Maintain a "buy" rating with a target price of HK $23.00: due to strict requirements on land profit margins, the pace of land acquisition slowed in the first half of the year, and the company's total land reserves also fell as of 2021H1. The company's land acquisition efforts have increased since the second half of the year. We believe that the company's sales growth is steady, the rebate efficiency is good, the current capital reserves are abundant, and the current overall land reserves can also be developed and sold for about 3 years. In addition, the company's financial aspects maintain three red lines and green bands, and there is room for 15% growth in interest-bearing liabilities. We estimate that the company's operating income in 2022 will be 1752,207.5 billion yuan, an increase of 29% over the same period last year. The core net profit will be 1.36 trillion yuan, an increase of 11% and 12% over the same period last year. We maintain our "buy" rating, lowering our target price from HK $31.00 to HK $23.00, corresponding to a dividend yield of 12.0% for the current share price corresponding to 2021E dividend yield of 4.5 times PE for 202111.
The core net profit of home ownership increased by 12% over the same period last year, and the performance was in line with expectations: 2021H1 achieved an operating income of 73.4 billion yuan (the same below), an increase of 14% over the same period last year; the core net profit of home ownership was 6.2 billion yuan, up 12% from the same period last year.
The gross profit margin was 28.6%, down 1.6 percentage points from the same period last year, which remained basically stable; the core net profit margin was 8.4%, down 0.2 percentage points from the same period last year. The company paid an interim dividend of HK70 cents per share, unchanged from the same period last year (excluding 2020 special dividend up 17% year-on-year), with a total dividend of 2.1 billion yuan, accounting for 33% of the core net profit.
Steady progress in sales: from January to July 2021, the company achieved a cumulative sales amount of 174.9 billion yuan and an area of 9.85 million square meters, an increase of 25% and 24% over the same period last year, with a cumulative average sales price of 17760 yuan per square meter. Corresponding to the annual sales target of 330 billion (+ 10%yoy), the target completion rate as of July is 53%. The actual removal rate of the company in the first half of the year is 64%, and the salable value in the second half of the year is 360 billion yuan. The annual sales target can be achieved if the corresponding removal rate reaches 49%.
Land acquisition slowed down significantly in the first half of the year: 2021H1 added 19 new land reserve projects, a new capacity area of 3.01 million square meters, and a new land grant of 20.1 billion yuan, accounting for 13% of the sales amount, which is at a low level, with a new land acquisition cost of 6659 yuan per square meter. At the end of the period, the company's total land reserve area was 7283 million square meters, down 11% from the end of 2020.
Keep three red lines in green gear: as of 2021H1, the net debt ratio was 50.9%, the same as at the end of 2020; the cash-to-short debt ratio was 1.7; and the asset-liability ratio excluding advance receipts was 68.3%, which was in the three red lines. The average financing cost is 5.6%, the same as at the end of 2020. At present, the company's paper cash is 82.4 billion yuan, interest-bearing liabilities are 164.5 billion yuan, of which short-term debt accounts for 27%, which is at a reasonable level.
Risk tips: macroeconomic growth slows; industry regulation and control policies tighten; liquidity tightens; company sales fall short of expectations; business and hotel operations fall short of expectations; RMB depreciates.