FINANCIAL STREET PROPERTY(01502.HK)：PROVEN MODEL OF JOINT VENTURE COOPERATION WITH ATTRACTIVE DIVIDEND YIELD "BUY"-格隆汇

机构：国泰君安国际
研究员：Chunli Zhan

Maintain "Buy" with TP of HK$2.90. We believe Financial Street Property (the "Company") has proven its successful model of joint venture cooperation, which should steadily bring new projects under its management. We revise down the Company’s 2024F-2025F EPS to RMB0.385 (-16.8%) and RMB0.432 (-23.7%), and introduce 2026F EPS at RMB0.485, which represents a CAGR of 12.3% during 2023-2026F. We trim our TP to HK$2.90 by applying 7.0x 2024F PER, and maintain investment rating of "Buy" for the Company.
Solid results in 2023. In 2023, the Company achieved steady increase in its total GFA under management, which grew by 16.0% YoY to 40.56 mn sq.m. by the end of 2023. Total revenue grew by 9.1% YoY to RMB1,514 mn in 2023. Due to a lower GPM of 16.8% (dropped by 1.1 ppts YoY), the Company's 2023 shareholders’ net profit recorded a moderate growth of 5.8% YoY to RMB128 mn.
Stable dividend policy and attractive dividend yield. The management declared final dividend of RMB0.173/share for financial year of 2023. The Company maintained its stable dividend policy with generous dividend payout ratio above 50% (50.44% in 2023). Based on our projections of RMB0.385 EPS for 2024F and potential dividend payout ratio at 50%, the Company’s 2024F dividend yield is likely to reach 9.4% (current share price at HK$2.25). We believe the high dividend yield should make the Company more attractive to investors.
A proven model of joint venture cooperation. We believe the Company has enhanced its skills in acquiring commercial and business projects through joint venture cooperation. In 2023, the Company established five joint ventures, with the total number of joint ventures reaching 26. Given the Company’s SOE background and sound reputation in management of financial districts, its expansion may beat market expectations in the next few years, in our view.
Catalysts: 1) More quality office projects acquired in the short term; 2) improvement in profitability; and 3) turnaround from the loss in its catering services. Downside risks: 1) Slower-than-expected growth in GFA under management; 2) weaker office demand; and 3) unexpected labor cost hikes.