Incidents:
From January to September 2017, revenue was 2.32 billion yuan, an increase of 102.4%; net profit of the mother was 3.4 million yuan, an increase of 196.2%; basic earnings per share were 0.2512 yuan, an increase of 196.2% over the same period.
Key points of the review
1. Net revenue and profit rose sharply. The increase in settlement and control of taxes were mainly due to: (1) Increased settlement boosted revenue: revenue in the first three quarters was 2.32 billion dollars, an increase of 102.4%, mainly due to the increase in real estate settlement area; gross margin was 30.5%, down 10.9 percentage points from the same period last year, mainly due to the low gross profit of settlement projects. (2) The net profit of the mother was 340 million yuan, an increase of 196.2%, significantly faster than the gross profit growth rate of 49.2%. It was the result of proper tax control and the increase in investment income: financial expenses decreased by 367.09 million yuan compared to the same period last year, a decrease of 30.3%, mainly due to a decrease in interest-bearing debt; investment income increased by 279.72 million yuan, mainly because joint ventures did not meet revenue carry-over conditions in the same period last year. The two increased operating profit by 64.681 million yuan in total.
2. Funding is sufficient, and debt levels are at an all-time low: monetary capital of 3.88 billion yuan at the end of the third quarter, an increase of 69.4% over the same period, mainly due to increased funds returned from sales and reduced investment in development. At the end of the third quarter of 2017, the balance ratio was 60.4%, and the balance ratio after excluding prepaid accounts was 54.3%, a significant decrease from the same period last year (68.1% and 59.0%), and has continued to show a slight downward trend in recent years. The balance ratio has declined from 64.6% in 2015 to 60.4% now. Taken together, the level of debt is at its lowest point in the past ten years. There is plenty of room to borrow money in the future, the combined capital is sufficient, and the basis for the company's scale expansion is good.
3. Performance guarantee is high, and annual performance growth can be expected: (1) High performance guarantee: By the end of the third quarter, the company received 1.75 billion yuan in advance accounts. Assuming that the annual performance reached last year's level, the fourth quarter should have settled at least 1.04 billion yuan, and the advance account guarantee was 168.3%. (2) The settlement of high-quality projects is imminent: the first and second phase of the “Jinhui Park” cooperation project between the company and the Shenzhen Metro has basically been sold out. The first phase is 28,000 yuan/square meter, and the second phase is expected to be settled in the fourth quarter, which is a strong impetus for performance growth. (3) The seasonal nature of settlement is obvious. The fourth quarter is generally a centralized settlement period: 2014-2016, the fourth quarter single-quarter calculation accounted for 72.1%, 36.9%, and 65.9% of the annual results, respectively, and gross profit accounted for 87.9%, 34.7%, and 61.2% respectively. Assuming that this year's revenue does not increase, 69.0% is currently settled, and the fourth quarter is likely to be completed.
4. Regional dividends are superimposed on national reform expectations and remain “highly recommended”:
The Shenzhen-Shantou Cooperation Zone was officially adjusted to be dominated by Shenzhen. As a housing enterprise belonging to Shenzhen, the company benefits from the release of policy dividends, and performance growth can be expected. With its scale and qualification advantages, it is most likely to undertake real estate resource integration projects for Shenzhen's state-owned enterprises and is expected to obtain a large amount of low-cost land. The company's 2017-2019 EPS is expected to be 0.82, 0.99, and 1.34 yuan respectively, and the corresponding PE is 12X, 10X, and 7X respectively. Maintain a “Highly Recommended” rating.
6. Risk warning: The real estate market fell beyond expectations, and company settlement fell short of expectations.