1H21 performance is lower than we expected.

Shimao Co., Ltd. announced 1H21 results: revenue 11.9 billion yuan, year-on-year + 30%; return to the mother net profit of 1.1 billion yuan, + 10% year-on-year, lower than our expectations

The margin of gross profit margin went up, and the profit and loss of minority shareholders increased significantly. 1H21 real estate sales income real estate rental income (rent + property management fee) respectively compared with the same period last year + 28% Universe 29% 110.03 / 653 million yuan The after-tax gross profit margin increased to 33.4 per cent compared with the same period last year; affected by the decline in the proportion of settlement rights and interests, the profit and loss of minority shareholders increased from + 50 per cent to 1 billion yuan, accounting for 48 per cent of after-tax profits from 40 per cent in the same period last year, while homing net profit recorded only 10 per cent year-on-year growth.

The financial security is sound, and the financing cost is marginal downward. The net debt ratio of 1H21 is 19% (20% at the end of 2020); the asset-liability ratio excluding advance receipts is 63% (65% at the end of 2020); the unrestricted cash is 17.2 billion yuan, which is equivalent to 2.1 times of the interest-bearing liabilities due within one year (basically the same as at the end of 2020). The average financing cost of 1H21 is 5.2%, which is lower than that in 2020.

Annual sales are expected to rise higher than the same period last year. 1H21's sales were + 77% to 16.6 billion yuan compared with the same period last year. The salable value of the company in the second half of the year is about 45 billion yuan (new push + rolling stock). We expect the company's annual sales to increase to 38 billion yuan (year-on-year + 40%), corresponding to a year-on-year sales growth rate of 20% in the second half of the year.

Full-year results are expected to achieve double-digit growth. We estimate that the company's real estate sales income in 2021 will be + 15% 6 compared with the same period last year, which will contribute 1.41 billion yuan to the return net profit. With the drop in vacancy rate and the increase in rent level in the second half of the year, the company's rental income is expected to achieve the target of 1.49 billion yuan (year-on-year). Corresponding to the homing net profit of 370 million yuan. We assume that the fair value change income of investment real estate in the second half of the year is consistent with that of 1H21, and the company's 2021 net profit is expected to be + 15% to 1.78 billion yuan compared with the same period last year, corresponding to a core net profit of 3.9 billion yuan (year-on-year + 21% 6).

Profit forecast and valuation

Because the proportion of the company's settlement equity is lower than that of our previous period, the net profit of our company in 2021 and 2022 is 25% and 25% to 17.8 and 2.05 billion yuan respectively. The company's current share price corresponds to 7.5 times 2021 earnings and 6.5 times 2022 earnings. To maintain the neutral rating, we lowered the target price by 16% to 4.29 yuan (to reflect the earnings adjustment and changes in the market's risk appetite for real estate stocks), corresponding to 9.0 times 2021 price-to-earnings ratio and 7.9 times 2022 price-to-earnings ratio, which has 20% upside compared to the current stock price.

Risk

Sales and lease income fell short of expectations; settlement equity ratio declined more than expected.