2012 results are in line with expectations
In 2012, the Group achieved a turnover of RMB 17.276 billion (we predict RMB 17.873 billion), an increase of about 7% over the previous year, and operating profit of approximately RMB 12.028 billion, an increase of about 12% over the previous year. Profit attributable to the company's shareholders was 752 million yuan, up about 6% year on year; profit per share was RMB 1.135 (we forecast 1.134 yuan), up about 6% year on year, in line with expectations.
The construction business grew steadily and gross margin remained stable
During the reporting period, the Group's construction business achieved turnover of approximately RMB 13.634 billion, an increase of about 14% over last year; operating profit of approximately RMB 465 million, an increase of about 18% over last year; gross margin increased slightly by 3.41% from 3.27% in 2011, and continued to be stable in 2013. The construction business continues to maintain a steady and rapid development trend, mainly due to the continuous steady growth of new projects over the years and the abundant support of the construction business under construction. As of the end of 2012, the contract amount for projects under construction in the Group's construction business reached about RMB 46.551 billion, an increase of about 15% over last year. The new engineering business will continue to follow the middle and high-end construction market route, deeply cultivate the old market, rationally expand the new market, further optimize the market layout, and enhance the quality and scale of the business.
The gross margin level of the real estate business has risen to 38%, and is expected to remain 35-40% in the future
During the reporting period, the Group's real estate business achieved a turnover of 1,671 billion yuan (about 1,767 billion yuan before sales tax and surcharges), down about 33% from last year, exceeding expectations; operating profit was 638 million yuan, an increase of 6%. The decline in turnover was mainly due to the decline in the number of property projects with confirmed revenue during the year from 5 in '11 to 3, and the area of confirmed revenue from 330,000 square meters to 110,000 square meters. Since the Baoye Four Seasons Park project accounts for a relatively high percentage of confirmed revenue, the overall gross margin of the real estate business has risen from 24% in '11 to 38%. In the future, since the Four Seasons Park project's share of confirmed revenue remains stable, the gross margin of the real estate business is expected to remain 35-40%; confirmed revenue is expected to increase 50% to around 2.5 billion yuan.
The economies of scale in the building materials business are becoming more and more apparent, and the gross margin is stable
The building materials business achieved revenue of 1,864 million yuan, an increase of about 23% over the previous year, exceeding expectations; operating profit of 108 million yuan, an increase of about 36% over the previous year; and gross margin increased 0.55 percentage points to 5.78%. Overall, the business has achieved relatively rapid growth, mainly due to the increase in production capacity at the three major residential industrialization bases in Shaoxing, Hefei and Wuhan, and economies of scale are becoming more and more apparent. At the same time, the brand reputation of the building materials business is rising rapidly. For example, Zhejiang Baoye Steel Structure Co., Ltd. was promoted to a first-level professional contracting qualification; Baoye Curtain Wall Decoration Co., Ltd. became the first batch of high-tech enterprises in Zhejiang Province.
Maintain target price of HK$8.83 and confirm purchase rating
The company was given 6 times PE for its construction engineering and construction materials business; combined with the net equity added value of the company's real estate projects, the company's net asset value was HK$17.66 per share, giving the company a 50% NAV discount rate. The company's target price for the next 12 months was HK$8.83, corresponding to the company's earnings of RMB 1.52 and 2.06 yuan per share for the year 13 and 14, with price-earnings ratios of 4.67 times and 3.45 times, respectively. The target price increased by 66% from the current price of HK$5.32, maintaining the buying rating.