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01109 CHINA RES LAND
RTNominal up24.750 +0.150 (+0.610%)
Research Report

30/12/2019 13:55

{I-bank focus}Strong developers seen to make strategic move

[ET Net News Agency, 30 December 2019] Longfor Group Holdings (00960) announced an
investment in Greentown Service Group (02869) for a total of HK$1.08bn, 5% of the total
issued share capital, through purchasing existing shares from Ms. Li (Chairman of
Greentown Service). In addition, Longfor is also subscribing to new shares of Greentown
Services (5.3% of total issued share capital post-placement) before June 2020. Post share
purchase and subscription, the shareholding of Longfor in Greentown Service will increase
to 10%, becoming the third-largest shareholder.
J.P. Morgan said Longfor has already attained investment-grade rating, dividend payout
is already high at 45%, and it makes sense for them to use free cash flow to make a
strategic investment that can add value to their core business.
The research house expects defensive developers including Longfor, COLI (00688), CRL
(01109) and Vanke China (02202) to do more of such deals. However, JPM thinks it has
minimal impact on Longfor given the small investment, but it can kick start an expectation
of more NAV accretive investments. It stays "overweight" on Longfor, with a target price
of HK$39.5.
For Greentown Services, JPM believes the deal does not change the fundamentals or growth
profile of the company, as Longfor only acts as a financial investor without any
foreseeable support. Longfor will not provide any GFA for Greentown Service to manage, nor
will they share the same value-added services (VAS) platform to achieve cost savings. It,
therefore, sees limited synergy.
JPM stays cautious on Greentown Service as it thinks the company will potentially miss
the FY2019 consensus earnings estimate by around 10% (Rmb570mn on Bloomberg). It remains
"neutral" on Greentown Service, with a target price of HK$8.8. (KL)

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