The first half of 2022 results are in line with expectations.
The company announced 1H22 results: revenue increased 94% year-on-year to 10.6 billion yuan, and home net profit increased 90% year-on-year to 1.1 billion yuan, in line with the performance forecast (80% up 110% year-on-year) and in line with market expectations.
The profit margin of the development business is under pressure, and the investment income drives the performance growth. 1H22's development business settlement revenue rose 119 per cent year-on-year to 9.6 billion yuan, but after-tax gross profit margin fell 13.5ppt to 15.8 per cent year-on-year, resulting in a 4.5 per cent increase in gross profit. During the period, the company's disposal of the Ritz-Carlton Hotel in Financial Street led to a substantial increase in investment income and asset disposal income to 730 million yuan and 240 million yuan (- 15 million yuan and-230000 yuan respectively in the same period last year), and the final homing net profit increased by 90% compared with the same period last year. Net profit after deducting non-recurrent profits and losses increased by 170% to 180 million yuan.
The "three red lines" are still in the orange file, and the financing advantages of state-owned enterprises are highlighted. At the end of 1H22, the company's interest-bearing debt was 80.2 billion yuan, which was flat and slightly lower than at the beginning of the year, but the failure to meet the expectations of rebates for some projects led to a 31% drop in cash on hand from the beginning of the year. As a result, the cash-to-short debt ratio decreased from 1.4 times at the beginning of the year to 0.9%, the net debt ratio increased by 9ppt to 156% from the beginning of the year, and the pre-debt ratio decreased by 1.6ppt to 69.9% from the beginning of the year. As a local state-owned enterprise, the financing channel of the company remains unblocked with the support of the group. our statistics show that the company issued five corporate bonds, one medium-term note and two ABS in the first half of 2022, corresponding to a total financing amount of 5.23 billion yuan, with a weighted average coupon rate of only 3.3%.
Trend of development
The ranking of sales rose in the first half of the year, and it is expected that sales for the whole year will outperform the industry. The company's first-half sales fell 46 per cent year-on-year to 11.7 billion yuan (including residential products down 48 per cent and commercial products up 9 per cent), while corresponding sales rose from 83rd at the end of 2021 to 69th at the end of 1H22. During the period, the company acquired a new project in Tianjin through equity acquisition, with a construction area of 15.91 million square meters at the end of the period (of which first-and second-tier cities accounted for more than 60%). We estimate that the current land storage can support sales for 4 years. We expect the company to continue to promote the elimination of the project through a variety of sales strategies, and the full-year sales performance is expected to be better than the industry average.
Asset management business thickens profits and pays attention to the follow-up operation. In the first half of the year, the income of the company's asset management business was 940 million yuan, down 13% from the same period last year, and the profit before interest and tax was 490 million yuan. We estimate that the corresponding net profit is about 370 million yuan, accounting for 33% of the total net profit in the current period. According to the type of property, hotels, cultural travel and other operating properties were obviously dragged down by the epidemic, but office buildings, commerce and other rental properties performed well, and key projects such as Financial Street Center and Yuetan Center successfully completed lease renewal. Looking forward, we believe that the company will actively carry out the work of attracting and stabilizing investment, optimize the brand portfolio, enhance the high-quality property performance and thicken the performance of high-quality properties in core cities.
Profit forecast and valuation
Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 10.2 times 2023 / 10.0 times 2023. Maintain an outperform industry rating and a list price of 6.42 yuan, corresponding to 11.6 times 2022 price-to-earnings ratio and 11.4 times 2023 price-to-earnings ratio, which has 13% upward space compared with the current stock price.
Risk.
The duration and impact of the epidemic exceeded expectations, and the progress of development and sales was slower than expected.
