Our opinion: The company is prudent in acquiring land and has good cost control. Currently, the company has sufficient land reserves. 70% are located in first- and second-tier cities, which will benefit from market recovery. Judging from the company's new start-up plans and sales targets, its contract sales will remain at their current scale. The financial cost advantage that the company has is currently not being effectively used. After several years of adjustments, the company's performance entered a period of steady release. At the beginning of the year, 109.75 million share options were granted to key management and employees, which is conducive to improving management efficiency. The company's current stock price corresponds to 2018 net profit PE 5.6 times, with a dividend yield of 4%.
Improved profit levels: Poly Properties Group's revenue for the full year of 2018 was HK$23.23 billion, down 26.7% year on year. Among them, property sales revenue was $21.3 billion, down 28.7% year on year, and property investment and management revenue was $1.61 billion, up 11% year on year. It accounted for 19% of operating income; gross profit was HK$8.52 billion, up 50.5% year on year; gross margin was 36.7%, up 16.1 percentage points over the same period last year; core net profit was HK$2.29 billion, up 17.0% year on year, and core net interest rate was 9.9%, up 3.7 percentage points from the same period last year. The company paid 12.3 HK cents per share for the whole year, down 8.9% from the same period last year. The payout rate was 20% of the net profit of the parent. According to current stock prices, the dividend yield reached 4%.
Contract sales maintained scale: in 2018, the company achieved contract sales amount and area of 40.8 billion yuan and 2.24 million square meters, an increase of 1.4% and a decrease of 15.1% over the previous year. The average sales price for the whole year reached 18,193 yuan/square meter. Eight new projects were opened throughout the year, and 68 projects continued to be sold. By region, the company's contract sales accounted for 31% in the Yangtze River Delta region, 13% in the Pearl River Delta region, 24% in the southwest region, 27% in other regions, and 5% in Hong Kong and overseas regions. The company's contract sales target for 2019 was 42 billion yuan, a slight increase of 3% over the previous year.
Adequate land reserves: In 2018, the company added 14 new plots of land, with a construction area of 3,427 million square meters, of which the equity area was 2,434 million square meters, and the average land cost was 4,600 yuan/square meter. As of 2018, the company's total land reserve was 2,025 million square meters, of which the equity area was 10.93 million square meters, and the average land cost was 4,911 yuan/square meter. By region, the company's land storage accounts for 14% in the Yangtze River Delta region, 12% in the Pearl River Delta region, 43% in the southwest region, 29% in other regions, and 2% in Hong Kong and overseas regions.
Risk warning: Slowing macroeconomic growth, tightening of industry regulation policies, tightening of liquidity, commercial housing sales falling short of expectations, and devaluation of the RMB.
