.
* F rom 2005 to 2007, he has been the managing director, member of the China management
committee, and co-head of China fixed income ar UBS.
* Between 1994 and 2005, he held v arious positions in fixed income and equity capital market
div isions at J .P. Morgan, in New York, Singapore and Hong Kong.
Source: Company
Page 134
China Warehouse Sector
Wuzhou International
2013A
2014A
2015F
2016F
Pre- t ax Pro f it 1,263 1,789 843 958 1,129
Tax (509) (669) (449) (573) (669)
M inority Interest (54) (100) (141) (140) (150)
Operating margin
Preference Div idend
N et Pro f it 700 1,020 253 245 309 Net margin
Core net profit 264 354 (43) 245 309
Page 135
China Warehouse Sector
Wuzhou International
Page 136
China Warehouse Sector
Wuzhou International
2012A
2013A
2014A
2015F
2016F
Div from A ssoc. & J V 1 1 1 - -
Other Inv esting CF 9 29 (27) 20 43
N et In v es t in g CF (2,050) (3,312) (2,729) (215) (237)
Div Paid (150) (454) (616) - (73)
Chg in Gross Debt 267 4,785 5,056 1,080 300
Capital Issues - - 1,497 460 -
Other F inancing CF (259) (235) (755) - -
N et F in an c in g CF (142) 4,096 5,182 1,540 227
Net Cashflow (1,256) 2,898 5,157 450 (44)
Page 137
Singapore Company Guide
Global Logistic Properties
Edition 1 Version 1 | Bloomberg: GLP SP | Reuters: GLPL.SI Refer to important disclosures at the end of this report
300.0
Strong operational momentum across markets to
200.0
continue. FY15 ended strongly and we expect the strong
leasing momentum to continue ahead. In China, we expect 100.0
Low leverage ratio. Total debt to asset ratio recorded in 0.40 0.1
1Q2016 was low at 16.3%. As such, this provides GLP with 0.35 0.1
0.1
additional debt headroom for future debt funded acquisitions. 0.30
0.1
0.25
Currently, the group has 63% of its debt on a fixed rate with 0.20
0.1
Robust outlook for e-commerce in China. GLP has a large Capital Expenditure
(11.8m sqm in completed properties) portfolio in China that is US$
1,800.0
positioned strategically to benefit from growth in e- 1,600.0
PB Band (x)
COMPANY BACKGROUND (x)
Global Logistics Properties (GLP) is a leading provider of 1.6
+2sd: 1.52x
modern logistics facilities in China, Japan, Brazil and the USA. 1.4
+1sd: 1.36x
The group develops, owns and manages c.41m sqm GFA, of
logistics properties, catering to growing domestic 1.2 Avg: 1.2x
consumption. 1.0
‐1sd: 1.04x
‐2sd: 0.89x
0.8
0.6
Jul-11 Jul-12 Jul-13 Jul-14
Key Assumptions
FY Mar 2013A 2014A 2015A 2016F 2017F
China Occupancy (%) 93% 93%
China Rental Growth (%) 3% 3%
Japan Occupancy (%) 98% 98%
Japan Rental Growth (%) 2% 2%
Segmental Breakdown
FY Mar 2013A 2014A 2015A 2016F 2017F
Revenues (US$ m)
China 252 386 444 518 617
Japan 388 232 207 169 134
Others (Brazil/US – Mgmt 2 7 57 65 65
Fee income )
Growth
Revenue Gth (%) (15.4) 12.5 14.0 (7.2) (6.9)
EBITDA Gth (%) (33.0) 30.5 (37.7) 68.2 (17.9)
Opg Profit Gth (%) (34.0) 31.3 (38.8) 71.2 (18.4)
Net Profit Gth (Pre-ex) (%) (72.3) 50.4 (180.4) (150.8) (260.7)
Margins
Gross Margins (%) 80.9 81.6 81.5 80.4 78.0
Opg Profit Margins (%) 49.4 57.6 30.9 57.1 50.0
Net Profit Margins (%) 101.0 106.0 46.4 62.8 62.9
3.08
S$
Cl o s i n g Ta rg e t
2.98 S.No . Da te R a ti n g
Pri c e Pri c e
1: 06 Aug 14 2.71 3.42 Buy
2.88 2: 05 Nov 14 2.69 3.42 Buy
3: 09 Dec 14 2.57 3.42 Buy
2.78
2 4: 06 Feb 15 2.49 2.98 Buy
5: 15 May 15 2.69 3.17 Buy
2.68
1 5
2.58
4
3
2.48
2.38
2.28
Jul-14 Nov-14 Mar-15 Jul-15
Not e : Share price and Target price are adjusted for corporate actions.
1.3 188
1.2 168
Asset reconstitution strategy in place. MLT has demostrated the
1.1
148
ability to sell well in the past and is looking to divest certain
1.0
0.9
128 lower yield properties in Singapore and Japan where valuations
0.8 108 have increased due to compressed cap rates. Proceeds from
0.7
Jul-11 Jul-12 Jul-13 Jul-14
88
Jul-15
these divestments can be redeployed to higher yielding and
acquisitions with brighter growth prospects.
Mapletree Logistics Trust (LHS) Relative STI INDEX (RHS)
350 93.8%
Earnings Drivers: 300 91.8%
MLT beats our acquisition estimates for FY16F with new 250 89.8%
acquisition growth front. The REIT has acquired six accretive 150 85.8%
50 81.8%
projected NPI yields ranging from 6.5% to 8.4% in 2015,
0 79.8%
which will contribute positively come FY16. The REIT started 2013A 2014A 2015A 2016F 2017F
FY16 strongly, delivering close to S$300m @ weighted Net Property Income Net Property Income Margin %
Group Limited with rental escalations. Upside will come from 20 83%
15
a potential expansion potential of 7,000 sqm which we have 10
82%
81%
yet priced in. 5
0 80%
3Q2013
4Q2013
1Q2014
2Q2014
3Q2014
4Q2014
1Q2015
2Q2015
3Q2015
4Q2015
We are positive on MLT’s rising acquisition growth
momentum which would diversify its earnings base while Net Property Income Net Property Income Margin %
7.0%
Sizeable portfolio of assets to be injected from the
6.0%
sponsor in the longer term. In addition, there is a sizeable
5.0%
and growing pipeline of development properties from the
4.0%
Sponsor, Mapletree Investments that is available for MLT to
3.0%
acquire in the medium term. Potential assets for acquisitions
2.0%
are mainly in the development stages across Asia, especially
1.0%
in China, Japan, HK and Vietnam, where demand for logistics
0.0%
warehouses remains robust. China remains a key growth area, 2013A 2014A 2015A 2016F 2017F
0.7
0.5
and proactively renew its loans ahead of time. Over the next
0.4
two financial years, only c. 23% of its total debt will be rolled
0.3
over, meaning that interest cost will remain stable. 2013A 2014A 2015A 2016F 2017F
Net Asset Value (NAV) per unit grew by 6.2%. NAV per
unit rose from S$0.97 to S$1.03, driven by cap rate
compression, higher rents and gains on revaluation on Distribution Yield (%)
(%)
completion of various asset enhancement and development
projects. 9.4
+2sd: 9%
8.4
+1sd: 8%
Share Price Drivers:
7.4
Ability to drive growth through acquisitions. We remain Avg: 6.9%
optimistic about the ability for to drive growth through 6.4
‐1sd: 5.9%
acquisitions. With a first foray in Australia, we see the trust 5.4
Gross revenue 80 81 82 78 85
Property expenses (12) (12) (13) (11) (14)
Net Property Income 68 69 69 67 70
Other Operating expenses (6) (8) (5) (6) (9)
Other Non Opg (Exp)/Inc 1 (8) 3 0 (10)
Net Interest (Exp)/Inc (7) (8) (8) (7) (9)
Exceptional Gain/(Loss) 0 0 0 0 0
Net Income 56 45 59 54 43
Tax (8) (3) (3) (4) (20)
Minority Interest 0 0 0 0 0 Step-up growth on a q-o-q
Net Income after Tax 43 38 51 46 18 basis driven by (i) annual
Total Return 148 38 51 46 102 escalations for its long leases
Non-tax deductible Items (102) 9 (5) (1) (56) and, (ii) contribution from
completed acquisitions
Net Inc available for Dist. 46 47 46 45 46
Growth & Ratio
Revenue Gth (%) 3 1 1 (4) 8
N Property Inc Gth (%) 1 1 0 (2) 4
Net Inc Gth (%) (6) (13) 36 (11) (61)
Net Prop Inc Margin (%) 85.3 85.1 84.2 86.3 83.1
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
S$
1.30 Cl o s i n g Ta rg e t
S.No . Da te R a ti n g
Pri c e Pri c e
8
6 1: 31 Jul 14 1.18 1.24 Buy
1.25 2: 09 Oct 14 1.17 1.25 Buy
3: 23 Oct 14 1.20 1.25 Buy
7 4: 10 Nov 14 1.18 1.25 Buy
1.20 4
2 5: 24 Nov 14 1.18 1.25 Buy
3 9 6: 21 Jan 15 1.24 1.27 Hold
1.15 1 5 7: 02 Apr 15 1.24 1.27 Hold
10
8: 22 Apr 15 1.26 1.29 Hold
9: 26 May 15 1.20 1.29 Hold
1.10 10: 02 Jul 15 1.13 1.31 Buy
1.05
Jul-14 Nov-14 Mar-15
Not e : Share price and Target price are adjusted for corporate actions.
Page 150
Industry Focus
China Warehouse Sector
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
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The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies
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Page 151
Industry Focus
China Warehouse Sector
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Page 152