Key points of investment
The company released its report for the third quarter of '17. It achieved revenue of 2.32 billion yuan in the first three quarters, an increase of 102.3% over the previous year, and net profit attributable to shareholders of listed companies was 3.4 billion yuan, an increase of 196% over the previous year, and EPS of 0.25 yuan;
A sharp increase in investment income boosts high performance growth
The main reasons for the sharp increase in the company's net profit during the reporting period were: 1. The increase in carry-over scale in the current period led to a rise in revenue; 2. Investment income increased 236.6% year-on-year due to the joint venture Jinhui Park project meeting settlement conditions; 3. The decline in the size of the company's interest-bearing debt led to a 30.3% year-on-year decrease in financial expenses. In terms of gross margin, the company's comprehensive gross margin narrowed 11 percentage points to 30% year-on-year due to the relatively high settlement of low gross profit projects in the current period, but it is still at a high level in the industry. Looking ahead to the whole year, we expect the Jinhui Park project to contribute about 450 million yuan in investment income. The company's advance accounts also reached a high level of 1.75 billion yuan in recent years at the end of the third quarter, and annual results can be expected.
The Shenzhen-Shantou Cooperation Zone is now fully dominated by Shenzhen, and the company's resource dividend is expected to be delivered at an accelerated pace
In early September, the adjustment plan for the institutional mechanism of the Shenzhen-Shantou Special Administrative Region was approved by the Guangdong Provincial Committee. It was officially transferred from Shenzhen-Shantou joint management to Shenzhen's overall leadership, and changed to an agency assigned by the Shenzhen Municipal Committee. We believe this adjustment will help to deepen resource collaboration between the Cooperation Zone and Shenzhen and promote the rapid development of the Cooperation Zone. As one of the first developers to enter the cooperative zone, the company obtained the Zhenye Times Garden project in March 2016, worth nearly 1.7 billion dollars. With the company's first-mover advantage, the company is expected to enjoy the resource dividends brought by regional development.
Abundant capital, asset consolidation initiated
By the end of the reporting period, the company's net debt ratio had fallen to 3%, down 22 percentage points from 2016, a new low in nearly 5 years, but short-term debt repayment pressure reached 72%, up 47 percentage points from the end of 2016. The monetary capital in hand reached a record high of 3.88 billion yuan, consolidating the company's financial advantage for future development and transformation. At the beginning of September this year, the company was suspended due to asset restructuring planned by the Shenzhen State-owned Assets Administration Commission, the controlling shareholder. The company is a top listed real estate platform directly under the Shenzhen State-owned Assets Administration Commission. As asset integration progresses, the company's resource endowment will be further optimized.
Profit forecasts and investment ratings
The company is one of the housing enterprises that set up the Shenzhen-Shantou Cooperation Zone earlier. As the cooperation zone changes to be fully dominated by Shenzhen, the cooperation zone will enter a fast track of development, and the company is expected to enjoy regional dividends. As a listing platform directly under the Shenzhen State-owned Assets Administration Commission, the company's asset integration is progressing as scheduled, gradually expanding and strengthening. We expect the company's EPS of 0.76 and 0.95 yuan in 17-18, corresponding to PE multiples of 13x and 10.4x, to maintain the “buy” rating.
Risk warning events: company sales fall short of expectations, corporate restructuring progress falls short of expectations, etc.