LVGEM (China) Real Estate Investment Company Limited (00095.HK) (“LVGEM (China)”) held the 2019 Interim Results Announcement on 21 August 2019. In the first half of the year, LVGEM (China) achieved remarkable performance in sales, operation of commercial property and capital cost, with several indicators outperforming the industry. The capital market is also optimistic about the company’s sustainability. Essence International and Southwest Securities assigned “Buy” and “Overweight” ratings to LVGEM (China) respectively.
Interim Results Announcement
LVGEM (China) reported revenue of RMB3.42 billion, a YoY increase of 346%, and gross profit of RMB2.4 billion, a YoY increase of 447%, during the first half of 2019, according to its results announcement.
Interim Results Announcement
Ms. Huang Jingshu, Chairman and Executive Director, Mr. Tang Shouchun, Chief Executive Officer and Executive Director, Mr. Ye Xingan, Ms. Deng Chengying and Mr. Huang Hao Yuan, all being Executive Director, Ms.Chan Hiu Mei, Chief Financial Officer and Company Secretary, Mr. Jacus Chan, Director of Investor Relations, attended the announcement and exchanged their views with the media and analysts.
- Robust performance growth and high gross profit margin
LVGEM (China) achieved solid performance growth in the first half of 2019. In particular, real estate development and sales generated revenue of approximately RMB2.99 billion, while recurring revenue from commercial property and comprehensive services amounted to RMB430 million.
Revenue from real estate development and sales was mainly contributed by LVGEM Mangrove Bay No. 1 and Huazhou LVGEM International Garden project. LVGEM Mangrove Bay No. 1, located at CBD of Futian, Shenzhen, enjoys comprehensive municipal facilities and breathtaking sea views and therefore has been well sought after by the market after its launch. The project has unsold properties in value of RMB4.28 billion which will underpin the performance in 2019 and 2020.
LVGEM Mangrove Bay No. 1
LVGEM (China) holds and operates most of the commercial properties it invested and developed. Currently, it holds 24 investment properties and successfully operates its two major commercial brands, namely “NEO” and “Zoll”. Hong Kong LVGEM NEO located in East Kowloon, Hong Kong was launched for leasing in November 2018. As of the first half of 2019, the company has signed leasing agreements with many quality enterprises in the insurance, financial, scientific innovation and virtual banking industries. The occupancy rate of the building based on pre-leasing has reached 50%. If fully leased out, the project will generate HK$300 million rental income for the company each year. As of the first half of the year, the value of project has appreciated by HK$820 million.
Hong Kong LVGEM NEO Building
Hong Kong LVGEM NEO Building (Standard Floor)
In addition, while the gross profit margin of the industry was declining, the net profit margin and gross profit margin of LVGEM (China) were maintained at a high level. During the first half of 2019, the net profit margin and gross profit margin were 29% and 70.4% respectively, well above the industry level. Since 2016, LVGEM (China) has been able to maintain a high gross profit margin of more than 50%, exhibiting outstanding profitability.
- Low finance cost with sufficient cash flows
LVGEM (China) is known for its steady operation in the industry. From its financial position, the company has sufficient cash flow. As of the first half of 2019, cash balance of the company amounted to RMB9.093 billion and overall finance cost was maintained at a healthy level of 6.2%.
Interim Results Announcement
Meanwhile, the existing projects of the company can support its stable performance growth. The total saleable area of projects are approximately 1.25 million sq.m. According to the current market situation, the saleable value in the past two years exceeded RMB15 billion. The commercial projects in operation can also provide stable capital support for the company.
Besides, through the unique cooperation with the controlling shareholders, LVGEM (China) flexibly expanded the land reserves without accumulating a considerable amount of fund for land acquisitions. This has greatly reduced the finance cost and the pressure on cash flows. As a result, healthy cash flows were ensured.
The capital market is optimistic about the future development prospects of the company. Recently, Essence International re-assigned the “Buy” rating to the company with target price at HK$3.2 (current share price is HK$2.7). Southwest Securities assigned the “Overweight” rating to LVGEM (China) for the first time with target price at HK$3.1.
Emphasis on Greater Bay Area with sufficient land reserves from urban renewal
As a unique property developer and pioneer in urban renewal, LVGEM (China) boasts clear advantages in urban renewal. The company has started to build presence in Shenzhen, Zhuhai and other core cities of the Guangdong-Hong Kong-Macao Greater Bay Area as early as in 1990s. So far, it has developed more than 20 projects, over 90% of which are located within the Guangdong-Hong Kong-Macao Greater Bay Area. The company has years of experience in property development, as well as professional urban renewal teams and approaches, and therefore is familiar with the regulation and procedures of urban renewal.
LVGEM (China)’s Strategic Presence
LVGEM (China) has sufficient land reserves. As of 30 June 2019, LVGEM (China) had approximately 4.38 million sq.m. of land reserves available for development, most of which are located in the Guangdong-Hong Kong-Macao Greater Bay Area. The company maintains a focus on the core cities within the Greater Bay Area, such as Shenzhen, Hong Kong, Guangzhou, Zhuhai and Dongguan. In addition, the land reserves held by the controlling shareholders in the total area of 12.10 million sq.m. are located in the core regions of the Guangdong-Hong Kong-Macao Greater Bay Area. In the future, the sufficient land reserves of the company and the controlling shareholders will provide assurance for the sales growth. With the introduction and development of the Baishizhou project, LVGEM (China) will achieve leapfrog growth in scale and efficiency.
- Upgraded development strategy to build smart city
In 2018, the company signed a strategic cooperation agreement with Huawei Technologies Co., Ltd. to apply technology on property projects. The Baishizhou project will become the benchmark model of smart city.
Ms. Huang Jingshu, Chairman and Executive Director of LVGEM (China), answers questions from reporters
At the announcement, Ms. Huang Jingshu, Chairman and Executive Director of LVGEM (China), said the company will upgrade the development strategy and strive to establish itself as the developer of smart city in the Guangdong-Hong Kong-Macao Greater Bay Area under the strategic guidance of its direction “Focus on urban renewal in the Greater Bay Area, develop a brand new smart city”.
In reply to the questions from the media regarding the building of Shenzhen into a pilot demonstration area of socialism with Chinese characteristics, Mr. Tang Shouchun, Chief Executive Officer and Executive Director of LVGEM (China) said Shenzhen will embrace historic development opportunities and urbanization will make faster progress. As an expert in urban renewal and with a focus on Shenzhen and Hong Kong, LVGEM (China) will actively expand its footprints in the Guangdong-Hong Kong-Macao Greater Bay Area and benefit from the political tailwinds. LVGEM (China) will apply technology on property projects by joining hands with Huawei to build smart cities. This move is in line with the strategy of building Shenzhen into a pilot demonstration area of technology innovation, and the company will see new opportunities in the coming years.
Benefitting from the rapid development of the city clusters within the Greater Bay Area, LVGEM (China) has acquired numerous advantages and resources after many years of development. Ms. Huang Jingshu said the company will continue to expand its business scale and economic efficiency by following the national policy and leveraging its unique advantages and market positioning. With the unique positioning and brand-new perspective, the group will develop “unique properties, resources-linked properties and smart properties”, endeavouring to bring sustainable returns to the society, shareholders and residents.
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