J.P. Morgan cut its target price for China Jinmao (00817) to HK$2.85 from HK$3.5 and maintained its "underweight" rating.
The research house thinks it will be difficult for Jinmao's primary land development business to repeat the success in Changsha and Nanjing, as land prices may not increase rapidly in the near term. The high margin from primary land development will be offset by the lengthy development cycle, and the IRR (internal rate of return) may not be too different from a normal DP (development property) business.
JPM is also concerned about Jinmao's timing for land banking which is suboptimal. The strategy is to buy land in top-tier cities with scale and sell down its stake to achieve growth in gross contracted sales without timing the market, JPM believes. It expects Jinmao's margin to come down in the next two years.