As a retail investor, one of the things I do on a daily basis is to research on companies that have good business fundamentals where I can possibly invest my money in – some of my criteria include a growing revenue and net profit, with little or no debt, and at the same time, declare an increasing dividend payout to its shareholders over a period of between 3-5 years.

Another thing I tend to look at is whether or not at their current share prices (and at their current valuations), they considered ‘cheap’ or ‘expensive’ when compared against their average valuations.

In my post today, I’d like to share with you 4 Chinese property developers (they are all listed on the Hong Kong Stock Exchange) that not only have good business fundamentals, and at the same time, they are currently trading at a ‘discount’.

Let’s begin…

1. China Overseas Land & Investment Limited (SEHK:0688)

What it Does:

Founded in Hong Kong in 1979, listed on the Hong Kong Stock Exchange in 1992, and subsequently being listed as one of the components in the benchmark Hang Seng Index in 2007, China Overseas Land & Investment Limited is the largest office developer and operator in China.

Apart from office properties, the company is also in the business of developing residential properties, where it was involved in more than 1,700 development projects in China, Hong Kong, Macau, New York (United States), Sydney (Australia), as well as in Singapore – where it has worked together with CSC Land Group to develop The Verdale Condominium located in Bukit Timah.

Total Revenue & Net Profit Growth:

The following table is the company’s total revenue and net profit growth over the last 5 years:

FY2016FY2017FY2018FY2019FY2020
Total
Revenue
(HKD’mil)
HKD
158,717m
HKD
163,972m
HKD
144,027m
HKD
163,651m
HKD
185,79m
Net
Profit
(HKD’mil)
HKD
37,021m
HKD
40,767m
HKD
37,716m
HKD
41,618m
HKD
43,904m

Apart from in FY2018 (after the restatement of its total revenue and net profit; before the restatement both the financial numbers were up compared to the year before), all the other years saw year-on-year improvements – the former grew at a compound annual growth rate (CAGR) of 3.2%, while the latter grew at 3.5%.

Current Ratio:

In terms of the company’s debt profile, I’ll be focusing on its current ratio – which is whether or not the company is able to fulfil its short-term financial obligations (and any number above 1.0 denotes that the company has the capability to do so):

FY2016FY2017FY2018FY2019FY2020
Current
Ratio
2.42.42.32.22.1

No doubt its current ratio have declined slightly over the years, but at 2.1, in my personal opinion, the company is more than able to fulfil its short-term debt obligations.

Dividend Payout to Shareholders:

Looking at the company’s dividend payout over the years, it has declared a payout to its shareholders on a half-yearly basis (once when they declare their results for the first half of the financial year, and once when they declare their results for the second half of the financial year), and, over the last 5 years, its payout have grown at a CAGR of 8.9%:

FY2016FY2017FY2018FY2019FY2020
Dividend
Per Share
(HKD/share)
HKD
0.77
HKD
0.80
HKD
0.90
HKD
1.02
HKD
1.18

Current vs. Historical Valuations:

Finally, in terms of its current (based on the share price of HKD19.00 at the time of writing), vs. its 5-year average, it is as follows:

Current
Valuations
5-Year Average
Valuations
P/E Ratio4.05.9
P/B Ratio0.60.9
Dividend Yield6.2% **4.1%
** Do take note that the current dividend yield is computed based on the share price of HKD19.00, as well as the payout of HKD1.18/share paid out in FY2020.

The company’s current share price is considered ‘cheap’ as its current P/E and P/B ratios are lower than average, along with its dividend yield being higher than average.

2. China Resources Land Limited (SEHK:1109)

What it Does:

China Resources Land Limited is in the business of investment and development of real estate properties in the China. In terms of property development, the company is one of the top 10 in the industry, with a business presence in 81 cities, along with property investments in 60 cities.

On top of that, the company is also involved in the management of residential, as well as commercial and non-commercial (such as stadiums and parks) properties, along with the development of urban senior housing complexes, community home service centres, rehabilitation medical care, among others.

Total Revenue & Net Profit Growth:

The following table is the company’s total revenue and net profit between FY2017 and FY2020 (financial figures before FY2017 were all reported in Hong Kong dollars, hence I have omitted them for simplicity sake):

FY2017FY2018FY2019FY2020
Total
Revenue
(RMB’mil)
RMB
101,943m
RMB
121,189m
RMB
148,167m
RMB
179,587m
Net
Profit
(RMB’mil)
RMB
19,690m
RMB
24,238m
RMB
28,784m
RMB
29,810m

Its top- and bottom-line have recorded year-on-year (y-o-y) improvements in the past 4 years I have looked at – where it grew at a CAGR of 15.2% and 10.9% – which is better compared to China Overseas Land & Investment Limited.

Current Ratio:

Next, let us take a look at whether or not the company is able to fulfil its short-term debt obligations (through its current ratio):

FY2017FY2018FY2019FY2020
Current
Ratio
1.41.31.31.3

While its current ratio is not as strong as China Overseas Land & Investment Limited, but at above 1.0 (and over the last 4 years, its current ratio has more or less remained consistent at that), the company is also able to fulfil its short-term debt obligations.

Dividend Payout to Shareholders:

In terms of its dividend payout to its shareholders, China Resources Land Limited also declares a dividend payout on a semi-annual basis – over the last 4 years, its payout have grown at a CAGR of 11.2% (which is pretty much in-line with the growth in its net profit over the same time period), and they are as follows:

FY2017FY2018FY2019FY2020
Dividend
Per Share
(HKD/share)
HKD
0.97
HKD
1.24
HKD
1.17
HKD
1.48

While its dividend payout for FY2019 dipped slightly, but in Chinese Renminbi-terms, its payout of RMB 1.07/share is slightly higher than the RMB 1.06/share paid out in FY2018.

Current vs. Historical Valuations:

Finally, in terms of the company’s valuations – its current (based on its current share price of HKD29.75 at the time of writing) vs. its 4-year average, it is as follows:

Current
Valuations
4-Year Average
Valuations
P/E Ratio6.57.3
P/B Ratio1.01.2
Dividend Yield5.0% **4.0%
** Its current dividend yield is computed based on its share price of HKD29.75, along with its total payout of HKD1.48 in FY2020.

Just like China Overseas Land & Investment Limited, at its current share price, it is considered ‘cheap’ as both its current P/E and P/B ratios are lower than its 4-year average; at the same time, its current dividend yield is also higher than its 4-year average.

3. China Vanke Co., Ltd (SEHK:2202)

What it Does:

Founded since 1984, China Vanke Co., Ltd has grown to become one of the largest real estate development companies in China, with the company having business operations in over 60 cities across the country, as well as in other countries such as the United States (with its first project at 201 Folsom Street, San Francisco in 2013), United Kingdom, as well as in Singapore (where the company have developed a condominium project together with Keppel Land called The Glades, which is located just opposite Tanah Merah MRT station in 2013.)

Total Revenue & Net Profit Growth:

The company’s total revenue and net profit between the last 5 years is as follows:

FY2016FY2017FY2018FY2019FY2020
Total
Revenue
(RMB’mil)
RMB
228,916m
RMB
237,345m
RMB
297,083m
RMB
367,894m
RMB
419,111m
Net
Profit
(RMB’mil)
RMB
21,023m
RMB
28,052m
RMB
33,773m
RMB
38,872m
RMB
41,516m

Just like China Resources Land Limited (which we have looked at in the previous section), China Vanke’s top- and bottom-line also saw y-o-y improvements in all of the 5 years I have looked at – in terms of CAGR, the former grew at 12.9% while the latter grew at 14.6%.

Current Ratio:

In terms of its current ratio over the same time period (between FY2016 and FY2020), similar to China Resources Land Limited, it has remained consistent:

FY2016FY2017FY2018FY2019FY2020
Current
Ratio
1.21.21.21.11.2

However, China Vanke’s current ratio is slightly weaker compared to China Resources Land Limited – with the former at around 1.2, and the latter at around 1.3.

Dividend Payout to Shareholders:

Unlike the other 2 property development companies I have looked at above, where they declare a dividend payout on a semi-annual basis, the management of China Vanke pays out a dividend on an annual basis (when they declare its full-year results), and the following is its dividend payouts to its shareholders over the past 5 years:

FY2016FY2017FY2018FY2019FY2020
Dividend
Per Share
(HKD/share)
HKD
0.92
HKD
1.03
HKD
1.26
HKD
1.12
HKD
1.50

Except for in FY2019, where its dividend payout saw a 11.4% y-o-y decline (however, in terms of its payout in Chinese Renminbi, it fell by just 2.7%), all the other years saw the company’s dividend payout recording improvements. Over a 5-year period, the company’s dividend payout to its shareholders still managed to record a CAGR of 10.2%.

Current vs. Historical Valuations:

The company’s current valuations (based on its share price of HKD23.25 at the time of writing), compared against its 5-year average is as follows:

Current
Valuations
5-Year Average
Valuations
P/E Ratio5.48.2
P/B Ratio1.01.7
Dividend Yield6.5% **4.4%
** Current dividend yield of 6.5% is computed based on the current share price of HKD23.25 at the time of writing, and a payout of HKD1.50 declared in FY2020.

Similar to both China Overseas Land & Investment Limited as well as China Resources Land Limited, China Vanke is also considered ‘cheap’ with its current P/E and P/B ratios lower than its 5-year average, coupled with its current dividend yield higher than its 5-year average.

4. Sunac China Holdings Limited (SEHK:1918)

What it Does:

Established in 2003 with its headquarters in Tianjin, Sunac China Holdings Limited is in the business of developing, managing, as well as investing in large-scale, medium to high-end residential and commercial properties in Tier-1, Tier-2, and Tier-3 cities in China. This business segment also contributed a lion’s share towards its total revenue in FY2020 (at 94.9%.)

Besides that, the company is also in the business of constructing and operating cultural and tourism city, and property management.

Total Revenue & Net Profit Growth:

The following table is the company’s total revenue and net profit growth over the last 5 years:

FY2016FY2017FY2018FY2019FY2020
Total
Revenue
(RMB’mil)
RMB
335,343m
RMB
65,874m
RMB
124,746m
RMB
169,316m
RMB
230,587m
Net
Profit
(RMB’mil)
RMB
2,478m
RMB
11,004m
RMB
16,567m
RMB
26,028m
RMB
35,644m

The company’s total revenue, over a 5-year period, saw a CAGR of 45.5%, while its net profit recorded a CAGR of 70.4% – which is the most impressive among the 4 Chinese property developers we have looked at in this post. Also, just like China Resources Land and China Vanke, Sunac China’s top- and bottom-line also saw y-o-y improvements in all the 5-years I have looked at.

Current Ratio:

Moving on, let us take a look at Sunac China’s current ratio over the last 5 years to find out whether or not it is able to fulfil its short-term debt obligations:

FY2016FY2017FY2018FY2019FY2020
Current
Ratio
1.51.31.21.21.2

While its current ratio have slipped from 1.5 (recorded in FY2016) down to 1.2 (recording in FY2018, FY2019, and FY2020), in my opinion, I felt that it has more or less stabilised (considering the fact that it has remained the same for 3 consecutive years.)

Dividend Payout to Shareholders:

Just like China Vanke, the management of Sunac China declares a dividend payout to its shareholders on an annual basis (when it releases its full-year results), and the following is the company’s dividend payout to its shareholders over the years:

FY2016FY2017FY2018FY2019FY2020
Dividend
Per Share
(HKD/share)
HKD
0.29
HKD
0.61
HKD
0.94
HKD
1.34
HKD
2.00

No doubt the company only pays out a dividend to its shareholders on an annual basis, but its CAGR over a 5 year period have improved the most among the 4 Chinese property developers, at 47.0%. Also, its dividend payouts have increased every single year over the last 5 years as well.

Current vs. Historical Valuations:

Finally, let us have a look at the company’s current valuations (based on its share price of HKD20.80 at the time of writing), compared against its 5-year average:

Current
Valuations
5-Year Average
Valuations
P/E Ratio2.26.8
P/B Ratio0.61.7
Dividend Yield9.6% **4.0%
** Its current dividend yield 9.6% is computed based on its share price of HKD20.80, along with a dividend payout of HKD2.00 in FY2020.

Just like the current valuations of the other 3 Chinese property developers, Sunac China’s current share price too, is also considered to be ‘cheap’ due to its lower-than-average current P/E and P/B ratios, along with a much higher current dividend yield (compared to its 5-year average.)

Closing Thoughts

As you can see from the above, all the 4 Chinese property developers managed to record a decent growth in its total revenue and net profit, with Sunac China’s performance being the most impressive – where its total revenue grew a CAGR of 45.5%, and its net profit grew at a CAGR of 70.4%.

In terms of its current ratio (which measures a company’s ability to fulfil its short-term debt obligations), all 4 of them have current ratios at above 1.0. However, among the 4, China Overseas Land have the highest current ratio, while at the same time, the company is the only one that saw this ratio recording declines almost every single year.

Looking at its dividend payout to shareholders over the last few years, Sunac China too stood out, where its payout have grown at a CAGR of 47.0% – the strongest among the 4 companies I have looked at in this post – the only thing is that the company declares a dividend payout on an annual basis (unlike China Overseas Land and China Resources Land, where they declare a dividend payout on a semi-annual basis.)

Finally, in case you’re wondering which company is the ‘cheapest’ among the 4 that I have just looked at (in terms of their current valuations), Sunac China is the cheapest – as its current P/E and P/B ratios are the lowest, and its current dividend yield being the highest at the same time.

With that, I have come to the end of my share today. Before I end, a disclaimer that the contents above are purely for educational purposes only, and they are by no means a recommendation to buy or sell shares of any of the 4 Chinese property developers. Please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of any of the 4 Hong Kong-listed companies mentioned in this post.

 

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