Investor Notes - Phillip Securities (HK) Ltd

30 May, 2019 (Thursday)

YUEXIU PROPERTY(123)
Analysis：
The introduction of Guangzhou Metro Group as a strategic shareholder puts Yuexiu Property (123) in a better position to gain the rights to participate in different new metro property development projects won by Guangzhou Metro, which would in turn facilitate the realization of its business strategy of "Railway + Property". Yuexiu Property recently has secured the right to acquire a 51% interest in two New Metro Property Projects. The options will provide an opportunity for the Group to acquire additional land reserves of 1.79 million square metre, which represents approximately 9.2% of the Group`s current land bank. Upon completion of the acquisition, the GFA of the Group`s metro related projects will increase to 3.25 million square metre, representing 16.7% of the current total land bank of the Group and 41.9% of its land bank in first tier cities. (I do not hold the above stock)
Strategy：
Buy-in Price: $1.74, Target Price: $1.90, Cut Loss Price: $1.65

YIXINTANG(002727.CH)
Analysis：
Yunnan Hongxiang Yixintang is a large-scale pharmaceutical listed company that integrates the processing and sales of medicinal materials and the wholesale of Chinese and Western medicines. The company`s stores cover 10 provinces in Yunnan, Guizhou, Guangxi, Sichuan, Shanxi, Chongqing, Tianjin, Shanghai, Hainan and Henan, with 32,000 employees. By the end of the first quarter of 2019, the number of Yixintang stores reached 6,005, including 275 newly opened stores, 22 relocated stores, and 6 closed stores, a net increase of 247 Vs 2018 end. It is estimated that there will be 1200 new stores in 2019, including 650 outside Yunnan Province and 550 in Yunnan Province. The focus will continue to shift to the outside of the province. The total number of stores will be close to 7,000. The performance is expected to increase rapidly with the expansion of stores.
Strategy：
Buy-in Price: RMB27.80, Target Price: RMB40.00, Cut Loss Price: RMB21.00

ARK Genomic Revolution Multi-Sector ETF (ARKG)
ARK Genomic Revolution Multi-Sector ETF is a actively-managed thematic fund, with market cap of approximately USD 403.14 million and expense ratio of 0.75%. It invests in companies which are tracking genomics revolution across multiple sectors including health care, information technology, materials, energy and consumer discretionary. ARKG ETF are expected to substantially benefit from extending and enhancing the quality of human and other life by incorporating technological and scientific developments, improvements, and advancements in genomics into their business. It offers exposure to innovative elements including gene therapy bio-informatics, bio-inspired computing, molecular medicine and pharmaceutical innovations. According to ARK's research, the number of human genomes sequenced is expected to reach 170 million by 2022 from 422,000 in 2016. At the meantime, due to the technology advancement, the cost of whole genome sequencing will drop from thousands of dollars to about 100 in the future. Therefore, investors can captalize the growth of genomics industry via ARKG. Suggested to buy at $30.20, target price $36.00, cut loss if drop below $29.52.

SUNeVision (1686.HK) - Robust growth of Cloud services lead to new demand to the high tier data centers

Investment Summary

SUNeVision is one of the leading carrier-neutral data center operators in Hong Kong, owned 74.04% by Sun Hung Kai Properties (16.HK). Robust growth of Cloud services lead to new demand to the high tier data centers, and the Group has a clear plan on supply for short, medium and long term. Therefore, we believe it will benefit from the rising popularity in cloud services. We derive a TP of HK$6.12. Due to the recent rally on stock price, we downgraded the rating to “Hold”. (Closing price at 27 May 2019)

Robust growth of Cloud services lead to new demand to the high tier data centers

As the cloud services became mature in US, it is gaining popularity in Asia. Not only individual users, but also corporate users are open to this kind of services. According to Gartner, the market size of IaaS, PaaS and SaaS will reach 76.6, 31.8 and 143.7 bn USD in 2021F, representing a CGAR of 25%, 19% and 15%. Besides, the IT infrastructure has to be set up well before the cloud services became popular. As a result, the massive demand on data centers actually arrives before the popularity in cloud services. Moreover, in order to provide services in a high quality, cloud service providers will require a high tier data center which could provides high power density, high uptime and long power provision. Although there a number of data centers in the market, those high tier data centers are the one which could attract the cloud service providers moving in.

Mega Plus is a tier 4 data center, and the attractiveness of Mega Two and Mega-i to cloud services providers could be enhanced after the expansion and optimization work. The power density can lift by 40% after the optimization work. Besides, the new data center for the new project in Tseung Kwan O is believed to be a high tier data center, implying the group will be able to enjoy the robust growth of cloud services.

Clear plan on supply for short, medium and long term

In light of the data center industry characteristics of heavy assets, the supply takes time to build up, meaning the Group needs to prepare in advance to ensure the growth in the future even if there is a massive demand on data center coming later on. We see the Group has a clear plan on supply for short, medium and long term.

Regarding the short-term supply, the occupancy rate of Mega Plus is about 50% since the opening on Oct 2017. Based on the current progress, Mega Plus will be full in around 2021. Besides, the expansion and optimization work at Mega Two and Mega-i is expected to enhance the capacity of the Group.

In relation to medium and long term, the Group expects the project in Tsuen Wan will be finished in 2021-2022, while that in Tseung Kwan O in 2022-2023, but in several phrases.

Based on the projects on hand, we believe the supply from the Group will be able to meet the future demand, so it ensures the growth in the future.

The drop in GPM due to the pre-move-in expenses

The GPM of the Group dropped since 2016. Although we believe the drop was partly attributed to the more intensified competitive landscape, part of the drop was caused by the pre-move-in expenses. Before the clients move into the data center, the Group has to set up the equipment, such as UPS or air-conditioners. The equipment starts depreciating once they are ready, but the Group will receive no income until the client moving in. Therefore, the GPM will reduce during this period, but will resume to the normal once the clients move in. Currently, the occupancy rate of Mega Plus was around 50%, meaning the aforementioned situation will be very likely to continue in the future, so we expected the GPM will suffer a downward pressure.

Earnings forecast

In view of the new capacity of the data center being sold well, we have lift the revenue growth forecast of 2019/2020FY to 16.4%/14.5%.

Valuation

Assuming 36x P/E in 2019F, we derive a target price of HK$6.12, up 5.2% than previous TP, due to the new capacity of the data center being sold well, implying 32.2x P/E in 2020F. As the stock price has rallied recently, we downgrade to the rating to “Hold”.

Risk

1. Slower than expected demand on data center

2. Significant increase in land supply for data centers within a short period

3. The entry of cloud service giant players to data center industry in Hong Kong

4. Loss on judicial review

Financials

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Recommendation on 30-5-2019
Recommendation	Hold
Price on Recommendation Date	$ 6.600
Suggested purchase price	N/A
Target Price	$ 6.120

Writer Info

Terry Li
(Research Analyst)

Tel: +852 2277 6527

Email:
terryli@phillip.com.hk

Enquiry : 2277 6666 OR investornotes@phillip.com.hk
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