Jinmao a Potential Sector Consolidator, Positive Read on Sector Support From Company Takeaways

No-moat Jinmao’s results outperformed our expectations, as revenue and core earnings rose by 50% and 49%, respectively, year on year on higher sale properties delivered. Gross margins saw pressure, but management sees current development gross margin at around 18% bottoming as new projects and unbooked projects are also at a similar level. No final dividend was declared, which may disappoint some investors, as the company pointed to the distribution of Jinmao Services earlier as special dividend and to conserve cash in view of looking at mergers and acquisitions. While we were earlier disappointed that the spinoff of Jinmao Services did not result in a divestment to improve liquidity, the company had a different view and noted the separate listing of Jinmao Services is not for capital raising but to streamline the business line to a separate platform. We increase our fair value estimate to HKD 3.38 from HKD 3.04 after raising revenue and earnings estimates. Overall, the company maintained its city operation model strategy, sped up sales and cash collection, and aimed for at least double-digit growth.