Stake disposal by Cai Family Trust is not a worrying sign;R

Stake disposal by Cai Family Trust is not a worrying sign;Reiterate Buy   查看PDF原文 公告日期：2016-09-08 　　龍湖地產(00960) 　　Reiterate Buy on undemanding valuation; Target Price HK$15.2 　　On Sept 7, Longfor announced that the Cai Family Trust (a substantialshareholder of the company) disposed 150mn shares at HK$12/share by wayof placement. Following the disposal, the Cai Family Trust reduced its stake inLongfor to 26.5% (from 29.08%). In our view, as the size of the stake reductionis small and related to asset allocation of the family trust, it is not a worryingsign that investors should pay attention to, in our view. Indeed, we believe theplacement actually helps to improve liquidity of the stock, of which free-floatof the stock would improve by over 12% after the placement. Valuation isundemanding at current share price, trading at 32% discount to our NAV. 　　Shareholding structure still sound after the latest stake reduction 　　After the market close on Sept 7, Longfor announced that JunsonDevelopment (a substantial shareholder of the company, owned by SilverlandAsset Limited, which is in turn wholly owned by HSBC International Trustee asthe trustee of the Cai Family Trust) disposed 150mn shares at HK$12/share, fora total consideration of HK$1.8bn. Mr Cai’s shareholding in Longfor will bereduced to 26.5% (from 29.08%) following the placement. Immediately afterthe latest stake reduction by Junson, Longfor’s free-float will increasecorrespondingly by 2.6 percentage points to 23.5% (from 20.9%). In our view,Longfor’s shareholding structure still remain sound after the placement, withChairlady Madam Wu owning 44%, followed by Mr Cai at 26.5% and PeterWoo (ex-Chairman of Wheelock/Wharf) at 6%. 　　Superior management quality continues to shine with strong 1H16 results 　　Longfor has delivered a set of strong 1H16 results, of which core profitincrease, gross margin improved, funding cost fell, the debt maturity profit wasenhanced and the contracted sales target revised upwards. While Longfor hasturned more aggressive in land acquisitions over the past 12 months, thestrong sales performance achieved in Suzhou Longfor Mansion, NanjingChunjiang Central and Chengdu Jasper Sky (all three projects were onlyacquired in 2H15) illustrate management’s superior quality in market timing,project selection and execution, and investors should give management a voteof confidence based on this solid track record, in our view. 　　Target Price at a 20% discount to our estimated NAV of HK$19/share 　　Our target price is based on a 20% discount to our NAV estimate of HK$19/shr,which implies a 2016 PER of 11x. Our target discount is higher than industryleaders but lower than other private-owned peers, which we believe isappropriate, given its quality management. Key risks are government policiesand execution in earnings delivery.

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