Microsoft word - ipo-modern land.doc

9/F, 10 Des Voeux Road Central, Hong Kong. Dealing: 2308 8200 Research: 3608 8096 Facsimile: 3608 6113 HONG KONG RESEARCH
Analyst: Carmen Wong
28th June 2013
Main Board Listing – Research
Modern Land (China) Co., Limited (01107) Sole Sponsor
Joint Global Coordinators
Joint Bookrunners
Sector : Real Estate
Business : Principally focusing in property development projects in China
Total share offer: 400,000,000* shares
Business of Modern Land (China) Co.,
(25.0% of the enlarged share capital) Limited (“Modern Land” or the “Group”)
Public Offer: 40,000,000 shares (10%)
Modern Land principally focuses on property Placing:
development projects with the adoption of Greenshoe:
energy-saving technologies in China. Its property projects are mainly located in Beijing, * All 400,000,000 shares are New Shares
Taiyuan, Changsha, Nanchang, Jiujiang and Xiantao. Price: HK$1.49 – HK$2.36 per share
Market Capitalization:
“MOMA” for the development projects. At present, Modern Land has 3 product lines, Pro-forma fully diluted historical 2012 P/E: 4.2x –
Pin Ge MOMA and iii) Man Ting Chun MOMA. Adjusted NTA per share: HK$1.52– HK$1.74
Projects which belong to “Wan Guo Cheng Staffing: 495 (as of 31st December 2012)
MOMA” product line have applied and have a higher degree of application of its most HK Public Offer period:
followed by “Shang Pin Ge MOMA” and “Man Ting Chun MOMA” products. Receiving bank:
As of 31st March 2013, the Group had a total Share registrar:
of 14 property development projects. Land reserves which comprise of projects currently Listing date: 12th July 2013
under development amounted to a total gross floor area (GFA) of approximately 2,234,741 square meters. This report has been prepared solely for information purposes and we, East Asia Securities Company Limited are not soliciting any action based upon it. Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This document is based upon information, which we consider reliable, but accuracy and completeness are not guaranteed. Opinions expressed herein are subject to change without notice. At the time of preparing this report, we have no position in securities of the company or companies mentioned herein, while other Bank of East Asia Group companies may from time to time have interests in securities of the company or companies mentioned herein. Shareholders after Listing (Assuming the over-allotment option is not exercised)
Super Land (BVI) – wholly owned by a family trust whereby the beneficiaries are Mr. Zhang Lei, the Executive Director and Chairman of the Group, and his family members Dragon Shing (BVI) – wholly owned by Mr. Chen Yin, the Executive Director of the Group Mel Creation (BVI) – wholly owned by Mr. Li Jing, a member of the senior management team of the Group Zhou Ming (BVI) – wholly owned by Mr. Zhang Peng, a member of the senior management team of the Group Create Success (BVI) – wholly owned by Mr. Fan Qingguo, the Executive Director of the Group Ocean Ray (BVI) – wholly owned by Mr. Han Fengguo, an independent third party
Use of Proceeds
Net proceeds from the offer are estimated to be HK$716.3 million (based on the mid-point of the indicative Offer Price of HK$1.93 and assuming the over-allotment option is not exercised) HK$ million
To acquire new parcels of land and the development of new projects in the PRC For working capital and general corporate purposes
Financial Highlights
Year ended 31 December
2010 2011 2012
RMB million
RMB million
RMB million
Attributable profit
31/12/2010
31/12/2011
31/12/2012
Breakdown of revenue by business activities
Year ended 31 December
(RMB million)
1,548 100.0% 3,153 100.0% 1,965 100.0%
Peer valuation comparison
Market Cap (HK$ million) Net Debt to Equity Ratio
Modern Land (China)
01107
3,080
22.6%
5.5x
#
( ): Based on the mid-point of the Offer Price range (HK$1.62)

Strengths/Opportunities
Modern Land differentiates itself from other developers on its outstanding research and development capability to incorporate energy-saving technologies to property development. The Group provides a wide variety of modules such as the installation of exterior walling system, displacement ventilation system and sun protection glazing etc, to meet different weather conditions, environments and customers’ needs. Its properties with the adoption of environmentally friendly technologies may see solid demand, on the back of increasing awareness for environmental protection. Riding on its recognition in Beijing, the Group has expanded its operations to other provinces including Shanxi, Hunan, Jiangxi and Hubei. Besides, Modern Land also considers to expand its business to the US, as the application of eco-friendly technologies in housing projects have been well received by the US market and also the Group has been awarded a few recognitions by various US institutes including LEED (Leadership in Energy and Environmental Design). Expansion to the US may help the Group diversify its businesses from the geographical perspective. In December 2012, Modern Land purchased a parcel of land with a site area of approximately 196,155 square meters in Texas, the US, which is intended for residential project development. Weaknesses/Threats
 Average new home prices in 70 major cities in China rose 0.9% month-on-month or 6% year-on-year in May. In Beijing, new home prices in May even jumped 11.8% from a year earlier, compared with April’s year-on-year increase of 10.3%. In light of surging property prices in China, the Chinese government is unlikely to relax its tightening measures anytime soon which may dampen the property sales, especially the luxury housing segment.  Modern Land’s gross profit margin may fall in the coming 2 to 3 years. During the track record period, its revenue relied on its high-end property projects – “Wan Guo Cheng MOMA” product line. However, its projects currently under development are mainly belong to “Man Ting Chun MOMA” product line, which target mass-market and have relatively lower gross profit margins as compared to its “Wan Guo Cheng MOMA” product line.  In accordance with market practice, mortgage banks usually require the Group to guarantee its customers’ mortgage loans. As of 31st December 2010, 2011 and 2012, its outstanding guarantees for mortgage loans amounted to approximately RMB1,427.0 million, RMB1,229.6 million and RMB1,434.7 million, respectively. If there is any material default by its customers on such loans, the Group may be required to honour its guarantees and its results of operations and financial position may be adversely affected.  Valuation-wise, shares of Modern Land are offering at 5.5x 2012 P/E, which is not compelling compared with its peers’ average of 4.7x. In view of policy headwinds and expected fall in gross profit margin, we do not recommend to subscribe for Modern Land.
Recommendation: Not Subscribe

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