1H21 performance meets expectations
Cosco announced 1H21 results that revenue rose 59 per cent year-on-year to 20.5 billion yuan, gross profit margin 06 percentage points to 225 per cent, and home net profit fell 17 per cent to 1.01 billion yuan, in line with expectations. The company declared an interim dividend of HK $0.055 per share (down 11% from a year earlier, with a dividend yield of 33%).
Multiple factors led to pressure on earnings in the first half of the year. Affected by the post-delivery pace, a larger increase in sales expenses (mainly due to a rise in the number of new trading to 19 from 8 in the same period last year) and an increase in minority shareholders' profit and loss as a share of after-tax profit, homing net profit fell 17 per cent in the first half of the year compared with the same period last year.
The scale of soil storage is stable. Cosco still follows the principle of keeping expenditure within the limits of revenues in the first half of the year, and the value of supplementary land storage in the first half of the year is nearly 50 billion yuan, which is similar to the sales volume of 52.4 billion yuan in the same period. Xinnadi is still focused on the company's fast turnover. In addition, through urban renewal and first-level development, the company has targeted first-and second-tier cities with an additional 8.62 million square meters, and the proportion of small projects below 250000 square meters has been maintained at 75 percent, helping to maintain a sound financial position. Although the acquisition of land was more active in the first half of the year (land expenditure accounted for 45% of cash rebates), the net debt ratio was 12 percentage points higher than at the end of 2020 to 67%, the pre-debt ratio was 69%, and the cash-to-debt ratio was 1.9 times, which is still in the "green range". Benefiting from Moody's Corporation and Fitch investments and ratings, the company's average financing cost further fell slightly to 5.04% in the first half of the year, and the company expects to fall below 5% by the end of the year.
Trend of development
The sales target of 150 billion yuan (an increase of 14% over the same period last year) is expected to be achieved smoothly. Affected by the post-supply rhythm (the actual supply in the first half of the year is about 80 billion yuan), the company achieved only 35% of its annual sales target in the first half of the year, lagging behind the industry average. However, taking into account the abundant resources available in the second half of the year, reaching 180 billion yuan, we believe that the full-year sales target is expected to achieve a stable full-year profit to maintain a moderate momentum of growth. Taking into account that the medium-term consolidated table has been sold in excess of 6 billion yuan, and the gross profit margin is stable at around 20%, we expect the annual income growth rate to reach 15%, and the reported gross profit margin to remain at about 20%. However, taking into account the sales rates, minority shareholders profit and loss ratio there is some uncertainty, we believe that home net profit may record a moderate growth of about 5%.
Profit forecast and valuation
Maintain the 2021 profit forecast and reduce the 2022 profit forecast by 5% to 3.2 billion yuan (up 5% from the same period last year), taking into account the adjustment of delivery pace. Maintain the neutral rating and target price of HK $1.90 (5.4 times 2021 price-to-earnings ratio, 12% upside). The company is currently trading at 4.8x and 4.6x 2021-22 p / e, corresponding to dividend yields of 95 per cent and 10.0 per cent this year and next-tighter-than-expected home purchase policies in second-tier cities.