Our opinion: The company performed well in the first half of the year, with a sharp increase of 509% in core net profit, mainly due to changes in the delivery structure. The company will launch a number of new projects in Jinan, Shanghai, Foshan, etc. in the second half of the year. The pace of promotion is accelerating. It is expected that there will be little pressure to achieve the annual target of 42 billion dollars. In the first half of the year, the company successfully acquired land at the wrong peak. It maintained conservative land acquisition until May, avoiding the hot period in the land market. Since June, the company has seized the window and actively obtained land storage. From January to July, sufficient cargo volume (3.89 million square meters) was added, providing the foundation for continued growth in sales scale. The company's current stock price corresponds to 4.5 times PE in 2018, with a dividend yield of 4.5%.
Mid-2019 was in line with expectations: in the first half of 2019, the company achieved revenue of HK$17.5 billion (same below), an increase of 150% over the previous year. Gross profit was HK$7.2 billion, up 198% year on year, and gross margin was 42.4%, up 6.8 percentage points year on year. Core net profit was HK$3.8 billion, a sharp increase of 509% over the previous year, and the core net interest rate was 21.6%, an increase of 12.7 percentage points over the previous year. The company's impressive performance in the first half of the year was mainly due to the carry-over of the Hong Kong Longyu Project, which had a high value and profit margin, in the first half of the year (a carry-over of 7.8 billion yuan, accounting for 54% of the total transfer amount), which was in line with overall expectations.
Increased promotion efforts in the second half of 2019: In the first half of 2019, the company achieved contract sales volume and sales area of RMB 19.9 billion and 1.13 million square meters, down 17% and 15%, respectively, from the previous year. The average contract sales price was 17,564 yuan/square meter, down 3% from the previous year. As of the first half of the year, compared to the annual sales completion rate of the 42 billion target company for the whole year, the company's promotion in the second half of the year accounted for 60% of the year. It plans to launch 8 new listings, and the annual target is likely to be completed. The company's contract sales for the first half of the year were distributed by region. The Yangtze River Delta, Pearl River Delta, southwest China, other regions and Hong Kong accounted for 39%, 12%, 14%, 33% and 2% respectively.
Active land acquisition in the past two months: In the first half of 2019, the company added a total of 4 plots of land in Shenzhen, Suzhou, Hong Kong and Foshan, with a total construction area of 2.55 million square meters and an equity area of 1.93 million square meters. The equity ratio was 54.5%, the equity land payment was RMB 141 billion, and the average new land cost was 10,144 yuan/square meter (including Hong Kong). In July, the company seized the land market window, increased investment efforts, obtained two projects in Kunming and Tai'an, adding 1.34 million square meters of construction area. As of 2019H1, the company's total land reserve was 21.89 million square meters, and the overall average land cost was 6,497 yuan/square meter. Land reserves are divided by region. The Yangtze River Delta, Pearl River Delta, Southwest China, other regions and overseas regions account for 13%, 19%, 38%, 28%, and 2% respectively.
Risk warning: slowdown in macroeconomic growth, tightening of industry restrictions, tightening of market liquidity, contract sales falling short of expectations, sharp depreciation of the RMB
