1H21 performance is lower than market expectations.
Zhongnan Construction announced 1H21 results: revenue rose 30 per cent year-on-year to 38.5 billion yuan, while net profit fell 15 per cent year-on-year to 1.75 billion yuan, lower than market expectations, mainly because the scale of non-consolidated settlement was lower than expected.
The sharp decline in the settlement scale of non-consolidated items led to a drop in profits. During the period, revenue from the real estate business and construction business increased by 31.5% and 17.2% respectively, and the after-tax gross profit margin fell slightly to 13.7% from the same period last year.
Due to the decrease in the settlement of non-consolidated projects during the period, investment income fell 62% to 680 million yuan compared with the same period last year (1H20 was 1.77 billion yuan, which was more than four times higher than that of 1H19). The contribution of investment income to the total profit decreased to 26% from 56% in the same period last year, resulting in a year-on-year decline in net profit.
Development trend
Actively optimize the financial market, the bar bar material steady progress. In the first half of the year, the company was cautious in taking land, paying attention to money recovery, and solidly reducing debts. 1H21 operating cash increased by 19% to 2.4 billion yuan compared with the same period last year, the net debt ratio at the end of the period decreased by 2.0ppt to 95.3% compared with the beginning of the year, the withholding asset-liability ratio dropped to 77.4% compared with the beginning of the year, and the cash short-debt ratio was 1.03%, which was basically the same as at the beginning of the year and was in the "yellow file". Interest-bearing liabilities decreased by 4% (reduced by 3.1 billion yuan). Since the beginning of the year, three bonds have been issued (one for corporate bonds, one for winning votes and one for US dollar bonds), and the financing channels are still open. We judge that the company will continue to optimize its financial position, improve the withholding asset-liability ratio index by means of single project control, consolidated statement management, accelerating profit settlement and thickening paid-in capital, and is expected to achieve the goal of becoming a "green" by the end of 2022.
Sales are expected to increase steadily and slightly for the whole year. From January to July, the company's sales increased by 28% to 126.7 billion yuan, the sales area increased by 26% to 91.9 billion yuan, and the corresponding average sales price increased by 2% to 13784 yuan / ping. We expect the company's annual sales to reach about 230 billion yuan, a steady increase over last year's (223.8 billion yuan). The 55% we expected in the previous July has been completed.
The attitude of taking land is expected to continue to be cautious, diversified development and storage to open up the situation. The amount of land taken by the company in the first half of the year decreased by 5% to 29 billion yuan compared with the same period last year, the intensity of the corresponding land was reduced to 27% (34% in 2020), and the proportion of land rights and interests was reduced to 42% (61% in 2020); the area of land acquired increased by 2% to 7 million square meters compared with the same period last year. In the first half of the year, the company obtained 41 plots, of which 30 were obtained by bidding and auction (of which only 2 plots in Qingdao were obtained by "two episodes") and 11 by mergers and acquisitions. At present, the company's total land reserve (unsettled caliber) has increased by 6% to 47.4 million flat compared with the beginning of the year. Considering that the company's demand for debt reduction and stable operation is still strong, we expect the company to continue to adopt a cautious attitude in the second half of the year. and will continue to promote mergers and acquisitions, urban renewal, tourism and other ways to achieve diversified development and storage.
Profit forecast and valuation
Taking into account the uncertainty of the company's annual non-consolidated settlement scale, we cut our profit forecast for 2021 / 2022 by 3% to 76 / 8.4 billion yuan. The current share price trades at 2.6x2021xpx 2022, maintaining an outperform industry rating and lowering the target price by 3 per cent to 6.93 yuan to reflect changes in earnings forecasts, with the new target price corresponding to 3.5x2021x2021xpx 2022 and 36 per cent upside.
Risk
In the main layout, the regulation and control policies of cities have tightened more than expected, and the financing environment has tightened more than expected.