China Jinmao Delivered Mixed 2022 Results, but Property Market Has Troughed; FVE Raised

China Jinmao’s 00817 2022 results are largely in line with our estimates except for the bottom line, which fell short due to higher minority interests than we assumed. While the good news is that we’re only making minor adjustments to our 2023-25 revenue and operating profit forecasts, we factor in the higher minority interest leading to lower attributable earnings. The company is guiding for stronger cash flow from property sales of CNY 98.9 billion, which is around 8% above our prior forecast. However, given lower booked sales in 2022, we now expect revenue to decline 4.4% in 2023 leading to flat EPS. That said, we expect a much stronger recovery in 2024 as confidence returns to the real estate market in China and as excess inventory is absorbed. We raise our fair value estimate to HKD 2.40 from HKD 2.26.

At our fair value estimate, Jinmao would trade on 0.5 times price/book, which we think is very reasonable given our view that the China real estate market has troughed. We would not expect further significant asset writedowns for Jinmao in 2023 following its move to impair 32 projects in 2022. Jinmao has historically traded between 0.9 times and 1.5 times price/book over 2013-19.

While Jinmao’s results were within its profit warning, we expected that it would be mainly due to impairments on the valuation of its properties. However, impairments of CNY 5.9 billion were more than offset by fair value gains of CNY 7.1 billion for investment properties. So, it is disappointing that the miss on the bottom line was mainly due to higher minority interests. This appears to indicate that the bulk of the impairments was perhaps concentrated in Jinmao’s wholly owned assets. It also implies that sales at its non-wholly owned projects held up better. We think this is in line and supports our view that projects in well-located Tier 1 and Tier 2 cities were far more stable. This is probably positive for China Overseas Land & Investment and China Resources Land.