Sino-Ocean Land Holdings - Expanding landbank in Beijing

Sino-Ocean Land Holdings posted robust sales figures for the January-April 2009 period. Total sales reached RMB4.6bn, already 57.5% of this year’s RMB8bn contracted sales target, selling 470,000 sq m of developments. Cumulative January-April sales are 800% higher than the 2007 level. On an annualised basis — and assuming continued strength — we believe sales would be on track to reach RMB13.8bn for full-year FY09F.

Given strong sales, the company’s several projects have also witnessed a gradual rise in ASP. The ASP of Ocean Landscape Eastern Area Phase III trended up from RMB11,000/sq m to RMB14,000/sq m. Moreover, additional high-end products with higher margins are slated to be rolled out during 2H09F, including Ocean La Vie and larger-size units (200sq m) at Ocean Great Harmony.


In view of Sino-Ocean’s strong y-t-d contracted sales, as well as our forecasts for a continued strengthening in property market conditions, record nationwide sales volume in 2010F, and residential price rises of 10% in 2009F and 15% in 2010F, we increased our contracted sales volume, ASP and value assumptions for FY09F, FY10F and FY11F, respectively.

We estimate that Sino-Ocean Land will run out of landbank in Beijing by end-2010F if the current pace of sales continues. As such, we think acquiring additional land should be a top priority in the company’s work plan this year. We believe management was earlier looking to acquire 1-1.5mn sq m of new land this year.

In our view, Sino-Ocean Land’s visibility in terms of landbank acquisition is one of the best among its peers. This is because the company is now involved in the primary development of five plots of land for the government in Beijing. Of the five plots, two are next to the company’s existing projects, Ocean Landscape Eastern Area and Poetry of River. Thus, we consider it very likely that the Beijing government will award these pieces of land at a reasonable price to Sino-Ocean Land for the next phase of development.

In our earnings model, we have assumed that Sino-Ocean Land would acquire five plots in Beijing this year with a GFA of 1.6mn sq m. We estimate the total cost would be RMB5.73bn. Sino-Ocean Land has ample funds to make these acquisitions, in our view, given that at end-April 2009, the company had some RMB10bn in cash. Moreover, we believe its application for issuance of RMB2.5bn in domestic bonds will likely be approved by the NDRC by end-June 2009.

We reaffirm our BUY call on Sino-Ocean Land with a 12-month price target of HK$11.59. Currently, the stock is trading at 7.9x our FY10F earnings forecast, which remains reasonable, in our view. On a 12-month rolling forward P/E band analysis, Sino-Ocean Land’s P/E of 14.2x remains below the stock’s historical average of 17x.

Risks. We believe the key risk to our call on Sino-Ocean Land is the company’s concentrated exposure to Bohai Bay. If Bohai Bay market conditions were to reverse sharply, it could affect Sino-Ocean Land’s revenue and profits in FY09F and FY10F.

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