Company Profile

The main business of China World Trade Center is to operate China World Trade Offices, China World Mall and China World Hotel in the core business district of Beijing. It is the only A-share listed company which mainly focuses in the leasing and operation of commercial properties.

2015H1 Interim Result

In 2015H1, the reported revenue of China World Trade Center was RMB1.1 billion, representing an increase by 1.4% yoy. Its reported net profit rose by 7.6% yoy to RMB310 million and its EPS was RMB0.3, which was in line with expectation.

During the period, rental income from offices was up by 2.8% yoy to RMB550 million, while that from the shopping mall was down by 3% yoy to RMB227 million. Revenue from the hotel decreased mildly to RMB181 million. The increase in total revenue benefited from the rise in average rental rates of offices. The average rental rates of Phase 1, 2 and 3 increased by 3-7%. The occupancy rate was stable at 97.2%

The decrease in the rental income from the shopping mall was mainly affected by the refurbishment of the building, which resulted in a temporary halt of business activities in some areas during the refurbishment. It is believed that the macro economy has led to a slight decline in the revenue from the hotel and apartments. Overall speaking, the operation in the three main businesses remained stable.

Steady Progress of the New Project

China World Trade Center is holding three phases of properties, including offices, a shopping mall, a hotel and apartments, with a GFA of over 870,000 sq. m. Of its operating income, 50% was from leasing of offices, 21% was from leasing and operation of the shopping mall, 17% was from the hotel operation while the rest was from the leasing of apartments and others.

Phase 3B of World Trade Center and the reconstruction of the Exhibition Center become the focal points of the fundamental aspect of China World Trade Center. The GFA of Phase 3B of the World Trade Center is around 230,000 sq.m., with a total investment of RMB4.7 billion. The project is progressing steadily currently, with the core structure having reached the 52th floor. The overall project is expected to be completed by 2016.

Besides, the World Trade Exhibition Center and the reconstruction of the East Wing are also the positive drivers of its fundamental aspect. The new commercial complex, with a total GFA of over 70,000 sq. m. and a lettable floor area of over 30,000 sq. m., is expected to increase NAV and EPS by approximately 5%.

Solid Financial Conditions

In H1, the operating cost of China World Trade Center remained stable with falling financing cost. During the period, the operating cost was RMB520 million, which was similar to the same period of last year. And the financing cost of the company was down by 17.5% yoy to just RMB62 million, mainly benefiting from rate cuts by PBoC, the recall of RMB100 million long-term debt of the company and the increase in capitalized interests.

In Q2, the cash on hand of China World Trade Center was RMB670 million. Its debts reached RMB3.5 billion. Its net debt was RMB2.82 billion and its net gearing ratio was 53%. The net gearing ratio of the company has fallen from 93% by the end of 2010 to the current ratio of 53%, reflecting an improvement in its financial health.

The liquidity pressure will mainly emerge in 2015 and 2016. The total investment of World Trade Center Phase 3B will be RMB4.7 billion with close to 50% being already spent. The remaining capex will rely on operating cash flows and debt financing. We expect both the net debt and net gearing ratio of the company will increase in 2016.

Risks

Continued weakness in the economy

Falling rents

Valuation

With its high-quality portfolio of properties, ample operating cash flows and stable dividend payout, China World Trade Center is a leading A-share listed commercial properties operator. The opening of the World Trade Center Phase 3B, higher occupancy rates and an increase in the overall rents are short-term catalysts of the company. We recommend an ¡§Accumulate¡¨ rating, with a 12-month target price of RMB15.5, which is equivalent to prospective 2015/2016 PE ratios of 25.4X and 24.6X. (Closing price as at 5 Oct, 2015)

Financials

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