Shimao Property top pick by analyst

Thanks to its sales outperformance, deleveraging, and ramp-up inland purchases.

CIMB noted:

Shimao announced Sep contracted sales ofRmb5.1bn, up 27% mom. This is much stronger than the estimated sector sales growth average of 5% mom. Shimao achieved contracted sales of Rmb35.7bn in the first nine months of the year, locking in 89% of its revised full-year sales target of Rmb40bn, and beating the sector average sales target lock-in of 78% for the same period.

We still project 2012 contracted sales of over Rmb45bn. Although its new launches will gradually slow down in the coming months, we are comfortable with the Rmb45bn sales estimate number based on a 70% sell-through rate assumption (Rmb65bn saleable resources in 2012), in line with ytd performance, while monthly sales of over Rmb3bn for the rest of this year appear conservative vs. average monthly sales of Rmb4bn in 9M12.

As Shimao hiked the selling prices for most of its projects by 5-10% over the past few months, we raise our ASP assumption by about 5%. We also lift ourFY13 GPM estimate from 35% to 36%, and FY14 GPM from 36% to 37.5%.

Shimao acquired three parcels of land in Shanghai, Fuzhou and Quanzhou over the past two months. We project Rmb5bn inland purchases in 2H12 but the company should be able to maintain net gearing at around 60%at year-end.