1H21 achieves high-quality growth and maintains "buy"

The 1H21 results released by Shimao Group (Shimao) are robust across the board, with 1H21 core net profit rising 12 per cent year-on-year to 6.2 billion yuan, home country income up 14 per cent year-on-year and gross profit margin generally stabilizing at 29 per cent. Shimao's financial position remains healthy and prudent, with a net debt ratio of 55 per cent (end-2020: 56 per cent) and comprehensive financing costs stable at 5.6 per cent (2020: 5.6). Meanwhile, Shimao announced an interim dividend of HK70 cents per share (1H20: HK70 cents per share), corresponding to a dividend yield of 4.3 per cent (based on the close on September 10th). We expect Shimao to continue to achieve comprehensive and balanced development in terms of scale expansion, profit growth and land replenishment. We keep the company's EPS forecast for 2021-2023 is 4.14 yuan 4.79pm 5.54 yuan respectively. The company's current share price corresponds to 3.3 times the 2021 forecast PE: maintain the "buy" and target price of HK $40.10 (a 35% discount based on the 2021 NAV forecast of HK $61.70).

Shimao's contract sales are expected to grow at a compound annual growth rate of 14% from 2021 to 2023. Shimao's contract sales rose 38% year-on-year to RMB 152.7 billion in 1H21, equivalent to 46% of its 2021 sales target (RMB 330 billion). Looking ahead to 2H21, Shimao is prepared to have a saleable value of RMB 360 billion, which we expect to support the company's sales of RMB 345 billion in 2021. At the same time, Shimao has cautiously replenished its land reserves. 1H21 has acquired 19 projects with a land transfer box of 20.1 billion yuan (only 13 per cent of its 1H21 contract sales, up from 30 per cent in 2020). Therefore, with a huge land reserve of 73 million square meters at the end of 1H21 and a balanced soil storage structure, we believe that Shimao will be able to achieve a steady annual compound growth rate of 14% in contract sales from 2021 to 2023, further improving its contract sales ranking among the leading domestic developers.

Increase in revenue contribution from non-development business

Shimao's non-development business made solid progress in the morning at 1H21, with revenue growing strongly 128 per cent year-on-year to 6.6 billion yuan. In particular, the property management business, Shimao 1H21 recorded a year-on-year growth rate of 171%, reaching 4.2 billion yuan. With sufficient contract sales area (1H21 wood: 239 million square meters, 69% still unpaid), we expect Shimao to increase its property business revenue fivefold between 2021 and 2023. Therefore, we expect Shimao's non-development revenue contribution to increase.

Maintain "buy" with a target price of HK $40.10

Our target price of HK $40.10 for Shimao is based on a 35% discount on our 2021 NAV forecast of HK $61.70 (considering that the company continues to achieve comprehensive and balanced development in terms of scale expansion, profit growth and land replenishment, we give the company a discount of 55% below the historical average discount). Maintain "buy"

Risk tips: 1) contract sales growth is slower than expected; 2) financing costs rise; 3) massive expansion leads to higher-than-expected debt levels.