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1、16 July 2020China Real EstateA new way to grow via urban renewal projectsu As growth becomes more challenging, we highlight urban renewal as a key theme, catalyst and differentiating factoru Its not new but becoming more relevant; if executed right, it can bring years of profit contribution with luc
2、rative marginsu Our analysis points to KWG (Hold), Times China (Buy) and Logan (Buy, lift TP by 24% to HKD17.80), as key rising starsWhen growth is harder We believe urban redevelopment projects will increasingly play an important role in formulating developers growth stories, acting as potential sh
3、are price catalysts in the years to come. Simply put, they offer a new source of landbanks that enrich a developers land reserves and saleable resources. While this is not new, it remains a relevant long-term theme with positive implications, bypassing the issue of high land cost associated with ope
4、n market land acquisitions. Its a new mode of growth to be integrated into a developers core business that faces increasingly intense competition and invites keen participation among peers. The upside lies in the lucrative margins along with years of potential profit contributions, in our view. Sepa
5、rate from this report, we initiated coverage of Times China (1233 HK) at Buy (see Initiate at Buy: Still cheap, alive and kicking) as a leader in urban renewal projects and highlight it as one of our key picks, along with CRL, CIFI, CG and Logan, all rated Buy.urban renewal projects serve as a key d
6、ifferentiating factor and catalyst: Asdevelopers sales have seen significant growth since 2017 and the post COVID-19 sales recovery has largely played out, we believe expertise in urban renewal projects becomes a key differentiating factor and relevant potential share price driver. In this report, w
7、e provide a blueprint of the urban renewal theme, detailing developers project pipelines and saleable resources to quantify the potential growth upside. Considering this is a long-term sector theme, developers have notably stepped up disclosures related to their progress on urban renewal projects.Th
8、ree rising stars: Our analysis of landbanks and saleable resources reveals that KWG, Logan and Times China are well-positioned to capture potential upside from their urban renewal project pipeline with prospective saleable resources being 4x-plus higher than their respective FY19 contracted sales le
9、vel. Key investment risks are a lengthier and more uncertain execution timeline and the requirement for upfront capital commitment.Valuation summaryTicker CurrencyCurrent_ Target Price_ Rating _Upside/ Market Cap3m ADTVCompanyPriceOldNewOldNewDownside(USDbn)(USDm)Times China1233HKHKD14.6219.2019.20B
10、uyBuy31%3.78.7Logan3380HKHKD14.4814.3017.80BuyBuy23%10.37.8CRL1109HKHKD35.0540.9040.90BuyBuy17%32.254.4KWG1813HKHKD13.4613.1013.10HoldHold-3%5.513.6CIFI884HKHKD6.718.608.60BuyBuy28%7.015.6CG2007HKHKD10.5611.5011.50BuyBuy9%29.833.7Source: Bloomberg, HSBC estimates. Note: Priced on 10 July 2020Equitie
11、sREMDChinaMichelle Kwok*Head of Real Estate Research, Asia PacificThe Hongkong and Shanghai Banking Corporation Limitedmichellekwok.hk+852 2996 6918Albert Tam*Analyst, Asia Real EstateThe Hongkong and Shanghai Banking Corporation Limitedalbert.p.h.tam.hk+852 2822 4395Max Liang*, CFAAnalyst, Asia Rea
12、l EstateThe Hongkong and Shanghai Banking Corporation Limitedmax.liang.hk+852 2996 6629Louie Lu*AssociateThe Hongkong and Shanghai Banking Corporation Limitedlouie.y.q.lu.hk+852 2996 6514Oliver Yu*AssociateGuangzhou* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/
13、 qualified pursuant to FINRA regulationsAsiamoney Brokers Poll 2020Voting opens 1st June 7th AugustIf you value our service and insight, please voteClick here to voteDisclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and w
14、ith the Disclaimer, which forms part of it.Issuer of report: The Hongkong and Shanghai Banking Corporation LimitedView HSBC Global Research at:Equities REMD16 July 2020ContentsExecutive summary4Urban renewal: five Ws7Developers: risk and reward11Key companies and potentialwinners13ESG considerations
15、18Appendix19Company section21Times China (1233 HK)22KWG Group (1813 HK)24Logan Property Holdings (3380 HK) 26China Resources Land (1109 HK)28Disclosure appendix31Disclaimer342Equities REMD16 July 2020Urban redevelopment as a potential share price catalystFigure 1: CRL re-rated along with progress of
16、 the Da Chong urban renewal project4035RMB/sh30Launch of theShenzhen CR City25phase IILaunch of the Shenzhen20Da Chong project enteredCR City phase IIIconstruction stage15Launch of the renewal10project Shenzhen CR5City phase IJan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20CRLSourc
17、e: Bloomberg, HSBCFigure 2: Logans revenue contribution from urban renewal projects served as a share price catalyst16RMB/shPrimary development of urban14redevelopment projects contributes18% of Logans 1H19 revenue12108Logan started construction on a6factory redevelopment project inThe later branded
18、 projectZhuhai (顺兴不锈钢厂)4Logan Acesite Centriumlaunched in Dec 201920Dec-13Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-18 Aug-18 Mar-19 Oct-19 May-20 LoganSource: Bloomberg, HSBCFigure 3: Times Chinas revenue contribution from urban renewal projects served as a share price catalyst18 RMB/sh16141210
19、86420Primary development of urbanredevelopment contributed 8.1%of revenue for FY18, a positiverevenue surpriseReports further urbanTimes recorded revenuerenewal conversion tolandbank and revenuefrom primary development ofcontribution in 1H19urban redevelopment projectsfor the first time in 1H18Dec-1
20、3Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-18 Aug-18 Mar-19 Oct-19 May-20 TimesSource: Bloomberg, HSBC3Equities REMD16 July 2020Executive summaryu This report examines developers alternative growth channels via their participation in urban redevelopment projectsu The key attraction is cheaper la
21、nd cost, though execution risks are relatively highu We identify the beneficiaries that are set to win the competition for these projects, supporting a more visible and favourable future growth profileTime to find new growth via Times ChinaOur differentiated report examines the growth outlook of dev
22、elopers, driven by their ability to undertake and execute urban redevelopment projects, an increasingly popular and highly sought after source of future landbanks. Along with this report (and in a separate company report) and riding on the long-term structural theme of urban redevelopment, we initia
23、ted coverage of Times China (1233 HK) with a Buy rating (see Initiate at Buy: Still cheap, alive and kicking) as a leader in urban renewal projects. As major developers have significantly scaled up their residential sales business, urban redevelopment projects present an alternative way of replenish
24、ing landbanks and will likely remain the strategic direction of major developers in the long term. The unique aspect of urban redevelopment projects is related to the cheaper cost of land, which generates more lucrative project-level profit margins. Indeed, cheaper land cost is the single most impor
25、tant reason behind developers enthusiastic attitude towards their keen participation in these projects, as most have long battled the high land cost challenges stemming from traditional auctions/tenders, which notably eroded margins.Room for a long-term re-ratingThe prospects of urban redevelopment
26、projects brings excitement to the sector, as they give select developers an edge and show differentiation among them. We believe this is exciting because a developers journey to build a strong execution track record in urban renewal projects will be seen as a key catalyst and share price driver. A c
27、onsistent journey of accumulating urban redevelopment projects will likely underpin a developers re-rating story, particularly for small- to medium-sized developers.Urban redevelopment doesnt provide a level playing field because projects are hard to secure and execute. Therefore, despite a desire t
28、o participate, only a handful of companies have demonstrated some success. One key challenge is the long payback period, given the lengthy development cycle, uncertainty tied to resident relocations, and land title conversion. As such, a pre-requisite for participating developers is balance sheet st
29、rength and flexibility due to the lengthy development cycle that spans several years. This presents a near-term disadvantage versus the fast asset turnover nature of land sites acquired via auctions. Nevertheless, the long-term prospects of these projects in terms of sales scale and profitability ma
30、ke the effort and investment worthwhile. In our view, developers recognise the development risks involved and the need to strike a delicate balance in their pursuit of these highly profitable projects.4Equities REMD16 July 2020Who wins?We take a simplistic approach in our assessment of developers th
31、at may have the highest potential to outcompete others undertaking urban redevelopment projects. Given that most developers disclose their estimated landbanks and saleable resources from the future pipeline of urban redevelopment projects, we calculate:1. Potential urban redevelopment GFA as a perce
32、ntage of the current landbank: This ratio indicates potential upside to the current landbank upon successful land title conversion of urban redevelopment land sites, which enrich the saleable resources project pipeline.2. Potential value accretion (saleable resources) brought by urban redevelopment
33、projects: This ratio depicts a clearer picture of developers sales growth potential as projects in top tier cities are sold at higher price points.Among our coverage universe, our calculations reveal that Times China (1233 HK, HKD14.62, Buy) presents the most potential upside to growth, followed by
34、KWG (1813 HK, HKD13.46, Hold) and Logan (3380 HK, HKD14.48, Buy), all of which offer potential urban redevelopment saleable resources being 4x-plus higher than their respective FY19 contracted sales level.With a strong track record in urban redevelopment projects and a visible long-term growth profi
35、le, we highlight Times China as one of our key picks, along with CRL, CIFI, Country Garden and Logan. While KWG also features as a stock with strong urban redevelopment prospect, we believe the current valuation has already appropriately factored in the potential upside.Figure 4: Developers urban re
36、development project pipelinePotentialGFA as ofRatio to totalUrban renewal saleableend-2019landbank as ofresources as of end-2019Compare to 2019Implied ASPCompany(m sqm)end-2019(RMBbn)contracted sales(RMB/sqm)Location of urban renewal projectsTimes China43187%6458.2x15,000GBAKWG1483%5856.8x41,786GBAL
37、ogan2158%4014.2x19,07695% in GBACRL3153%4651.9x15,00098% in GBA, 71% in Guangzhou and ShenzhenAoyuan*1432%2261.9x15,860Agile612%2001.7x33,333GBA, Beijing, Taiyuan, Xian, Tianjin, ZhengzhouGZ R&F4072%2001.4xNA60% in GBA, Taiyuan, XianCG145%1990.4x14,236Shenzhen and other citiesCIFI615%GBASource: Comp
38、any data, HSBCNote: *Company not under our coverage. CG and CIFIs numbers are from 1H19. Times China and CRLs saleable resources are estimated by assuming RMB15,000/sqm of ASP, which is the average ASP in 2018-1H20 for major urban redevelopment companies. GBA Greater Bay Area. NA Not applicable/avai
39、lable.Figure 5: Multiple of developers potential urban renewal saleable resources to FY19 contracted salesTimes China8.2xKWG 6.8xLogan 4.2xCRL 1.9xAoyuan* 1.9xAgile 1.7xGZ R&F1.4xCG 0.4x0.0x2.0x4.0x6.0x8.0x10.0xSource: Company data, HSBCNote: *Company not under our coverage. Using 1H19 data.Figure 6
40、: Ratio of developers potential GFA from urban renewal projects to the current landbankTimes China187%KWG83%GZ R&F72%Logan58%CRL53%Aoyuan*32%CIFI15%Agile12%CG5%0%50%100%150%200%Source: Company data, HSBCNote: *Company not under our coverage. Using 1H19 data.5Equities REMD16 July 2020Share price perf
41、ormance and valuationFigure 7: Share price rebound from the recent lowFigure 8: Year-to-date share price performance (%)CIFI61Shimao59KWG56Logan52Yanlord49Times37CG34Sector Avg31SZ Investment27China Jinmao26China SCE26CR Land25Longfor24Vanke19HSI19COLI15Joy City9R&F9%Sino-Ocean4020406080Source: Bloomberg, HSBC. Note: Priced as at 10 July 2020. Recent low refers to stock price during mid-March.KWG26Logan