Key points of investment:
The company's revenue declined and performance declined in 2016, but sales grew rapidly, in line with expectations. The company achieved revenue of 3.53 billion yuan, a year-on-year decrease of 7.1%. Net profit attributable to shareholders of listed companies was -377 million yuan. The company and its holding subsidiaries achieved a contract sales amount of 11.48 billion yuan and achieved the strategic goal of “sales amount exceeding 10 billion dollars” during the development strategy planning period, an increase of 425.6% over the previous year; the contract sales area was 654,000 square meters, an increase of 415.7% over the previous year. Sales of goods and services received 8.30 billion dollars in cash, an increase of 265.9% over the previous year. The company's performance improved in the first quarter of 2017, with revenue of 970 million yuan, an increase of 64.4% over the previous year; it achieved net profit of 0.5 billion yuan to the mother, an increase of 1531.3% over the previous year.
The slow increase in prices for major settlement items and the sharp increase in three fees have dragged down the company's performance. The company's 2016 settlement projects are still dominated by the Xinke Park in Shuanggang New Home in Jinnan District, the Xinying Manor Project, and the Tianxin Jinyuan Project in Huaming New Home in Dongli District, located outside the outer ring road of Tianjin. The overall supply of real estate in and around the area where the above projects are located is high, and the increase in project sales prices is limited. At the same time, the company raised a lot in 2016, with financial expenses of 390 million dollars (up 142.4% year on year). The company also increased its sales efforts for low gross profit and high inventory projects, causing sales expenses to rise rapidly (300 million yuan, an increase of 114.3% over the previous year).
As low-margin projects are gradually settled, we expect gross margin to rise in 2017 and 2018.
Real estate sales were good, and there was rapid expansion from other locations in 2016. The company's sales amount in 2016 exceeded 10 billion dollars for the first time, with an average sales price of 17,554 yuan/square meter, which is basically the same as in 2015. The planned construction area of the company obtained additional land reserves in 2016 was 617,000 square meters, an increase of 134.9% over the previous year. Among them, the equity area is 424,200 square meters, the two Suzhou projects have a planned construction area of 504,000 square meters, and the average land acquisition price is 13,354 yuan/square meter. In the first quarter of 2017, it also acquired two plots of land in Tianjin at a price of 4.24 billion yuan, and the attitude of replenishing inventory was firm.
Advance accounts are sufficient, and the debt ratio is rising rapidly. The company received 7.40 billion dollars in advance accounts in the first quarter of 2017, an increase of 373.0% over the previous year.
Adequate advance accounts guarantee that this year's performance will improve to a certain extent. The total number of bonds currently issued by the company is 6.4 billion yuan. The annual interest expenses on bonds in 2017-2019 were about 4.6 billion yuan, which is a heavy financial burden. The company's real balance ratio excluding prepaid accounts in the first quarter of 2017 was 79.7%, up 3.9 percentage points from the first quarter of last year, and is at a high level in the industry (balance ratio after excluding prepaid accounts = (total liabilities - prepaid accounts)/(total assets - accounts received in advance)).
A leading real estate development enterprise in Tianjin, with strong strength. The company is the largest listed real estate development enterprise in Tianjin. It has obvious regional competitive advantages and strong project acquisition and resource integration capabilities. Tianfang Group, the majority shareholder, is the largest housing enterprise in Tianjin. It has competitive advantages throughout the industry chain and has strong government resources.
Profit Forecast and Investment Rating: Lower the profit forecast and maintain a neutral rating. The company is rooted in the Tianjin region, benefited from the improvement of the real estate market in the Tianjin region, and is actively expanding into Suzhou, and is expected to reverse losses this year. Due to the influence of real estate regulation policies, it is expected that the company's future sales growth rate will stabilize, so we lowered our profit forecast. The net profit attributable to the parent company in 2017-2019 was 110 million yuan/160 million yuan/260 million yuan, corresponding to EPS: 0.10 yuan/0.15 yuan/0.23 yuan (originally estimated net profit attributable to the parent company in 17-18 was 268 million yuan/684 million yuan, corresponding EPS: 0.24/0.62 yuan), maintaining a neutral rating.
