1H21's performance is in line with our expectations.

The first shares announced 1H21 results: operating income increased 85% year-on-year to 33.3 billion yuan, while net profit fell 3496 to 850 million yuan year-on-year, in line with our expectations.

The settlement profit margin and equity ratio declined, and the high investment income base led to a structural decline in profits. The company's completed area increased 85% year-on-year to 2.2 million square meters, which led to a high increase in revenue, but the concentrated settlement of some price-limited projects outside Beijing caused the gross profit margin to fall by 5.0ppt to 12.8% year-on-year. At the same time, the reduction of joint venture settlement and the statement of subsidiaries in the same period last year led to a higher base of investment income, which dropped to 180 million yuan during the period (1.4 billion yuan for 1H20). During the period, the proportion of project equity in settlement decreased, and the profit and loss of minority shareholders increased by 25% over the same period last year, accounting for 50% of net profit, resulting in a 34% drop in net profit compared with the same period last year. The financial side actively improved, and the cash-to-debt ratio was completed ahead of schedule. In the first half of the year, the company prudently expanded its reserves and actively reduced its debts. during the period, the operating cash inflow was 9.8 billion yuan (1H19 outflow was 7.8 billion yuan), the cash on hand at the end of the period increased by 10% compared with the beginning of the year, the pressure of interest-bearing liabilities decreased by 4%, the net debt ratio at the end of the period decreased from 18ppt to 162%, the withholding asset-liability ratio decreased by 0.3ppt to 74.6%, and the cash-to-debt ratio was 1.23x (0.89x at the beginning of the year). The target of more than double the cash-to-debt ratio by the end of 2021 was achieved ahead of schedule. Change to "orange file".

Development trend

Annual sales are expected to reach 120 billion yuan. The company's sales in the first half of the year increased by 49% to 66.3 billion yuan compared with the same period last year, and it is planned to achieve sales of 1100-120 billion yuan at the beginning We expect that under the support of more than 200 billion yuan of saleable value for the whole year, the sales volume will reach 120 billion yuan, corresponding to a year-on-year growth rate of 12% and a removal rate of 60%. 55% of our expected sales have been completed in the first half of the year.

The company is expected to continue to reduce leverage, control debt, and continue to take a cautious attitude. In the first half of the year, the company's business focus shifted to debt control, and the demand for scale slowed, with the new land storage area falling 46 per cent from a year earlier to 820000 square meters, accounting for 39 per cent of the current sales area (98 per cent in the same period last year). The company's unsold land storage at the end of the period is nearly 18 million square meters, which is lower than that of more than 19 million square meters at the beginning of the year, but it can still cover the sales demand in the next three years.

We expect that in the second half of the year, the company will continue to remove inventory, recover money, reduce leverage, control liabilities, and continue to be cautious in providing land, and is expected to achieve the net debt ratio and withholding asset-liability ratio in 2022-23.

Full-year earnings are expected to record steady growth. Taking into account that the suppression of statements by the company's stock with low gross margin and low equity ratio will continue to be digested this year and next, we expect the company's 2021 / 2022 gross profit margin (after tax) to fall to 20.1% 6 inch 18.7%. The proportion of minority shareholders' net profit and loss is expected to continue to rise. However, as the company's active completion and delivery will provide strong support for consolidated settlement, we expect profits to still record a steady growth of about 10% this year and next.

Profit forecast and valuation

Keep profit forecasts for 2021 and 2022 unchanged. The current share price corresponds to 3.8 times 2021 / 2022 / 3.5 times earnings. Maintain a neutral rating, but taking into account the downside of market risk appetite, lower the target price by 10% to 6.05 yuan, corresponding to 4.5 times 2021 / 2022 price-to-earnings ratio and 17% upside space.

Risk

The regulation and control policies of the main layout cities tightened more than expected, and the financing environment of Xiaobai Maimai Inc tightened more than expected.