Performance preview

Net profit of the mother is predicted to fall 5% year-on-year in 2021

We expect the company's revenue to increase steadily by 30% in 2021, and the gross profit margin (after tax) of settlement will drop to around 18% (20% in 2020). We estimate that the average equity ratio of the company's settlement projects is lower than in 2020. Combined with the impact of some non-recurring profit and loss, net profit attributable to the mother in 2021 is expected to drop 5% year-on-year to 6.7 billion yuan, which is basically in line with market expectations.

Key points of interest

The scale of sales is expected to remain stable, and land acquisition will continue to be cautious. The company achieved sales of 187.6 billion yuan in 2021, a year-on-year decrease of 16%, and a sales area of 1997 million square meters, a year-on-year decrease of 11%. Since the second half of 2021, the company has continued to reduce inventory, such as removing parking spaces and leaving houses, which led to a 6% year-on-year drop in average sales price to 9,394 yuan/square meter. Affected by the overall pressure on industry fundamentals, the company's land acquisition has slowed since the second half of 2021. The total amount of land acquired for the year was about 40 billion yuan, corresponding to about 20% of the land acquisition intensity. We believe that the company will continue its prudent approach of expanding reserves in the short term. At the same time, considering that the company's total saleable area of soil storage by the end of 2021 is about 60 million square meters, which can support 2-3 years of sales, we expect the company's future sales scale to remain stable and strive for steady progress.

The pressure on interest-bearing debt continues to fall, and the year-end outlook continues to be “green.” The company's net debt ratio, withheld balance ratio, and short-term cash debt ratio at the end of the third quarter of 2021 were 74.2%, 68.5%, and 1.4 times, respectively. The size of interest-bearing debt fell 8% from the beginning of 2021 to 92.6 billion yuan (including perpetual debt). The company actively adjusted its debt structure and reduced the size of debt. We expect that the company's year-end interest-bearing debt will continue to decline compared to the end of 3Q21. Combined with net profit settlement to increase equity, the three red line indicators will continue to improve marginally from the end of 3Q21, continuing the “green range”. At the end of December 2021, the company successfully issued an ultra-short loan of 800 million yuan against the backdrop of industry credit pressure, with a coupon interest rate of 6.8%.

By actively improving management capabilities, the contract construction business is expected to become a new growth point in the future. We believe that the company will continue to adhere to the strategy of “one steady, two reductions and three improvements”, continue to develop steadily, reduce liabilities, reduce inventories, and enhance profitability, core competitiveness and asset operation capabilities. The company set up a professional agency team in the second half of 2020. Up to now, the company's contract construction business has achieved a value of more than 20 billion yuan, and construction projects in the 2021 period have achieved sales of about 2 billion yuan. We believe that the proxy construction model is conducive to reducing capital investment and controlling business risks, and the company is expected to continue to develop this business in the future.

Valuation and advice

Considering that the settlement profit margin was slightly lower than previous expectations, we lowered the 2021/2022 profit forecast by 5%/7% to 67/72 billion yuan, and introduced the 2023 forecast of 7.9 billion yuan, with a year-on-year growth rate of -5%/8%/10%. The current stock price is trading at 3.9/3.5 times the price-earnings ratio of 2022/2023, keeping outperforming the industry rating and target price of 5.33 yuan unchanged. The target price corresponds to 3.9 times the price-earnings ratio of 2022 and an upward margin of 2%.

risks

The main layout is that urban regulation policies have been tightened beyond expectations; the financing environment has been tightened beyond expectations.