Forecast that 1H22 core net profit will drop by 40-55% compared with the same period last year.
The company issued a profit warning on August 19, taking into account the impact of the epidemic on residential delivery delays, provisions for impairment of inventory and foreign exchange losses, the company expects 1H22 core net profit of 15-2 billion yuan, down 40-55% from the same period last year, and 15-2.2 billion yuan after tax, down 59-72% from the same period last year. We expect the company's 1H22 revenue to fall by 15-20% year-on-year, and gross profit margin to be roughly flat at about 20%.
A multi-pronged approach to support the financial position. Thanks to the high efficiency of sales rebate in the first half of the year, the total caliber payback of about 74 billion yuan, superimposed reasonable control of project funds and other expenses, we estimate that the company's operating activities cash flow in the first half of the year to achieve a small surplus. Taking into account that there is still a certain net outflow of investment and financing cash flow, we estimate that the group-level working capital position will shrink to nearly $10 billion in the medium term from about $15 billion at the beginning of the year. The company has no rigid debt due in the second half of the year, and a US dollar debt maturing in January next year, with a balance of US $295 million. We expect the company's medium-term interest-bearing liabilities to be roughly the same as at the end of last year, with the "three red lines" remaining green, with the pre-debt ratio slightly lower than at the end of 2021, and the net debt ratio rising to 70-80% from 63% at the end of last year.
Pay attention to the main points
The current sales recovery is stable. The company's sales from January to July were 79.2 billion yuan, down 50% from the same period last year, of which the year-on-year decline in June and July continued to narrow (- 48% respectively), the month-on-month improvement was also continuous, and the recovery momentum was ahead of most of the private sector. We estimate that the gross profit margin of sales in the first half of the year will be 15-20%, which is generally stable compared with the second half of last year. Looking forward, considering that there are plenty of available resources (about 140 billion yuan in the mid-term and about 60 billion yuan in the second half of the year), and more than 80% of them are located in first-and second-tier cities, and about 30% in the Yangtze River Delta, we believe that the monthly sales performance will be steady during the year (16.1 billion yuan in July).
The "concentric circle" strategy landed in an orderly manner. In terms of commercial real estate, the same-store operation of the company is sound, with the opening of five projects of superimposed 2H21. We expect a positive increase in rental income in the first half of the year compared with the same period last year, and the rental rate is roughly the same as the 93.5% at the end of last year. In the first half of the year, Nanchang Cmall opened as scheduled, and we expect that the new opening plan in the second half of the year will also be promoted as scheduled. In terms of long-term rental apartments, the company acquired a R4 plot in Ningbo in the first half of the year under the strategy of both priority and seriousness. Shanghai Xinzhuang talent apartment, a light asset management project, also opened smoothly this month, and Songjiang pomelo rice apartment has been included in indemnificatory rental housing. The agent construction business is ready to start, with 29 new projects in the first half of the year and 35 projects under management at present, covering an area of about 7 million square meters.
Profit forecast and valuation
Based on the delivery schedule and the adjustment of the gross profit margin carried forward, we lowered our profit forecast for 2022-23 by 35% Universe 42% to 473 Universe 4.46 billion yuan (compared with the same period last year-35.1% Universe 5.7%). In addition to short-cycle fluctuations, considering the company's comparative advantages in terms of land storage market, financing capacity and diversified business layout, we believe that it will still outperform its peers in medium-and long-term dimensional fundamentals. As a result, we maintain our outperform industry rating and lower our target price by 53% to HK $2.90 (34% upside, 4.8x5.1 times 2022-23 price-to-earnings ratio), taking into account the EPS adjustment and current investor risk appetite. The company is currently trading at 3.8 times today's earnings and next year's earnings.
Risk
Physical market sales fell more than expected, individual real estate enterprises credit event risk spillover.