Excerpts from latest analyst reports...
HAITONG: CHINA DEVELOPERS facing liquidity concerns
Haitong International Research said Mainland China’s property sector outlook for the remainder of the year is showing signs of “liquidity concerns amid visible growth.”
“Most Hong Kong-listed China developers reported satisfying interim results for FY11. That was driven by the substantial increase in the recognition of revenue from property sales which was mostly induced by the strong presales recorded last year,” Haitong said.
Major counters registered a 20%-60% increase in revenue and a 40%-100% surge in core net profit. Players such as Evergrande (HK: 3333; ‘buy’) and Longfor (HK: 960; ‘hold’) recorded over 100% y-o-y increases in core net profit in 1H11, thanks to their aggressive expansion in FY09, the brokerage added.
“The sector’s year-to-date presales performance was encouraging, suggesting potential fruitful results in 2H11 and FY12. Despite the continuous restrictive policies from the central government, the sector’s aggregate 1H11 presales surprisingly climbed 24% yoy.”
The top ten sellers outperformed their peers with an average 50% y-o-y growth in 7M11.
“Most of these presales proceeds will be booked in 2H11 and FY12, providing strong support to the corresponding periods’ results. We expect the Hong Kong-listed China developers’ revenue to surge an average of 50% yoy in FY11.
"The increasing financing cost and tightened tax collection (mainly from land appreciation tax) are expected to dampen developers’ profitability, yet an increase of over 30% in core net profit should be feasible in FY11, in our view.”
However, Haitong added that a liquidity alert was raised especially for the smaller and heavily leveraged developers.
“Even though presales proceeds increased substantially in 1H11, they were offset by the increase in land premium payable and construction costs which grew even faster due to aggressive land replenishments in FY10.”
As at end-June 2011, Hong Kong-listed China developers’ total cash on hand remained at the same level as that of end-December 2010, and average net gearing even climbed from about 56% at end-December 2010 to about 67% at end-June 2011.
“Many China developers are having difficulties in obtaining bank lending due to the current credit tightening policy. We estimate that China developer’s average financing costs will rise to 8% in FY11 from less than 6% in FY09 and FY10. Some developers with limited cash reserves may encounter a very tough time if the projected cash inflow from presales can not be delivered in 2H11 and 1H12.”
See also: CHOW SANG SANG, FOCUS MEDIA: Jewelry, Ads Show Recession-Resistant Results
KINGSTON: XTEP’s new children’s line has ‘high growth potential’
Kingston Securities said that Xtep International Holdings (HK: 1368) is planning a new children’s footwear and apparel series called “Xtep 1+1” and will open around 100 retail outlets positioned in Tier II and Tier III PRC cities by the end of 2012.
“The kid’s fashion industry in China has a high growth potential. The group’s main focus is still on Tier II and Tier III cities and the total number of Xtep brand retail outlets will reach 7,900 by the end of this year,” Kingston said.
Kingston’s buy-in price for Xtep is 3.63 hkd, the target price is 4.5 and the stop loss price is 3.23.
“Recently, Xtep improved the brand equity through sponsoring powerful sporting events, such as being the sole sponsor of the US Team and UK Team in the Universiade in Shenzhen, increasing the brand’s exposure.”
Xtep recorded a net profit of RMB466 mln for the first half of 2011, up 25% y-o-y.
Gross profit margin rose 0.2pp to 40.9%.
The group achieved a double-digit growth in its same-store sales in July and August.
“Stable development can be expected,” Kingston said.
Yet, average inventory turnover days rose from 46 days to 81 days, mainly due to the bulk purchase of cotton raw materials when the price was reasonable to reduce production costs and to stock up for Q4 2011 and Q1 2012.
See also: XTEP: Fashion Sportswear Co's 1H Net Soars 25% To 466 Mln Yuan
