The results of the three quarterly reports in 2021 are in line with our expectations.
Overseas Chinese City An announced 1-3Q21 results: revenue of 49.4 billion yuan, an increase of 48% over the same period last year, and net profit of 3.4 billion yuan, down 35% from the same period last year, in line with our expectations.
The decline in earnings in the first three quarters was mainly due to a decline in settlement profit margins and equity ratios. The company's operating income in the first three quarters increased by nearly 50% compared with the same period last year, of which 3Q21 rose 62% to 26.4 billion yuan; but in the first three quarters, after-tax gross profit fell 10.6 percentage points to 22.3%, and minority shareholders' profit and loss accounted for 37% of net profit from the same period last year (19% for the whole of 2020). As a result, homed net profit recorded negative year-on-year growth.
The financial side maintains a "green file". Thanks to the increase in sales rebates, the company achieved a net cash inflow of 1.4 billion yuan in operating activities in the first three quarters (a net outflow of 2.2 billion yuan in the same period last year). At the end of the third quarter, the company's interest-bearing liabilities were 137 billion yuan (141.5 billion yuan at the beginning of the year). The net debt ratio, excluding prepaid, and cash short-debt ratio are 75,69 and 2.64 times, respectively.
Development trend
Sales increased steadily in the first three quarters, focusing on the fourth quarter. In the first three quarters, the company achieved sales of 66.3 billion yuan (up 9% over the same period last year), sales area of 3.12 million square meters (up 24% over the same period last year), and the corresponding average sales price of 21262 yuan per square meter (down 12% from the same period last year). In view of the current rapid cooling trend in the market, we recommend paying attention to the company's sales in the fourth quarter.
The intensity of land acquisition is expected to increase in the fourth quarter. In the first three quarters, the company added 3.73 million square meters of land reserve, which is 1.2 times of the sales area in the same period, corresponding to the land acquisition cost of 26.5 billion yuan, which is 40% of the sales amount in the same period (34% for the whole year of 2020). We expect that the company will actively make use of its financial advantages and resource endowments to capture window land acquisition opportunities in the face of tight funding in the industry in the fourth quarter.
Settlement is expected to accelerate in the fourth quarter, with a significant rebound in equity ratio leading to full-year profit growth. We expect the settlement side of the company to speed up in the fourth quarter (operating revenue accounted for an average of 53% of the annual operating income in the past three years), the settlement gross profit margin will be slightly lower than the previous three quarters, and the settlement equity ratio will significantly rise compared with the previous three quarters, leading to single-digit profit growth for the whole year.
Profit forecast and valuation
Keep profit forecasts for 2021 and 2022 unchanged. The current share price corresponds to a price-to-earnings ratio of 4.1 / 3.6 times 2022. Maintain an outperform industry rating and a list price of 8.42 yuan, corresponding to 5.0 times 2021 price-to-earnings ratio and 4.5 times 2022 price-to-earnings ratio, which has 23% upward space compared with the current stock price.
Risk
The growth rate of sales and the progress of carry-over were lower than expected; the ratio of gross profit margin to equity declined more than expected.