Incident: The company announced its 2019 annual results, with revenue of 3.644 billion yuan, a year-on-year decrease of 47.21%, a year-on-year decrease of 606 million yuan, a year-on-year decrease of 41.08%, and a year-on-year deduction of non-net profit of 462 million yuan, a year-on-year decrease of 29.80%. The main reason for the decline in performance was the decline in real estate settlements and investment returns.

Low debt ratios, high net interest rates, and declining real estate sales and investment income have dragged down performance: 1) Delayed sales and settlement of projects dragged down performance:

The company achieved sales of 2.8 billion dollars and an area of 160,000 square meters in 2019. As the projects were all close to completion, the settlement sources were mainly Bay Valley Science Park, the capital of New Jiangwan, and the Luxiangyuan High Area; settlement revenue declined due to delays in sales of key projects; 2) The debt ratio was low, and the net debt ratio was only 22%, leaving room for subsequent expansion: the company's withholding debt ratio of 43.9%, net debt ratio of 21.9%. The company's low debt ratio laid the foundation for subsequent expansion. The company added 164 acres of land storage in 2019, which was a record high; 3) Net interest rate reached 17%, significantly higher than the same level in the calendar year; 3) The net interest rate was as high as 17%, significantly higher than the same as the previous year; Industry: Company The net interest rate for settlement in 2019 was close to 17%, accounting for 4.44% of expenses during the period. The company's net interest rate level was significantly higher than that of peers. 4) Investment income declined due to a decrease in the scale of financial asset sales: the company's investment income of 337 million decreased by 290 million yuan compared to 627 million last year, mainly from the reduction in the scale of financial asset sales. This year's investment income mainly came from subsidiary dividends of 173 million, changes in the fair value of financial assets 72 million, and income from disposal of financial assets of 47 million (Everbright Bank and China Investment, 450 million in 2018), income from foreign loans 0.46 million.

Key projects will fully enter the market in 2020, and performance will reverse the company's value revaluation: 1) Key projects will be listed centrally in 2020: without considering guaranteed housing and rental housing, we expect the low area of Luxiang Garden (not sold 110,000 square meters, value of goods worth 22 billion yuan), the southern area of the Bay Valley Science Park (not sold 110,000 square meters, 3.5 billion yuan), the Zhujiajiao project (not sold 150,000 square meters, value of goods worth 5.1 billion yuan), Shang Pu Linshi (unsold 780,000 square meters, value of goods worth 3.53 billion yuan, equity 36%). The company's high-margin commercial housing projects will all enter this year Market sales; 2) Revaluation value of each share 15.5 yuan: The company's real estate project was revalued at 121 billion yuan (Luxiangyuan's 6.6 billion, Zhujiajiao's 1 billion, Shangpu Lingshi 1.9 billion, etc.), the company's investment real estate was revalued at 4.4 billion yuan, and the equity investment was revalued at 3.4 billion yuan (Western Securities and Chengding), with a total value added of 19.06 billion yuan. The revaluation value of each share was 15.5 yuan, and the stock price was only 5.4 yuan.

The company will continue to make efforts to promote development in the fields of old reform, infrastructure, and venture capital: the company's current business is mainly in the three major fields of real estate development (commercial housing, old reform, guaranteed housing, etc.), real estate operation (rental housing), and investment (direct equity and venture capital). The company proposed key directions in the annual report that will further focus on urban infrastructure-related fields to make better use of its strengths and professional capabilities. In 2020, it will work in three directions: 1) Infrastructure: Actively laying out integrated infrastructure projects in the Yangtze River Delta; 2) Rental/Old Reform: The company is one of the themes of the Shanghai Rental Housing Construction Group in 2019. New; 3) “New Technology Infrastructure” Investment Project/Venture Capital: The company will rely on its main business to strengthen its industrial layout and business to explore “new technology infrastructure” investment opportunities. The company's strategic positioning is to focus on innovative real estate business, combined with upgraded urban infrastructure business, to become a characteristic real estate service provider and urban industry chain investor in the Yangtze River Delta urban area.

Investment advice: As the main force of urban construction in Shanghai, the company continues to make efforts in the fields of old reform, infrastructure, venture capital, etc., with the full entry of high-margin projects in 2020, the company's performance is expected to reverse. At the same time, Shanghai promoted a second mixed reform. The company underwent a mixed reform, which is expected to continue to benefit in the future. Due to adjustments in the company's project sales schedule, we have adjusted the company's profit forecast. We expect the company's net profit in 2020-2022 to be 1,142 million, 1,633 billion, 2,239 million yuan respectively (the original 2020-2021 was 22.59, respectively. 3.158 billion yuan). The corresponding EPS was 0.45, 0.65, 0.89 yuan/share, and the corresponding PE was 12.0X, 8.4X, 6.1X. The company revalued each share at about 15.5 yuan. Referring to comparable companies, they gave the company a target price of 10.85 yuan at a 30% discount, maintaining the “buy” rating.

Risk warning: Real estate business settlement falls short of expectations, investment returns fall short of expectations