Shimao’s record-high contracted sales in May surprised the market on the upside. With more saleable resources available for the rest of this year, Shimao’s 2013 contracted sales should reach Rmb64bn, beating the company’s target by 16%. Shimao’s May contracted sales hit a record high of Rmb7bn (+52% mom, +37% yoy). 5M13 contracted sales surged by 53% yoy to Rmb25.3bn, representing a 46% lock-in of its 2013 sales target of Rmb55bn.
The strong pickup of new launches is a key driver of its robust sales growth. In June, there will be Rmb10.5bn new saleable resources to be launched, higher than the Rmb6.7bn in May. Analysts project 1H13 contracted sales of Rmb33bn, translating to a 60% sales target completion in 1H13. And as new saleable resources are skewed to 2H (62% vs. 38% in 1H), Shimao should be able to maintain strong sales momentum in 2H.
Analysts estimate contracted sales of Rmb64bn in 2013 based on a 70% sell-through rate assumption vs. 74% in 2012. CIBC sales estimates in 2013 implies a 39% yoy growth and is 16% above management’s target of Rmb55bn. We attribute Shimao’s sales outperformance to a) faster asset turnover and more saleable resources in 2013 (50% yoy increase); b) its key focus in tier-2 cities (70% of RNAV) which is less affected by policies compared with tier-1 cities; c) more mid-to-small size units (76% below 140 sqm per unit) tailoring to end-user demand; and d) its focus on the YRD region and Fujian where Shimao has consistently recorded excellent sales.
Shimao trades at an undemanding 43% discount to RNAV of HK$29.22, in line with the sector average. Its excellent 2012-13 track record warrants a narrower valuation discount to tier-1 developers like COLI and CRL which are currently trading at around 20% discount to RNAV.
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