Thursday, April 28, 2011

First RMB IPO (Hui Xian REIT Stock Code 87001.hk) Analysis

Recently we have received a few email queries from our readers after we discussed about Hui Xian REIT (stock code: 87001.hk), the first Renminbi (RMB, CNY, or Yuan) Initial Public Offering (IPO) in Hong Kong, in our previous article How to Invest in RMB Securities Outside China. Most of these readers asked us whether they should invest in the Hui Xian REIT (Real Estate Investment Trust) and suggested if we can analyze Hui Xian's investment value for them.

Since it is the first RMB-denominated securities in Hong Kong and is new to most investors, we decide to particularly publish our stock analysis of Hui Xian REIT this time. As far as we can remember, it is the first time for us, Mr China, to release any of our own detailed stock analysis in this website. Here are the details of our Hui Xian's stock analysis:

Profit (RMB million)Number of Units in issue (million)Distribution per Unit (RMB)Annualized Price/Earnings (P/E) Multiple (Projected)Annualized Distribution Yield
Notes(1)(2)(3)(4)(5)
200795250000.190427.523.63%
2008196750000.393413.327.51%
200987350000.174630.013.33%
From 29 April 2011 to 30 June 201119350000.038623.484.26%

(Source of IPO Prospectus: Hong Kong Stock Exchange - HKEx stock code: 388.hk)


Notes:

(1) Profit of Hui Xian REIT is dominated by the market fair value of its sole investment, Oriental Plaza, which exposes Hui Xian REIT to concentration risk. In addition, the market fair value of Oriental Plaza is indeed highly volatile, though it is not unique for Hui Xian, it is quite common for many other stocks with investment properties. For example, Hui Xian reported a market fair value loss of RMB 16 million in 2009, but then reported a market fair value gain of RMB 8756 million in the first 10 months of 2010. Normal operating revenue of Hui Xian, excluding the market fair value of Oriental Plaza, is much more stable. (Remark: it is quite strange to us that Hui Xian can only provide the first 10 months figures instead of the full 2010 annual figures in its IPO prospectus. Therefore we simply give up calculating its 2010 annualized distribution yield in our stock analysis). In addition, please be aware that Hui Xian's investment interest in Oriental Plaza will diminish over time and may decreases exponentially as it gets closer to the termination date (suppose to be 24 January 2049 unless terminated earlier), and will even become zero by that date. Any decline in the value of Hui Xian's investment interest in Oriental Plaza will diminish the NAV (Net Asset Value) per unit.

(2) Assume Hui Xian had 5000 million units in issue from 2007 to 2009, just for comparison purpose.

(3) Hui Xian's distribution policy is to distribute 100% of its distributable income to unit-holders until 31 December 2012, and thereafter to distribute at least 90% of its distributable income for each financial year.

(4) Stock price to be set as RMB 5.24 per unit, which is the minimum offer price of its IPO. We are disappointed that Hui Xian can only provide 2011 profit forecast for only 2 months (from 29 April to 30 June) in its IPO prospectus. Therefore we can only proportionally project its 2011 Price/Earnings (P/E) multiple as 23.48% (still very high) based on annualized estimation.

(5) Again, similar to (4), we can only proportionally calculate Hui Xian's 2011 distribution yield as 4.26% (a return excluding all the associated trading and taxation costs) based on annualized estimation. The yield, and so the value of Hui Xian REIT, may also be adversely affected by the existing interest rate upcycle in the mainland China.

Our stock analysis conclusion is: Considering all the factors mentioned above, we do not recommend a buy for Hui Xian REIT unless it will realize a more positive profit forecast in the future. In addition, even if you finally choose to invest in this REIT for whatever reason, Mr China does not encourage any risky investment (especially margin trading) and hence you are advised to firstly read our general risk disclosure and disclaimer statement prior to any such investment.

Last but not least, please note that the daily maximum exchange limit of RMB 20K per individual in Hong Kong banks can adversely affect the liquidity and transitions of RMB-denominated securities in secondary trading market. Although offshore RMB deposits at authorized institutions in Hong Kong had reached RMB 408 billion as of February this year, most of them are for use in foreign trade settlement. Therefore, it is widely believed that the current RMB offshore liquidity is still small and not strong enough to support large RMB-denominated IPO or high-volume RMB securities secondary trading in the Hong Kong stock market.


More Stock Analysis:
Table of Summary: All Our Stock Analysis Reports

2 Comments:

David Chan said...

Hui Xian REIT really fell down to ¥4.75 in its first trading day. Fortunately I read this blog and did not buy ... Thank you so much!

Mr China said...

David,

Hui Xian REIT, as expected, went down by -9.35% to RMB 4.75 at the close (Day High: RMB 5.10; Day Low: RMB 4.66) in its first trading day. We are watching the market to see if the offshore RMB liquidity issue is the real cause of poor support from small investors.

Nevertheless, RMB 4.75 is still not attractive enough for us, though it now represents a lower projected 2011 P/E ratio of 21.28 and a higher annualized yield of 4.7%.

In any case, this IPO listing is a historic moment for Hong Kong, as the first global RMB-denominated REIT. It is more than just a gimmick and is indeed a milestone to help promoting RMB internationalization.

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