Shenzhen Chiwan Petroleum:Acquisitions on track
Share price supported by NAV-accretive acquisitions. Its subsidiaryBlogis, as a key play in China’s logistics property sector, isexpanding at a decent pace and contributing a larger portion of thecompany’s revenue from 50% in 2014 to over 70% in 2017. Blogishas 1.4m sm of GFA completed by end-14 and expects to grow to5m sm by 2019. We believe its share price is well supported by NAVenhancement.
Obtained land use right of four projects in the 2H15 and add twomore projects into acquisition pipeline. Blogis announced theestablishment of project companies in Chongqing, Nanjing (Gaoxin),Zhengzhou, and Ezhou in 2H15. These four projects have anestimated GFA of 545k sm which enhanced NAV by 4%. It alsoannounced the acquisitions of Shaoxing and Nantong Xitongprojects at a total estimated investment of Rmb560m and land areaof 513mu, which we estimate a yield on cost of 7% and 11%respectively.
More successful case in B-to-A share conversion. The governmenthas approved Future Land (1030.HK)’s B-to-A share conversion plan.
Yangchen (900935 CN) is also trying to follow a similar path toconvert into A-share listing status. This may give Chiwan one moreoption besides B-to-H conversion. B-to-A share conversion mayenable it to achieve higher multiples as well.
Valuation:The stock is trading at a 44% discount to NAV. We rate the counteras a BUY with a TP of HK$20.26 based on a 30% discount to NAV.
Key Risks to Our View:B-to-H or B-to-A share conversion, if unsuccessful, may restrict thecompany’s access to capital.