Forecast profit growth of 3% year-on-year in 2019

We expect the company to achieve a net profit of 770 million yuan in 2019, corresponding to a year-on-year growth rate of 3% and a profit per share of 0.33 yuan.

Pay attention to the main points

In 2019, the performance increased steadily and slightly, and the profit margin declined. We expect the company's revenue to grow by 14% year-on-year in 2019, taking into account the decline in the margin of open project gross profit margin and the increase in interest-bearing liabilities leading to an increase in financial expenses. We estimate that the company's homing net profit margin will fall back to 10.0% and 8.9% in 2019 and 2020, corresponding to year-on-year profit growth of 3% and 8%.

Sales are expected to continue to grow in 2020. The company realized sales / equity sales of 16.1 billion yuan / 12.6 billion yuan in 2019, an increase of 44% and 12% respectively over the same period last year. We expect that with the support of the salable value of 30 billion yuan, the company's sales in 2020 are expected to continue the growth trend. In 2019, the company added 2.38 million square meters of land storage in Chongqing, Shijiazhuang, Renqiu and other cities, an increase of 18% over the same period last year; the total amount of land acquired was 8.6 billion yuan, down 9% from the same period last year, accounting for 54% of the current sales. We expect that the company will continue to rely on financing advantages to find quality opportunities in the land market this year.

The net debt ratio remains high and the financing side maintains its advantage. The company's net debt ratio at the end of 3Q19 is 229% (258% at the end of 1H19). Considering the continued trend of 4Q19 plus leverage, we expect the net debt ratio to remain high at the end of 2019. In 2019, the company issued six domestic corporate bonds to raise 5.5 billion yuan, with an average cost of 5.6%, and issued a US dollar bond at a cost of 8.5% to raise US $300 million. We expect the average financing cost of the company to rise in 2019, but the financing channels will remain open.

The dividend ratio is expected to be maintained at more than 30%. We expect the company to maintain a dividend ratio of more than 30 per cent in 2019 and 2020 (29 per cent in 2017 and 38 per cent in 2018), corresponding to a dividend yield of 5.2 per cent in 2019 and 5.6 per cent in 2020.

Valuation and suggestion

Taking into account the downward trend of the company's settlement profit margin, we lowered our earnings per share forecast for 2019 by 5% to 0.33 per cent to 0.36 per share, and introduced a profit forecast of 0.39 per share in 2021. The company's current share price trades at 6.3 pound 5.8 times 2020 pound's 2021 forward price / earnings ratio. Maintain the neutral rating, downgrade the target price by 4% to 2.15 yuan (mainly due to the downward settlement margin and higher financial charges), corresponding to 5.6 times the 2021 target price-to-earnings ratio and 4% downside space.

Risk

The regulation and control policies of the main layout cities tightened more than expected, and the duration of COVID-19 's epidemic situation was longer than expected.