Income is growing steadily and investment is a drag on performance. In the first half of 2021, the company achieved an operating income of 95.82 billion yuan, an increase of 23.9% over the same period last year, and a net profit of 11.99 billion yuan, an increase of 9.4% over the same period last year. The company's gross profit margin in the first half of the year was 20.8%, continuing the downward trend, slightly down 2.1 percentage points from the same period last year, while the net profit margin was 12.5%, down 1.7 percentage points from the same period last year. The company's net profit growth rate is lower than the revenue growth rate, mainly due to: 1) the continued decline in gross profit margin; 2) the company's sales and management expense rate dropped 0.2% compared with the same period last year; 3) the fair value loss of financial assets reached 1.22 billion yuan in the first half of the year. We speculate that most of them are the company's investment in KE Holdings Inc..
Sufficient available resources to support continued sales growth. In the first half of 2021, the company achieved sales of 320.76 billion yuan, a substantial increase of 64.3% over the same period last year. As the impact of the epidemic gradually faded, the company's supply efforts increased, and the company's sales accelerated in the first half of the year. As of the first half of 2021, the equity reserve of the company and the joint venture company is about 164 million square meters and the equity value is about 2 trillion yuan. From the perspective of regional distribution, the western region, the Yangtze River Delta, the Bohai Rim, the central region and South China accounted for 27.2%, 24.9%, 24.8%, 12.2% and 10.9% respectively, and each region achieved balanced development. The company strictly controls the total amount of land acquired in the first half of the year, and the ratio of equity to land sales is 37.9% as of the first half of 2021. The company expects the ratio of equity to land sales to be controlled within 30% for the whole year.
The capital structure has further improved, and the three red line indicators have continued to improve. As of the first half of 2021, the company's interest-bearing liabilities totaled 303.53 billion yuan, basically the same as at the end of 2020.
The company's net debt ratio reached 86.6%, down 9.4 percentage points from the end of 2020; excluding prepaid payments, the asset-liability ratio reached 76.0%, down 2.3 percentage points from the end of 2020; and the unrestricted cash-to-debt ratio reached 1.11, an increase of 2.8 percentage points over the same period last year. The company's leverage reduction strategy has achieved remarkable results, and the capital structure has been continuously optimized.
Maintain the buy rating with a target price of HK $31.99. Based on the unrealized investment loss caused by the company's investment in KE Holdings Inc. in the first half of the year, we slightly lowered our profit forecast for this year. We predict that the EPS of the company from 2021 to 2023 will be 7.86, 9.20, 10.46 yuan. According to the valuation of the comparable company, the PE will be 4X in 2021, corresponding to the target price of 27.51 yuan, equivalent to HK $31.99.
Risk tips: 1) the growth of real estate sales is not as expected. 2) the regulation and control policy of the layout city is stronger than expected.