ICBC International has recently initiated coverage of Yincheng International(1902.HK) with BUY rating and apply a 70% 2020E NAV discount to derive the price target of HKD 2.97, implying 4.9x/3.0x of 2020E/21E PE.

Headquartered in Nanjing, Yincheng International is a property developer mainly engaged in residential property development for middle to upper-middle income households at all ages. As at 30 Jun 2019, it had 34 projects in 9 cities with total landbank of 4.0mn sqm in GFA, in Nanjing(37.2%), Wuxi (18.3%), Zhenjiang (10.8%), Ma’anshan (18.1%) and other cities(Suzhou, Hangzhou, Xuzhou, Taizhou and Hefei – 15.6%).

According to the research report, ICBC International gave the company a "Buy" rating based on the following three reasons:

Focus onselected wealthy cities with supportive policies

Focusing on selected wealthy cities with fastgrowing economy and disposable income in YRD would enable Yincheng to not onlyride on the strong and rapid growth of economies but also enjoy sufficient purchasing power of home buyers in those cities. ICBC International also expect those cities to continue to benefit from supportive policies for local economic development and talent introduction policies.

Allying withother developers to facilitate growth

ICBC International believed allying with local orexperienced developers is a proper strategy to help Yincheng International toachieve fast growth with lower operational and financial risks, especially whenit enters new cities.

Entered rapid growth period

ICBC International saw Yincheng International has stepped on fast track for contracted sales since 2018 as many of its projects were entering pre-sales phases, thanks to its previous intensive investment activities. And ICBC International expected this to continue in following two years. ICBC International forecast the company to achieve CAGR of 49.0% revenue growth and 74.0% core net profit growth from 2018 to 2021E, as well as 47.9% contracted sales increase for the same periods.

In summary, ICBC International initiated coverage of Yincheng International with BUY rating with price target of HKD 2.97.