China SCE Property Holdings Ltd (1966.HK) is an investment holding engaged in the development, investment and management of properties in China. The company has more than 50 projects on sales in 13 cities such as Beijing, Shanghai, Shenzhen, and Tianjin.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] Projects include high- and low-rise residential buildings, villas, as well as commercial and offices buildings. 11 projects were just newly launched for sale. China SCE Property targets on first- and second-tier cities where 66% of the contracted sales were made in 2016. The company owns currently a land bank of approximately 9.1m sqm end of 2016, enough for the development of projects for the next three to four years.
China SCE Property was founded in 1996 and has its headquarter in Shanghai. Shares are listed on the Main Board of the Hong Kong’s Stock Exchange since February 2010 and can furthermore be traded in Germany. A third of the company’s shares are traded publicly, while 58% of the shares remained in the hand of the founder and chairman. China SCE Property is among ‘Best 50 of China Real Estate Developers’ and ‘Fortune China 500’ companies.
China’s home sales rose 43% in value during the first ten months of 2016 and are expected to continue growing at a more stable rate in the next years. The property market in China accounts for nearly 20% of the country’s GDP. Efforts of the Chinese government to curb excessive property purchases and mortgage loans in popular cities are currently slowing down transactions but might be partly offset by increasing selling prices. Experts project home prices to rise 10% this year.
With a workforce of around 3.5 thousand employees, China SCE Property reported revenues of 12.5bn RMB (1.8bn USD) and profits before tax of 3.5bn RMB (506m USD) in 2016. An increase of 17% and 37% respectively on a year-on-year basis. In 2015 revenues and profits were up 55% and 0.4% respectively compared to the year before. China SCE Property had cash and equivalents of 7.2bn RMB (1.1bn USD) at the end of 2016. The company’s balance sheet shows a weak equity and gearing ratio and an operating margin of 24% which is below its industry peers.
Despite these weaknesses in its financials, China SCE Property’s shares are in an uptrend since February 2016 and almost doubled in value since, 30% alone this year. The company is still reasonably priced at only four times earnings, compared to 19 times in its industry peers. Furthermore, it trades at book value and at only four times its cash flow. The dividend yield has been 4.8%.
The company can continue to benefit a high demand for properties in popular cities in China due to the urbanization process and from upgrading demand. Risks could come from rising interest rates in the US which will also affect China in the mid-term. We are nevertheless positive for another 20% share price increase until the end of this year.
AIS Rating: ★★★★☆
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
|---|---|---|---|---|---|---|
| EPS (RMB) | 0.21 | 0.2 | 0.26 | 0.26 | 0.27 | 0.61 |
| Change | 25% | 5% | 30% | 0% | 4% | 126% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | Debt/ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 4 | 19 | 1 | 4 | 18% | 24% | 446% | 4.8% |
* Equity / Total Assets, ** Total Liabilities / Equity
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