BUY - Emperor International (163.HK)

BUY - Emperor International (163.HK)

 

買入 - 英皇國際 (163.HK)

 

You may refer to my old posts for more details about Emperor International.  The company will announce 1H'FY2011 financial results tomorrow (Wednesday, Nov 24th 2010).  What I like are:

 

1) Stellar 1H'FY2011 results expected:  Strong contribution from rental properties; realized HK$960MM proceeds from The One and HK$460MM from The Java projects per news reports.  The stock has a history of surging immediately after good result announcements.

 

2) Chairman buying:  Chairman has 71.6% shareholding now and has been buying more in past 12 months at HK$1.65-1.85 range.  First, it shows his confidence, and second, it takes away free-floating volume in the market (and also much of the free float is with the institutional shareholders), so when demand for the stock comes, due to the relatively stringent supply, there will be strong upward pressure on price.

 

3) Discount to NAV:  Company has a NAV of $4.00-4.50, so current price represents ~0.4x P/NAV, which is attractive.

 

4) Strong pipeline:  Lot of project coming online FY'2011-2014 so this can be a longer-term hold as well.

 

5) Good dividend yields:  Company has a history of paying around 5% yield so this can be a longer-term hold if you want.

 

The company's three main businesses - a) retail property renting, b) property development and c) hotels - are all going to do well this year. 

 

a) HK$340MM rental revenue in FY'2010, and I'm guessing FY'2011 will be HK$360-380MM.  EBIT margin ~90% or ~HK$320-340MM.

 

b) Already pre-sold part of The One and The Java for HK$1420MM for 1H'FY2011.  Margins should be pretty high because they bought their land many years ago and they are selling those apartments at HK$10000+/sqft.  EBIT margin ~40%, or ~HK$560MM.  Should be more if continue to sell in 2H'FY2011.

 

c) HK$680MM hotel revenue in FY'2010 (for Macau + HK... they run a casino hotel in Macau and we all know how good business there has been in the past half year), and I'm guessing FY'2011 will be HK$750-800MM due to higher ASP and higher occupancy %.  EBIT margin ~30%, or ~HK$220-230MM.

 

So total EBIT for FY'2011 would be ~HK$1.1b+... less ~HK$120MM in interest, less ~HK$160MM in tax, so ~HK$800MM in profits for FY'2011.  So current year P/E should be around ~7x, which is very reasonable.

 

In case you are wondering, no I am not worried about property prices coming down because fundamentally, a) demand > supply, b) low interest rates and will stay low for awhile, c) strong balance sheets of developers and their higher COGS due to land, labor, steel and cement so they won't sell cheap, and d) influx of hot money from China (esp. with RMB appreciating against HKD).  Property prices could flatten but are not likely fall significantly in the near-term.

 

- Blogmaster