SHINSUN HOLDINGS(2599.HK)：THE LEADING YRD DEVELOPER WITH NATIONAL PRINT-格隆汇

机构：招银国际
研究员：Bowen Li/Jeffrey Zeng

　　As born and deep rooted in YRD region (78% of land bank), Shinsun hasachieved over RMB90bn sales club in 2020. With its strong YRD focus andnational expansion, we think its 2021E sales growth will outperform industry toreach RMB105bn (+15% YoY). Also, its balance sheet may improve faster thanexpected with gearing below 100% by 2020E on equity funding and JV. Weexpect 22% earnings CAGR in 2019-2022E to RMB4.2bn driven both by revenueand margin improvement (ASP and funding costs). Initiate with Buy Rating.
　　High concentration on YRD region to benefit from the boomingdevelopment. The Company has a total land bank of 23mn sq m (attributableof 70%), out of which 78% is located in the Yangtze River Delta Region (50%from Zhejiang, 15% from Anhui and 10% from Jiangsu). In the short term, thewealth effect from stock market would spur the buying demand, evidenced bythe recent sales data. In the long term, the YRD zone development wouldsupport long-term population inflow and thus housing demand/price.
　　We expect sales to grow 15-20% YoY in 2021E: As a fast-growingdeveloper (35% CAGR in 2017-2020), we may continue to see above-industrysales momentum at 15% YoY in 2021E thanks to 1) robust demand in YRDregion; 2) strategical national expansion to key cities like Wuhan; and 3)increasing JV stakes: The level attributable sales % is ~70%, which is higherthan the industry so it has room to increase JV stakes and reduce the burden.
　　Net gearing improving faster than market expectation: Previously the fastgrowth and high attributable ratio put its balance sheet under pressure. Withequity raising, constrained land acquisition (only at 30-40% of sales) and moreJV sharing to lower the burden, its net gearing may go to below 100% in 2020Efrom 361% in 2019, satisfying the requirement of “three red line” policy.
　　Expect 22% core earnings CAGR in 2019-2022E on margins. We forecasttotal revenue to grow 12% CAGR in 2019-2022E to reach RMB49.3bn. Coreearnings are expected to grow 22% CAGR in 2019-2022E on improvement ofgross margins to 25% (rising ASP in YRD and funding costs to 9%).
　　Initiate with Buy with TP of HK$7.75. We derive TP by applying 40%discount to its NAV per share at HK$12.92, equivalent to 5.3x 21E PE. TheCompany is trading at 4.1x 21E PE, below industry average of 5x. Catalyst:
　　Southbound inclusion effective on 15 Mar. Risk: sales slowdown in YRD.