21H1's net profit was +29.5% year-on-year to 160 million, mainly due to equity disposal investment income disclosed by the company in its 2021 semi-annual report on August 25. 21H1 achieved revenue of 4.95 billion yuan, -17.5% year-on-year; achieved net profit of 160 million yuan, +29.5% year-on-year. 21H1's profit mainly comes from disposing of shares in some subsidiaries contributing 640 million dollars in investment income. Considering the decline in the overall profit margin of the industry, we lowered the company's gross profit margin, raised investment income, and predicted the company's 2021-2023 EPS of 0.73, 0.90, 1.10 yuan (previous values of 0.79, 1.07, 1.43 yuan). Considering the medium- to long-term implementation of the company's high growth in land acquisition sales at the performance level and the collaborative support of future group resources, a 50% valuation premium was maintained, the company was given a PE valuation of 9.6 times 2021, a target price of 7.01 yuan (previous value of 7.35 yuan), and maintained a “purchase” rating.
Settlement quality has declined, and investment income supports profit performance
Fluctuations in 21H1 real estate settlement led to revenue of -17.5% year-on-year, and gross margin of -5.5pct to 20.5% year-on-year.
In addition, expenses continued to rise during the period when sales and land acquisition continued to expand. 21H1 three fees accounted for +8.5 pct over the same period last year to 18.0%. The increase in the company's net profit stemmed from: 1. Settlement of cooperative development projects in the table slowed down, minority shareholders' profit and loss was -61.2% of the same period to 110 million; 2. Some subsidiary shares were disposed of during the reporting period. Fair value revalued income of 640 million yuan after publication, driving net investment income to increase to 680 million yuan (-50 million in the same period last year).
Benefiting from continued high sales repayment growth, the company's contract liabilities at the end of the reporting period increased by 62.9% to 35.65 billion dollars from the end of 2020, 2.9 times the revenue for the full year of 2020.
Sales are booming, and soil storage has maintained a high level of expansion
21H1 achieved full-caliber and equity sales of 320 to 21.6 billion dollars, +160.6% and +144.9% year-on-year; full-caliber, equity sales of 25.9 billion, 19.6 billion dollars, +158.4%, +169.0% over the same period. Land investment seized the “two centralized” opportunities in key cities such as Beijing, Tianjin, Huizhou, and Chongqing. 21H1 added 26.15 million square meters, 28.66 billion, and 20.5 billion yuan in land storage, prices, and equity prices, +34.7%, +5.3%, and +98.7% over the same period. Equity investment intensity was 93%, +25pct compared to the full year of 2020. At the end of the reporting period, the company had a total land storage area of 18.91 million square meters to be built, up 15.7% from the end of 2020, and was deeply involved in core Tier 1 and 2 cities.
The debt structure continues to be optimized, and the three red lines continue at the orange level
The company's loan balance at the end of the reporting period was $64.58 billion, +41.7% from the end of 2020. Of these, bank loans and bonds together accounted for 54.5%, up 8.6 pct from the end of 2020. The company's net debt ratio at the end of the reporting period, balance ratio after deducting advance accounts, and short-term cash debt compared to +30.0, +0.2, and +3.8 pct at the end of 2020, respectively, to 234.8%, 83.6%, and 146.9%. The three red lines continue to be “orange,” and short-term cash remains plentiful.
Optimistic that 2023 sales will enter the 100 billion dollar tier, maintain the “buy” rating of the company's 2021-2023 EPS of 0.73, 0.90, and 1.10 yuan (previous values 0.79, 1.07, 1.43 yuan). Referring to comparable companies, 6.4 times the 2021 PE average (Wind agreed expectations), give the company 9.6 times the PE valuation in 2021, and maintain the target price of 7.01 yuan (previous value 7.35 yuan).
Risk warning: industry policy risks, industry downside risks, business risks.