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Morgan Stanley Initiates Coverage on China SCE Group with an Overweight Rating and Target Price at HKD6.25 per Share

Morgan Stanley initiates coverage on China SCE Group with an Overweight rating, and a 12-month target price at HKD6.25 per share. Morgan Stanley finds China SCE Group’s valuation attractive with a 6.5% dividend yield. Morgan Stanley likes China SCE Group for its sufficient and high-quality land bank supporting future growth, and estimates China SCE Group has 72% of its gross saleable resources in tier 1 and 2 cities. Morgan Stanley estimates gross saleable resources of China SCE Group is RMB345 billion, this should support about 4.9 years of sales based on China SCE Group’s 2019 contracted sales target of RMB70 billion, higher than the industry average of 4.1 years. China SCE Group's contract sales growth accelerated from 2016, registering 52% CAGR for 2015-2018. With 11M19 contract sales of RMB70 billion, Morgan Stanley thinks China SCE Group should beat its full-year sales target of RMB70 billion, reaching 46% year-on-year growth in 2019. Morgan Stanley thinks China SCE Group will also beat its RMB100 billion sales target in 2020, +33% year-on-year, one of the highest growth rates among Morgan Stanley’s coverage. Morgan Stanley points out that this year China SCE Group has adopted a new strategy to acquire complex land parcels with a mixed use of commercial and residential, by leveraging its rental apartment business and investment property to realize lower land costs and synergies among different business segments. China SCE Group has already acquired some parcels under the new land acquisition strategy, and it also has more projects in the pipeline.

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