Performance in 2021 is lower than we expected.
Financial Street announced its 2021 results: revenue rose 33 per cent year-on-year to 24.2 billion yuan, while net profit fell 34 per cent year-on-year to 1.6 billion yuan, which was lower than we expected (mainly because gross profit fell faster than expected); net profit deducted from non-homing increased 54 per cent year-on-year to 440 million yuan, with a dividend ratio of 5 per cent, down from 36 per cent in 2020 and lower than we had expected.
The sharp decline in gross profit margin has led to an increase in income for the whole year. The company's real estate development and settlement income in 2021 increased by 38% compared with the same period last year, but the pre-tax / after-tax gross margin fell 11.4/8.2ppt to 21.4% and 17.5% respectively. The superimposed financial expenses increased to 1.3 billion yuan (due to the offset of capital occupation fees in 2020, the financial expenses were-1.5 billion yuan in 2020, and there were no related matters in 2021), and the company's annual net profit of returning to the family fell by more than 30% compared with the same period last year.
Multiple measures to reduce leverage and excellent reporting. During the period, the company increased sales and asset disposal efforts, sales rebate increased by 30% compared with the same period in 2020, net operating cash inflow of 3.9 billion yuan; disposal of Desheng Investment (holding Desheng International Center) 100% equity, transfer price of 1.575 billion yuan. The company's interest-bearing liabilities at the end of the year decreased by 8% to 80.2 billion yuan compared with the beginning of the year, the net debt ratio decreased by 26ppt to 146% compared with the beginning of the year, the withholding asset-liability ratio decreased by 2.7ppt to 71.5%, the cash-to-debt ratio increased to 1.4 times, and the financial indicators were optimized.
Trend of development
Sales are expected to increase steadily throughout the year, and land is expected to live within its means. We estimate that the sales value of the company at the end of 2021 is about 180 billion yuan, which can cover the company's sales for more than 4 years, and the company is expected to maintain a steady increase in sales in 2022 (sales of 33.9 billion yuan in 2021, down 16% from the same period last year). We expect that the company will strike a balance between safety and growth, optimize investment opportunities in core cities and choose opportunities to replenish high-quality soil reserves on the premise of ensuring financial security and financial stability.
Asset management business is expected to continue to contribute to the performance safety pad. The company's asset management business performance recovered steadily in 2021, with a profit before interest and tax of 1.1 billion yuan, an increase of 2% over the same period last year. We estimate that the corresponding net profit volume is about 800 million yuan, accounting for nearly 50% of the profit in 2021. We expect the company's investment properties in core cities and core areas to be scarce, which will continue to contribute to stable rental income and thicken the company's performance.
Financial improvement is expected to continue to advance, and actively optimize the structure of investment property assets. The company plans to continue to optimize its financial performance in 2022, and plans to reduce its interest-bearing liabilities by 40-5 billion yuan. In March 2022, the company sold its Ritz-Carlton Hotel in Beijing Financial Street to its parent company, Financial Street Group, for 1.08 billion yuan. We expect that the follow-up company will continue to invigorate existing assets through sale or securitization, and continue to supplement high-quality investment properties to optimize the structure while maintaining the stability of self-owned property assets.
Profit forecast and valuation
Taking into account the settlement progress and the adjustment of the product structure, we have lowered our 2022 profit forecast by 36% to 1.66 billion yuan, and introduced a new profit forecast of 1.69 billion yuan in 2023. The current share price corresponds to a price-to-earnings ratio of 11.2 to 11.0 times earnings in 2022. Considering that the value of self-owned property in the company's core first-and second-tier cities is expected to continue to be realized, and the market repairs its risk appetite, we maintain an outperform industry rating and a list price of 6.42 yuan, corresponding to a price-to-earnings ratio of 11.6x2022max. There is 3% upside compared to the current stock price.
Risk
The duration of the epidemic exceeded expectations, and the recovery rate of industry prosperity was worse than expected.