1-3Q19 earned 0.13 yuan per share, up 2% from the same period last year, lower than expected

Huayuan Real Estate announced 1-3Q19 results: operating income of 3.2 billion yuan, an increase of 3% over the same period last year, and net profit of 300 million yuan, an increase of 2.5% over the same period last year, corresponding to a profit of 0.13 yuan per share, which was lower than our expectations (mainly because the settlement progress of real estate projects was lower than expected).

The net profit of deducting non-return fell by more than 20%, and the gross profit margin fell. The company's 3Q19 revenue fell 9 per cent year-on-year (mainly due to a decline in settlement), driving revenue growth to 3 per cent in the first three quarters. Due to the increase in land value-added tax in the first three quarters, taxes and surcharges increased by 104% compared with the same period last year, causing the gross profit margin to fall 2.7 percentage points to 23.2% compared with the same period last year. The rate of three items of expenses increased by 10.3 percentage points to 22.7% (sales expenses increased by 83% year-on-year, financial expenses increased from-10 million yuan to 180 million yuan), and investment income more than tripled from the same period last year (mainly due to the high proportion of joint venture projects carried over). Finally, the net profit deducted from non-return decreased by 23% compared with the same period last year.

The operating cash flow is positive, and the advantage of the financing side is highlighted. The company's end-of-period net debt ratio fell 28 percentage points to 229% (179% in the same period last year), still at a high level in the industry. The inflow of operating cash in the third quarter was 2 billion yuan (27 yuan in the first quarter and 3.2 billion yuan in the second quarter, respectively). The cash on hand was 1.1 times the interest-bearing liability due within one year, which was better than the middle report. In the second half of the year, the company completed two debt financing plans (the first phase is 1 billion yuan, the term is 2 years, the cost is 6.92%; the second phase is 1.3 billion yuan, the term is 3 years, and the cost is 6.95%), and issues an ultra-short-term financing bond at a cost of 4.10% to raise 1 billion yuan.

Trend of development

It is expected to achieve the sales target of 15 billion yuan for the whole year. In the first three quarters, the company's contract sales / contract sales area increased by 2% compared with the same period last year, respectively, to 9.3 billion yuan / 720000 square meters, and the corresponding average sales price decreased by 4 percent to 12812 yuan / square meters. We expect that with the acceleration of the company's delivery in the fourth quarter and the introduction of new acquisition projects into the market one after another, we will be able to achieve the sales target of 15 billion yuan for the whole year, corresponding to a year-on-year growth rate of 25%.

Actively replenish the resources of core cities. During the period, the company added 1.13 million square meters of land storage in Shijiazhuang, Chongqing and Yinchuan, with a total land price of 5.6 billion yuan. At present, the sales value of the company can exceed 60 billion yuan, and the company plans to further plough the layout of the city and actively supplement high-quality resources in the future. During the period, the new construction area of the company is 1.43 million square meters, and 82% of the annual plan has been completed. We expect sufficient available resources to support the company's future sales growth.

Profit forecast and valuation

Considering that the company's full-year consolidated project settlement progress is likely to be lower than expected, we cut earnings per share by 9% per share to 0.34 per cent to 0.38 per share. The current share price trades at 7.1gram 6.4 times 2019amp 2020e. Maintain the neutral rating, downgrade the target price by 3% to 2.39 yuan (mainly because the settlement is lower than expected), and the new target price corresponds to 6.4 times the 2020 target price-to-earnings ratio and 1% downside space for 2019.

Risk.

The main layout of urban real estate regulation and control policies tightened more than expected; the settlement progress was lower than expected.