Morgan Stanley lifted its target price for Guangzhou R&F Properties (02777) to HK$9.19 from HK$ and maintained its "underweight" rating, with weak earnings and contract sales growth.
The research house revised down its core earnings by 29.6% and 37% in 2021/22 to reflect lower revenue and projects acquired in 2017-18 with a lower margin. Morgan has concerns about the company's highly leveraged balance sheet and significant exposure in lower-tier cities, which may obscure visibility on its earnings growth in the next few years.
Morgan thinks urban redevelopment is key for a turnaround in fundamentals, but it noted that such projects normally have uncertain timetables. It added that the key for R&F Properties would be to deleverage and improve from the current "red" category.
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