Matters:
Longguang Group announced its 2021 semi-annual report, achieving operating revenue of 35.17 billion yuan, an increase of 13.3% over the previous year, net profit of 6.18 billion yuan, an increase of 0.4% over the previous year, and Guimu's core profit of 5.58 billion yuan, an increase of 4.6% over the previous year, achieving EPS of 1.12 yuan. The company intends to pay an interim dividend of HK49 cents per share.
Ping An's point of view:
Performance improved steadily, and the three red lines remained in the green range: 2021H1's revenue, net profit, and Guimu's core profit were 351.7, 61.8, and 5.58 billion yuan respectively, up 13.3%, 0.4%, and 4.6% year-on-year.
The profit growth rate was lower than revenue mainly due to lower gross margin, and the 2021H1 composite gross margin fell 8.3 percentage points year over year to 26.9%. The core profit margin of 2021H1 was relatively stable, falling slightly by 1.3 percentage points to 15.9% year-on-year. The net debt ratio at the end of the period, the balance ratio after excluding advance receivables, and the short-term cash debt ratio were 60.8%, 69%, and 1.85 times respectively, and continued to meet the green tier standards. Financing costs were added by 4.6% during the period, leading to a 20 bps to 5.4% drop in financing costs at the end of the period compared to the beginning of the period, and continued to decline.
Sales performance was good, and land storage was abundant: 2021H1's equity sales reached 73.64 billion yuan, an increase of 58.9% over the previous year, reaching 51% of the annual target. Among them, the Guangdong-Hong Kong-Macao Greater Bay Area, Southwest China, Yangtze River Delta, Singapore and other regions accounted for 64.3%, 12.3%, 7.4%, 1.8% and 14.2% of sales. The layout became more balanced, and a new Yangtze River Delta pattern began. The estimated sales value for the second half of the year is 156 billion yuan, and the removal rate of about 46% will meet the annual sales target. At the end of the period, the total land storage area was 85.56 million square meters (including urban renewal resources in incubation), with an average cost of 5,382 yuan/square meter. In terms of value of goods, the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze River Delta accounted for 85%. The high-quality layout guaranteed high-quality development.
Investment advice: Considering that the company's settlement gross margin is lower than expected, the profit forecast is lowered. The 2021-2023 EPS is expected to be 2.53 yuan (originally 3.05 yuan), 2.69 yuan (originally 3.67 yuan), and 2.85 yuan respectively. The current stock price corresponding to PE is 3.1 times, 2.9 times, and 2.8 times, respectively. The company is deeply involved in the Guangdong-Hong Kong-Macao Greater Bay Area and promotes a nationalized layout. It has sufficient high-quality reserves, rich experience in urban renewal and improved incentive mechanisms, and continues to protect scale growth. Generous dividend payments are also a major highlight. Considering that strong policies are suppressing sector valuations and that the company's growth expectations are slowing down, the company's rating was downgraded from “highly recommended” to “recommended.”
Risk warning: 1) If property market regulation in key cities exceeds expectations, it will cause sales to be converted into price for volume, leading to a further decline in the company's settlement gross margin and the risk of early price depreciation; 2) If industry financial supervision becomes more strict, it will have a negative impact on the company's scale development; 3) Due to the strong individualization of urban renewal projects and the time required generally exceeds the bidding schedule, the company may face the risk that the progress of the project will fall short of expectations during the urban renewal development process.