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Zheshang Securities

Key investment points:

Merchants due in Zone 1 to Zone 3 still adopt differentiated pricing.

Rent collection method:

The annual usage fee for the targeted arrangement of shops in Zones 1 to 3 is determined by the benchmark price determined by the next round of lease × floor coefficient × location coefficient × shop area.

(1) The benchmark rental price of business space in the first district of the International Trade City is 2588 yuan/㎡ · year; The benchmark rental price of shops in the second and third districts of the International Trade City is 1985 yuan/㎡ · year.

(2) Floor coefficient: The floor coefficient of the first, second and third districts of the International Trade City is the same, and the 1-3 floors are 1.2, 1.0 and 0.8 respectively.

(3) The shops on the same floor shall be classified according to location and other factors, and differentiated pricing shall be implemented. The first and second district markets of the International Trade City are divided into four grades, with location coefficients of 1.3, 1.2, 1.1 and 1.0 respectively; The three district market of the International Trade City is divided into two grades. The location coefficient of cosmetics is 1.1, and the location coefficient of other businesses is 1.0.

(4) After the directional arrangement business space has been transferred for many times, if the annual usage fee per square meter of the business space is higher than the adjusted annual usage fee per square meter of the directional arrangement business space of the same level, the annual usage fee per square meter of the original agreement shall be determined.

(5) If the annual usage fee per square meter of the bidding and tendering positions is lower than the adjusted annual usage fee per square meter of the same level of directional arrangement positions, the annual usage fee per square meter of the same level of directional arrangement positions shall be determined. If the annual usage fee per square meter of the bidding and tendering positions is higher than the adjusted annual usage fee per square meter of the same level of directional arrangement positions, the annual usage fee per square meter of the original agreement shall be determined. The annual usage fee of the next round of shops shall be determined by multiplying the annual usage fee per square meter by the area of shops.

Lease Term:

From October 1, 2012 to September 30, 2015, the first district market of the International Trade City; From January 1, 2013 to December 31, 2015, the markets in the second and third districts of the International Trade City. The service life is three years.

The rent increase rate of Zone 1 market is nearly 90%. This rent increase still continues the differential pricing method of Zone 5 and Huangyuan market. On the basis of the benchmark price, certain floor coefficient and location coefficient are given respectively. In terms of location coefficient, the first and second district markets of the International Trade City are divided into four grades, with location coefficients of 1.3, 1.2, 1.1 and 1.0 respectively; The three district market of the International Trade City is divided into two grades. The location coefficient of cosmetics is 1.1, and the location coefficient of other businesses is 1.0. The location coefficient of Zone 1 and Zone 2 will lead to a rent increase of about 15%; Due to the relatively low coefficient of the three districts, the rent increase is about 5%. In addition, as the market floor coefficient of the first to third districts of the International Trade City is the same, the 1-3 floors are 1.2, 1.0 and 0.8 respectively, so the increase in rent is limited.

From the perspective of rent increase range, the original market rent of the first district of the company was less than 1600 yuan, and the benchmark price of this rent increase was 60% on this basis. In addition to the contribution of location coefficient to rent, the total rent increase range was nearly 90%. The original government guidance price of Zone 2 is 1985 yuan/m2 · year. This rent adjustment still takes this as the benchmark price. Considering the contribution of location coefficient, the total rent increase is about 15%. The guiding price for the three districts is 1985 yuan/m2 · year. This rent adjustment still takes this as the benchmark price. Considering the relatively low location coefficient, the total rent increase is about 5%. This rent increase is expected to increase the company's EPS by 0.05 yuan in the next three years. The construction areas of the first to third districts of the company are 340000 square meters, 600000 square meters and 480000 square meters, respectively. The proportion of government guidance prices is 90%, 80% and 70%, respectively. The housing acquisition rate is about 30%. After this rent increase, the company's annual operating income will increase by about 180 million yuan, contributing about 135 million yuan to net profit, and about 0.05 yuan to EPS. The rent increase in Zone 1 contributed more than 20 million yuan to the revenue in 2012 and less than 1 cent to EPS.

In addition, as the rent implementation plan of the company points out that the lease term is three years and the rent is collected at one time, this will bring more than 3 billion yuan of cash flow to the company, which can reduce the company's capital pressure to a certain extent and save financial expenses.

In 2013, the performance entered the outbreak period. We believe that due to the confirmation of the Dongcheng Impression project, the hiring of the five districts and Huangyuan market, the eastern expansion of the first district, and the lower than expected progress in the construction of the means of production market, the driving force behind the short-term performance growth of the company has weakened, and the company is expected to achieve significant growth in 2013. In consideration of the impact of this rent increase on the company's performance, we adjusted the profit forecast for 2012-2014 to EPS of 0.30 yuan, 0.50 yuan and 0.62 yuan. Considering that the company's tangible+intangible market development strategy is becoming increasingly clear, the future development will be sufficient in the next two to three years, and the performance will have a relatively rapid growth, so we can enjoy a certain amount of valuation premium, and we maintain the "buy" rating.

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