Core viewpoints
According to the annual report, the company achieved revenue of 20.5 billion yuan in 2018,-2% year-on-year, net profit of 1.4 billion yuan,-27% year-on-year, weighted average ROE of 12.9%,-7.3% year-on-year, and proposed cash dividend of 2 yuan for every 10 shares, a dividend rate of 31.9%, and + 14.3% year-on-year. In addition, the company released a quarterly report that 2019Q1 achieved revenue of 3.2 billion yuan, + 6% compared with the same period last year, and net profit of 400 million yuan,-28% compared with the same period last year. The company's performance fell short of expectations. The company is the only real estate listing subject of Guangming Group. We expect that the company will make use of the advantages of the group to actively expand and accelerate turnover, sprint the sales target of 30 billion yuan, and achieve steady growth. We expect the company's EPS to be 0.70,0.80,0.96 yuan in 2019-2021, maintaining a "buy" rating.
The gross profit margin improved significantly, and the decline in performance was mainly due to the decline in the scale of carryover and investment income.
In 2018, the profit level of the carry-over project of the company was relatively high, and the gross profit margin of the development business was 32%, + 11% compared with the same period last year, but the decline in performance compared with the same period last year was due to: 1) the completed area was 142,000,000 square meters, which was-42% compared with the same period last year, resulting in a decline in the scale of real estate carryover. The revenue of the development business is 19.6 billion yuan,-2% compared with the same period last year. 2) the sale of equity in the project company in 2017 led to an investment income of 1.3 billion yuan, while in 2018, affected by the carry-over rhythm, the investment income was a loss of 50 million yuan; 3) the sharp increase in land value-added tax led to an increase of 800 million yuan in taxes and surcharges; and 4) the provision for inventory decline in Yantai, Nanning, Jinhua, Heze and other projects led to an increase of 400 million yuan in asset impairment losses. The company's Q1 performance continued to decline, mainly affected by 18Q1's sale of Shanghai Lishui Road high-margin commercial projects to form a high base.
Sales remain stable and expansion efforts are greatly increased.
In 2018, the new construction area is 4.73 million square meters, + 85% compared with the same period last year; the sales area is 2.62 million square meters,-6% compared with the same period last year; the sales amount is 24.5 billion yuan, + 3% compared with the same period last year. We expect to make efforts towards 30 billion yuan in 2019. The company expanded to speed up, using auction, acquisition, mergers and acquisitions, government coordination and other means, increased the real estate reserve area of 145 million square meters, + 53% compared with the same period last year. By the end of 2018, we calculated that the reserve capacity construction surface was 1.32 million square meters, and the uncompleted capacity construction surface was 4.86 million square meters, totaling 6.18 million square meters, of which first-tier (only Shanghai), second-tier and third-and fourth-tier cities accounted for 18%, 43% and 39%. The Yangtze River Delta accounts for 65%. 2019Q1 has increased its real estate reserve area by + 35% compared with the same period last year, maintaining a high degree of expansion. In the future, it is expected to continue to take advantage of the advantages of the group to seek opportunities in projects such as Shanghai indemnificatory apartment and the reconstruction of villages in the city, the development of Chongming Island, and the docking of soil storage within the group.
Generous dividend returns to shareholders, group endorsement highlights financing advantages
In 2018, the company significantly stepped up its dividend efforts, with a planned dividend rate of 31.9%, an increase of 14.3 percentage points over the same period last year. Due to the strengthening of expansion efforts, the company's interest-bearing liabilities (including perpetual debt) at the end of 2018 were 37.2 billion yuan, a sharp increase of 69% over the same period last year, and the net debt ratio increased by 93 percentage points to 226%. However, with the endorsement of Guangming Group, the controlling shareholder of state-owned enterprises, it is expected to maintain a good financing advantage. During the reporting period, we actively promoted financing through multiple channels such as medium-term notes, perpetual debt, ABS at the end of house purchase, and CMBS of cold-chain warehousing logistics. In 2018, the average financing cost decreased by 0.1 percentage point to 5.3% compared with the same period last year.
Actively expand the future and maintain the "buy" rating
Considering the decline of the company's carry-over scale but the project profit level higher than expected, we lower the forecast revenue and increase the gross profit margin, and the company's EPS is expected to be 0.70,0.80,0.96 yuan in 2019-2021 (the previous value is 0.92,1.05 in 2019-2020). With reference to the comparable company's PE valuation of 10.6 times in 2019, we believe that the company's reasonable PE valuation level in 2019 is 10-11 times, with a target price of 7.00-7.70 yuan (the previous value is 4.57-4.98), maintaining a "buy" rating.
Risk hints: the pace, scope and intensity of industry policy promotion are uncertain; the decline in real estate fundamentals may be a drag on company sales; land reserves are low; and rapid debt growth brings pressure on the capital chain.
