Summary
On April 1st, China Ping An Group subscribed for 2.24 billion shares of Country Garden's new share at the price of hk $ 2.816 per share. The subscription price is 10.03% less than hk $ 3.13, the closing price of the day before. The subscription shares account for about 10.99% of the current issued capital stock of the company, and account for about 9.90% of the issued capital stock after the expansion of subscription. The lock-up period is one year. The net capital raised is about hk $ 6.295 billion, which would be used for the development of the company and the general operation capital.
The company would cooperate with Ping An Group on many aspects including real estate marketing, financial investment and community service, as well as project development and so on. Based on the abundant financial experiences of Ping An Group and the stock resources of more than 200 communities together with more than 300 thousand users which belong to Country Garden, the cooperation of both sides is hopeful to achieve synergistic win-win. We believe that: After the cooperation, the company's sales ability, the ability of getting land and the management ability would be promoted; the development of digging the value of stock users is hopeful to be accelerated; both sides are able to perfect the community industry chain and achieve the resources integration platform covering users` lifecycle.
The shareholder structure would be improved, and the balance sheet would be repaired persistently. After Ping An becomes a shareholder, the proportion controlled by the family would decline (the share ratio of Yang Huiyan, the major shareholder, would decline from 59.5% to 53.6%), and the marketization degree would rise up. Along with the growth of the equity, we forecast that the net liability rate in 2015 will fall off from 50% to 40%, and the company will speed up to achieve the investment-grade rating, which conforms to the logic we have recommended before.
Meanwhile, the financed HKD 6.295 billion will speed up the diversification of company's business expansion such as insurance and pension for the aged. In the Silver Age of the industry, while the growth rate of housing business has decreased, the new business of our company will turn into the new growth point, along with the synergy effect with Ping An Group.
In 1Q2015 Country Garden achieved contracted sales of RMB 17.7bn, dropping 44% yoy, GFA sold was 2.78mn sq.m., down 43% yoy. In March the company's contracted sales were 6.27bn, up 13.6% mom, slightly declining by 3.5% yoy. As to full-year sales target of 135bn, the company had just only completed 13% of all in Q1.
In 2015, Country Garden will actively promote the project partner system. In respect as forceful follow-up investment, its design is more compulsory compared to that of Vanke and will greatly activate the motive of staff on the project level. We believe that partnership is positive in terms of improving efficiency and performance of the program. Large real estate enterprises like Vanke and Country Garden can be benefited. However, the regime will also require higher cost for management and coordination, especially at the beginning of the implementation.
We are optimistic about the company's subsequent continued improvement of the balance sheet and the synergy effect in the light of its partnership with Ping An Group. We promote its 12m TP to HKD3.80, 5.4x and 4.7x expected P/E ratio, to reflect positive effect of the new cooperation with Ping An and loosening policies news. We maintain Country Garden ¡§Accumulate¡¨ rating. (Closing price as at 9 April 2015)
Financials
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