FINANCIAL STREET(000402):1Q22 RESULTS BEAT;WATCH IMPACT OF COVID-19 RESURGENCE ON AM REVENUE

类别:公司 机构:中国国际金融股份有限公司 研究员:Jingxi SUN/Eric Yu ZHANG/Pu WANG 日期:2022-05-05

  1Q22 results beat

      Financial Street announced its 1Q22 results: Revenue, attributable net profit, and recurring net profit rose 210%, 68%, and 820% YoY to Rmb4.7bn, Rmb934mn, and Rmb148mn, beating our expectations on higher-than-expected settlement.

      Strong earnings on high real estate settlement and low base. In 1Q22, revenue surged YoY, mainly due to increased real estate settlement, stable asset management (AM) business, and low base of Rmb1.5bn in 1Q21 (7-yr low in absolute value). In 1Q22, settlement gross margin shrank 24.3ppt YoY to 18.9%, while income from investment and asset disposal rose from -Rmb25mn and -Rmb0.01mn in 1Q21 to Rb760mn and Rmb231mn due to disposal of the firm’s stake in Financial Street Ritz Carlton.

      Orange-grade developer under three red lines policy; financing channels smooth. By end-1Q22, cash on hand decreased 31% QoQ due to debt repayment and slower payment collection, net gearing ratio rose 7ppt QoQ to 154%, cash to short-term debt ratio edged down from 1.40x at the beginning of 2022 to 0.98x, and debt-to-asset ratio excluding advances received fell 1.9ppt QoQ to 69.9%, resulting in the firm’s “orange” grade under the three lines policy. In 1Q22, the firm raised a total of Rmb2.24bn via medium term notes (coupon rate of 3.37%) and corporate bonds (coupon rate of 3.48%).

      Trends to watch

      1Q22 sales value down 50% YoY. In 1Q22, sales value dropped 50% YoY to Rmb4.97bn, including Rmb4.24bn from housing projects and Rmb730mn from commercial projects. We estimate Financial Street had around Rmb180bn in sellable resources by end-2021, which can support sales for over 4 years. We expect sales value to rebound in the future.

      Continued optimization of asset structure; watch potential impact of COVID-19 resurgence on AM business. In 1Q22, the firm sold Financial Street Ritz Carlton, which incurred a net loss of Rmb34.77mn in 2021, to Financial Street Group at a consideration of Rmb1.08bn. We think this will help it replenish funds, spin off a loss-making asset, and enhance profitability of its own properties. The company owns high-end shopping malls and office buildings in major tier-1 and tier-2 cities, securing relatively strong risk control capabilities. However, we suggest paying attention to the potential impact of COVID-19 resurgence on the firm’s rental income and profit growth.

      Financials and valuation

      We maintain our 2022 and 2023 earnings forecasts. The stock is trading at 9.9x 2022e and 9.7x 2023e P/E. We maintain OUTPERFORM and TP of Rmb6.42, implying 11.6x 2022e and 11.4x 2023e P/E, offering 17% upside.

      Risks

      COVID-19 pandemic lingers longer than expected; sector recovery slower than expected.