JPMorgan Chase recently released a research report giving Evergrande Property (06666) an "Outperform" rating with a target price of HK$13. JPMorgan Chase believes that Evergrande Property is one of the top three property management companies in China, backed by Evergrande Group (03333; one of the top three developers in China by sales), and gives it an outperform rating with a target price of HK$13, which is equivalent to 25 times the 12-month estimated P/E, a significant discount to other large-cap peers (> 45 times P/E).
JPMorgan Chase believes that the recent stock price correction is a good buying opportunity because once the negative news subsides, a strong rebound will occur, mainly driven by three factors: First, there is an opportunity to release a profit warning for the first half of 2021 in July, with JPMorgan Chase predicting a 55% year-on-year earnings growth. Secondly, there may be positive news regarding the addition of new managed area in the August results; Third, there may be benefits from mergers and acquisitions.
JPMorgan Chase predicts that Evergrande Property's core net profit will grow at a compound annual growth rate of 42% from 2020 to 2023, making it one of the top three property management companies in China, with its market share increasing from 0.9% in 2020 to 2.6% in 2023. The company's advantages in third-party expansion (bidding and mergers and acquisitions) come from its national brand awareness, focus on less competitive third- and fourth-tier cities (58% coverage), strong network (some third-party contracts can be obtained from suppliers), and ample net cash of RMB 11 billion.
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