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Minmetals Land Limited（230，HK）- Minmetals Group's Property Flagship

Wednesday, November 4, 2009

5196

Minmetals Land Limited(230)

Recommendation on 4 November 2009
Recommendation	Hold
Price on Recommendation Date	$2.380
Target Price	$2.300

Weekly Special - 3306 JNBY Design Limited

Brief introduction

Minmetals land Limited is a subsidiary and the sole listed real estate flagship of China Minmetals Corporation, which has ranked the list of the World 500 Enterprises. Minmetals land's principal business includes real estate development and specialized construction. Currently, its real estate development business covers the Pear River Delta, Yangtze River Delta and the central regions and the total GFA for development is about 1.6 million sq.m., while the specialized construction business that based in Shanghai and Hong Kong has coverage in 15 provinces and cities in the country.

Summary

The key point to invest Minmetals land lies in asset and profit of the company achieving high increase relaying on parent company's asset injection and self growth.

2009—2010 will be the key stage that Minmetals land will integrate the property business from parent company, and more than RMB 8 billion of property assets will be injected into the company. Extension type of development model quickly expands the company's asset while it's slower that earning releases.

We estimate Minmetals land's 12-m TP at HKD 2.3, 3.34% lower than current close. We give Minmetals land “Hold” rating.

2009 sales will exceed RMB 0.9 billion.

Laguna Bay and Riveria Royale located in Nanjing, LOHAS International Community located in Changsha, are the just 3 projects for development currently, and the total GFA amounts to 1.61 million sq.m..

Laguna Bay and LOHAS International Community are the main sales in 2009, which is expected to be RMB 0.92 billion.

The first phase and second phase of Laguna Bay are the main booked projects in 2009, which will record about 0.76 billion of full-year turnover.

Benefit from the parent company's assets injection

Running big and strong business by assets injection is the main character of some state-owned properties developers, such as CRL and Poly HK listed in HK, which can prove the model's superiority.

Per figure3, Minmetals land had been accelerating integrating property business and spinning off the secondary business. Predictably, China Minmetals Corporation's property assets will be injected into Minmetals land gradually. 2010—2012 will be the key stage that Minmetals land will integrate the property business from parent company, and more than RMB 8 billion of property assets will be injected into the company.

We expect that the scattered property assets directly owned by the group will gradually be injected into Minmetals land in the first period of integration, and in the second Minmetals Real Estate, runs residential building development business in Bohai Rim, will also be injected into the company.

A —Onfem Holdings was renamed as Minmetals land

B —The company acquired parent company's China Minmetals Tower located in Hong Kong with a consideration of HKD 537 million.

C —The company acquired parent company's property project located in Nanjing with a consideration of RMB 885 million, and the GFA totaled 0.17 million sq.m..

D —The company planned to acquire the parent company's Luck Achieve Limited with a consideration of RMB 702 million, its assets include 172 million of cash and 230 million shares of Franshion Property.

E —Parts of manufacturing and trading business were sold with a consideration of HKD 14 million

F —The company issued rights shares on the basis of one right share for every two existing shares, which successfully raised HKD 453 million.

G —Luck Achieve Limited was acquired successfully.

Extension type of development model quickly expands the company's asset while it's slower that earning releases. We hold prudent attitude towards the company's profitability in the first period of integration, and the profit will increase stably from 2012. Minmetals land's asset and profit will be improved obviously in virtue of parent company's asset injection and self growth.

Catalyst of share price

1、 The parent company will accelerate its assets integration.

2、 Virtually the parent company will inject property asset into the company.

3、 Property sales will be beyond the expectation.

4、 The company will accelerate its construction, and booked GFA will increase.

5、 The company's refinance plan will be approved.

Risk

The parent company's assets recombination is affected by government's policy, and the assets injection may be shelved and delayed accidentally.

Sales will be lower than our expectation.

The company's sustaining operation may be affected by worsening financing surrounding.

Valuation

According to our expectation, Minmetals land's net profit in 2009 and 2010 will increase obviously, HKD 171 million and 241 million respectively. And net profit's CAGR in 2008-2010 are expected to be 37%.

Despite share right issue led to diluted EPS and BVPS in 2009, the company's BVPS in 2010 will reach HKD 1.63 for assets injection and issuance of preferred shares. We think that before the completion of assets recombination, increased BVPS playing supporting role on share price has larger effect compared to EPS.

Considering Minmetals land's two characters as state-owned developer and small-cap property company, we give the company 1.6x expected P/B and 20x expected P/E based on the valuation of above-mentioned two groups. We give Minmetals land “Hold” rating, 12-m TP at HKD 2.3, 3.34% lower than current close.

Financial data

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