The share price of China New Town Development (CNTD) has been trading at 6-month highs after it recently announced an auction for land use rights of a land parcel in Shanghai. (see chart) CNTD's share price has stayed up in the past 3 weeks after the Sept 18 announcement on land auction. Chart: BloombergThe 24% surge (from 33 to as high as 41 HK cents) is good news for the faithful following of shareholders who still hold CNTD shares after the stock delisted from Singapore in Feb 2017 and HK became its primary place of listing. CNTD was listed in Singapore in 2007 and became dual-listed in HK in 2010. |
We spoke with Singapore investor YCL, a long-term CNTD shareholder, regarding the auction of land use rights of the so-called H-02 land parcel in the Eastern Project of Shanghai Luodian New Town.
Q: What is the news?
A: On 18 Sept 2017, CNTD announced that the H-02 parcel has been listed for auction with a reserve price of RMB 2,581,330,000.
The land is for residential development, and the total area of the land for sale is 55,632 sq m with a plot ratio of around 1.6. The tender closes this Friday (13 Oct) and the results would be released within 10 working days.
Q: What is CNTD's potential gain from this auction?
A: CNTD owns 72.63% of the project company which will receive about 47% of the auction proceeds. The rest (53%) goes to the government.
Net proceeds (assuming 15% tax) to CNTD will be at least RMB 749 million versus its current market cap of HK$3.8 billion (about RMB3.2 billion). That's at least 23% of market cap.
Q: What has been the price trend in the Shanghai Luodian project?
|
Stock price |
39 HK c |
|
52-week range |
30 – 48 HK c |
|
PE (ttm) |
59 |
|
Market cap |
HK$3.8 b |
|
Shares outstanding |
9.7 b |
|
Dividend |
-- |
|
Year-to-date return |
-2.5% |
|
Source: Bloomberg |
|
A: Land prices in Luodian have certainly surged in the past 4 years.
In 2013, 110,021 sq m of Luodian land sold for RMB1.35 b (see report). Now, half that size (55,632 sq m) has a reserve price that is twice as high (RMB2.6 b).
The successful tender price for H-02 is likely to be higher than the reserve price. In the 2013 auction, the successful bid was 41% higher than the reserve price.
Q: The H-02 land parcel is part of the Eastern Project in Shanghai Luodian town. Tell us more about it.
A: The total land area of the Eastern Project is about 600 mu with the construction area being about 380,000 sq m, including a construction area of 260,000 sq m for saleable residential purpose and 21,000 sq m for commercial purpose.
CNTD said the land will be sold in the next few years, and will contribute considerable land sale income to the Group. I reckon the total net proceeds to CNTD would be RMB 2.4 billion based on the same reserve price.
Q: What other land projects does CNTD have?
A: These are: Nanjing Yuhua Project, Shenyang Lixiang New Town, Beijing Junzhuang Project in Mentougou District and Yangzhou Airport Project