DAFA PROPERTIES GROUP(6111.HK)：RISING YRD PLAYER WITH HIGH ASSET TURNOVER-格隆汇

机构：招银国际
研究员：Bowen Li/Jeffrey Zeng

　　As born (Wenzhou) and deep rooted in YRD region, Dafa has achieved a fastgrowth of >50% CAGR in 2018-20 to exceed RMB30bn sales. With sales growthremaining the key (+15-20% YoY in 2021E), we think Dafa will also focus on ROEand funding rate improvement via optimizing asset turnover, enhancing cashcollection rate and clearing inventories. This would provide more margin upsideand healthy B/S in the long run to fuel the earnings growth. Initiate with Buy.
　　High concentration on YRD region to benefit from the booming demand.
　　Dafa has a total land bank of 6.5mn sq m/RMB91bn saleable resources(attributable 47%) with 84% located in the YRD regions (Wenzhou, Ningbo,Suzhou, Nanjing, etc.). We expect the Company to deliver 15-20% salesgrowth in 2021E to RMB35bn, > industry of 10% on its booming regionaldemand and debt advantage after meeting all “three red lines” by end-2020.
　　“High asset turnover” approach to support expansion: With only 2-2.5years of land bank life, the Company still achieved a fast growth of >50%CAGR in 2018-20. Besides lower attributable ratio (from 60% in 2018 to 45%in 2020), the main reason behind is its consistent “high asset turnover”
　　strategy (<12 months from land acquisition to cash flow breakeven) in thefollowing ways: 1) Focus on YRD market as the demand side is moreconsistent than other regions. 2) Rely on public bidding channel for its landresources (100% in 2020). 3) JV with market leaders like Country Garden tofurther optimize. The drawback might be the limited margin upside given theincreasing land price, but we think the amplifying sales scale could allow Dafato strategically step into less-competitive regions to have more margin upside.
　　The key to lower the funding rate: We think the Company’s 9.5% fundingrate has room to improve via 1) repayment of trust loans (13% rate), as Dafalowered its % of total debts to 20% by end-20 from 27% in 1H20. 2) Cashcollection rate: Company has set the KPI of 90% in 2021E vs 75-80% in 2019-20. 3) Improvement in cash composition as the restricted and pledged cashremained high. 4) Clear inventory of RMB2.8bn (10% of current asset).
　　Expect 12% core earnings CAGR in 2019-2022E on revenue growth.
　　Riding on strong sales in 2019/20, we forecast total revenue to grow at 15%CAGR in 2019-2022E to reach RMB11bn. GPM would stay stable at 21-22%due to fast asset turn. Core earnings are expected to grow at 12% CAGR in2019-22E as increasing MI would offset the operating leverage. Initiate withBuy with TP of HK$8.32. We derive TP by applying 45% discount to its NAVper share at HK$15.1. Risk: policy tightening.