New acquisition to boost recurring income. Pan Hong recently paid RMB 47.5m to a government agency for the acquisition of a 226,102 sqm site, which would be used to develop warehousing facilities for the storage of ~ 1.5m tons of petroleum and petrochemical products. Strategically located at the Dushan Port area (Zhejiang province, Pinghu city), the site is connected to Jinshan Port – Shanghai’s biggest oil and petrochemicals port. China’s oil reserves base, the Shell Group as well as other major global petrochemical companies are located in this port zone. Other Chinese enterprises, i.e. Hua Chen Energy Co. and China Aviation Oil Petrochemicals Storage and Transportation Co. are also situated within the vicinity. At RMB 210 psm, we believe Pan Hong has again demonstrated its ability to secure prized assets at comparatively attractive costs. Aside from business diversification, management is looking at the proposed warehousing facilities as an additional stream of recurring income. While execution risks are present given Pan Hong’s lack of expertise in this area, we believe these could be mitigated should it secure a partner with relevant expertise.
53% take-up and higher-than-expected transacted price for new project. 16 out of the 30 launched units in Jun 09 were sold for Hua Cui Ting Yuan (HCT) Phase 1 (Zhejiang province, Huzhou city), which consists of 184 units. Achieved average price was RMB 8,180 psm, representing a 33% hike over initial forecasted prices of ~ RMB 6,000 psm. Nonetheless, a healthy take-up of 53% should not only pave the way for a reasonable take-up for remaining units and Phase 2, but also instill confidence into Pan Hong’s strategy of replicating HCT’s townhouse concept in other suburban projects, from our view. Buyers comprised of Hong Kongers and Chinese, who were attracted by the project’s integration of Chinese culture into architectural villas, as well as the potential of nearby Taihu Lake resort.
Another 240 units sold in 52 days. Over the last two months, Pan Hong successfully sold another 240 units from three existing projects, including 220 from Phase 2 of Nanchang Honggu Kaixuan. More importantly, selling prices were largely unchanged since the projects’ initial launch from 3QFY08 to 5QFY09, which we deduce is to avoid dampening the buying sentiments amid a recovering property market.
Focus remains on lower tier cities. Looking ahead, management intends to focus its property development business on lower tier cities in Southeastern China, where it has successfully built up strong brand equity over the past 20 years and offers better opportunities for acquisition of land at lower cost. Targeted buyer profile remains genuine owner-occupiers. Additionally, to increase Pan Hong’s recurring income, management is actively fine-tuning its asset portfolio to increase exposure to investment properties, which consist of an existing 18,139 sqm of commercial properties, on top of another 64,465 sqm in the pipeline.
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