1H21 performance divergence; attractive valuation, maintain "buy"
Time China Holdings announced 1H21 results on August 17, with differentiated performance. 1H21 revenue fell 9% year-on-year, mainly due to delays in project delivery; core net profit increased 6% year-on-year to 1.9 billion yuan, mainly due to an improvement in gross profit margin driven by an increase in urban renewal project delivery (1H21 vs 1H20 33%, up 6% year-on-year) and an increase in revenue contribution to the joint camp project (1H21: RMB 3.5 billion vs 1H20: none). The company maintained a sound financial position in 1H21, with the net debt ratio at the end of 1H21 stable at 71% (end-2020: 68%), and financing costs improved to 7.0% (2020:
7.3%). We estimate that the company's EPS for 21-23 years will be HK $2.95 Universe 3.53 plus 4.41 respectively. The company's current share price corresponds to 2.3 times the 2021 forecast PE, and we find the valuation attractive. Maintain the "buy" rating and target price of HK $13.00.
As always, the leader of the Great Bay area.
We continue to be optimistic about the company's strategy of ploughing the Dawan area. Considering that the company has a rich and concentrated land reserve in the Greater Bay area (accounting for 89% of the company's land reserve floor area at the end of 1H21), we expect the company's contract sales to maintain double-digit year-on-year growth (CAGR:15% 2020-2023).
Taking advantage of the company's leading position in the urban renewal business in the Greater Bay area (end of 1H21: potential construction area of 53.4 million square meters, estimated sales value of RMB 1.6 trillion), the company's revenue from the urban renewal business segment increased significantly (1H21: RMB 2.4 billion vs 1H20: none). Therefore, we expect the company to continue to benefit from continued revenue and profit contribution from the urban renewal business in 2021-2023, while keeping gross profit margin and net profit margin stable (we expect gross profit margin and net profit margin to be 26.2-26.5% and 12.0-12.5%, respectively).
The financial situation is expected to further improve.
Thanks to the prudent management of the company's financial position, the company's net debt ratio at the end of 1H21 was stable at 71% (end-2020: 68%), and the financing cost of 1H21 improved to 7.0% (2020: 7.3%).
Looking ahead to 2H21, we expect the company's balance sheet to improve further and its net debt ratio to fall slightly to 65 per cent by the end of 2021. At the same time, corporate financing costs are likely to improve further, and we have observed more favorable interest rates for new borrowing issues, such as 5.55% for $400 million in three-year senior notes.
Maintain the "buy" rating and target price of HK $13.00
We maintain our target price of HK $13.00 based on our 2021 net asset value per share (NAV) forecast of HK $16.20 and a target NAV discount of 20%. We find the company's current valuation (2.3x 2021 forecast PE) attractive. Maintain a "buy" rating.
Risk hints: 1) the transformation speed of urban renewal projects is slower than expected; 2) the trend of profit margin is lower than expected; 3) Guangdong market fluctuations.