China Union Holdings:16Q1Earnings on Sharp Increase发布时间：2016-04-15 研究机构：兴业证券
The company witnessed sharp increase in earnings in 16Q1. Investment return surgeprovided strong boost to the company’s earnings. The company’s 16Q1 earnings exceeds thatfor the whole year of 2015; also, it represents a turnaround from the loss of CNY 8.68 millionrecorded in 15Q1. The remarkable increase in 16Q1 earnings was largely because during thereporting period, the company sold out part of the stocks of Sino Great Wall (000018: SZ) athand, which translate into surge in investment income. Previously, the company held 43.14million shares of Sino Great Wall, accounting for 9.65% of the total share capital. The companyreduced holdings of Sino Great Wall by 2.8 million shares in March 30-31 at an average price ofCNY 49.09 per share; it cut holdings of 3.6 million shares in April 8-10 at CNY 52.23 per share.
The total amount of shareholdings reduced has reached CNY 325 million. So far the companyholds 36.7 million shares of Sino Great Wall at hand, accounting for 8.22% of total sharecapital. In 2017, the company will also reduce 20 million shares. If calculated with the currentmarket price, the investment return will increase remarkably, which will greatly enhance itsearnings. We therefore revised up EPS forecast for the company to CNY 1.70 per share in 2016and CNY 2.10 per share in 2017.
The company’s 2015 earnings meets expectations, thanks the continued boom of theproperty market in Shenzhen. The company’s 2015 earnings meet expectations, and this islargely driven up by the sale of housing stock at hand the increase in investment return. Its keyproject Panoramic Garden is still on the stage of presale, and the revenue cannot berecognized at present. We believe the Panoramic Garden Project will become a key driver forthe company’s earnings growth in 2016 and 2017. Since the project Hualian City PanoramicGarden opened for sale in November 2015, as of the end of March, the company has achievedcontractual sales of CNY 2.73 billion. We believe the Hualian City Panoramic Garden willcontinue benefit from the property market boom in Shenzhen. We expect in the future aroundCNY 9 billion cash will be collected in the following two years. After repaying bank loans andtaxes, CNY 4 billion cash will be left, providing strong financial support for the company’stransition. In addition, the Hualian AB District Project located in Nanshan District, Shenzhen will also become a growth engine for the company’s future earnings growth.
The company has expressed strong commitment towards business transformation. The stockincentive scheme has been put in place to mutate the key employees. We think the future forthe company is unlimited. In its investor relation activities report, the company clearly statedthat it will actively explore new operation approaches and new business developmentopportunities. In addition, it has made it clear that it will be dedicated to active businesstransformation. We believe the timely collection of account receivables from the project andreturns obtained through reduction on holdings of stocks of Sino Great Wall will providesufficient financial support for business transition. The company issued the first batch ofincentive stocks to the management executives in June, 2015. In addition, it granted 16.6million incentive stocks to the management team. The implementation of large-scale stockincentive scheme will prepare the company for more business opportunities in the future.
Investment Recommendations: The company’s 2015 earnings meet our expectations. Weexpect its 16Q1 earnings to increase remarkably in 2016. Its project construction will greatlybenefit from the property market boom in the future. The company will gradually reduceholdings of Sino Great Wall’s stocks, which will gradually improve its intrinsic value. Collectionof account receivables will provide sufficient cash for business transformation. We made ourEPS forecast for the company at CNY 1.70 in 2016 and CNY 2.10 in 2017, implying 5x 16E PEand 4x 17E PE. Reiterate BUY.
Potential Risk: Weaker-than-expected sales recovery, slower-than-expected project progress