Key points of investment:
The market was weakened by the pandemic, and China Evergrande's sales bucked the trend and increased 23.2% in January-January.
1) From January to January 2020, the company's contract sales amount was 147.36 billion yuan, an increase of 23.2% over the previous year; the contract sales area was 165.81 million square meters, an increase of 50.4% over the previous year.
2) According to the sales performance ranking data for January-January 2020 released by Kerrey and Brihan, the trading volume of the top 100 real estate companies reached 1482 billion yuan, down 20.1% from the previous year; the equity amount reached 1245.3 billion yuan, down 21.2% from the previous year; the equity ratio was 84%.
3) In an environment where the epidemic is compounded by the holiday season and sales are falling, the company's sales data is eye-catching. We believe that the reason for the contrarian increase is related to the company's sufficient sales resources, active adoption of new marketing models such as “online home sales” and price promotions to seize market opportunities.
The 20-year sales target is 650 billion yuan, which has reached 22.7%. The company announced in the “Annual Results Announcement for the Year Ended December 31, 2019” that the 2020 sales target was RMB 650 billion, and that 22.7% of the sales target was achieved in January-January.
Profit forecast: We expect real estate development and sales revenue of approximately RMB 538.8 billion, RMB 609 billion, and RMB 677.5 billion in 2020-2022, respectively. Based on the progress of the projects in the four major business segments, we expect the company's total revenue in 2020-2022 to be approximately RMB 553.4 billion, RMB 625.4 billion, and RMB 695.3 billion, respectively. We expect gross margins of 30.00%, 29.00%, and 29.00% respectively for 2020 and 2022, and net profit to the mother of the mother is 27.9 billion yuan, 32.1 billion yuan, and 36.1 billion yuan respectively.
Investment advice: Give a “better than the market” rating. The company's strategic development started again in 2020 and fully implemented the “high growth, scale control, and debt reduction” development strategy: making full use of huge land reserves and the great advantages of online housing sales to achieve rapid sales growth; control the size of land reserves to achieve negative growth in land reserves; plans to reduce total land reserves by about 30 million square meters per year on average; and plans to drastically reduce total debt and net debt ratio. We expect EPS to be $2.11 and $2.42 for 2020 and 2021, respectively. As of April 08, 2020, the company closed at HK$13.42 (RMB 12.20), corresponding to 2020 and 2021 PE 5.78 times and 5.04 times respectively, and the corresponding PEG value for 2020 was 0.16. Considering the implementation of the company's new strategy, sales targets continue to grow, and the debt scale is expected to decline. We gave the company 7-8XPE 2020, a reasonable value range of HK$16.25-18.57 (RMB 14.77-16.88), giving it a “superior market” rating.
Risk warning: The company faces the risk of declining fundamentals in the real estate industry; sales of the company's third- and fourth-tier projects fell short of expectations; settlement fell short of expectations. Full text HKD 1 = RMB 0.9091.