Performance review
2019 performance is in line with our expectations
Huayuan Real Estate announced its 2019 results: operating income of 7.4 billion yuan, an increase of 9% over the same period last year; net profit of 760 million yuan, an increase of 1% over the same period last year, corresponding to a profit of 0.32 yuan per share, which is basically in line with our expectations. The proposed dividend per share is 0.12 yuan, and the corresponding dividend rate is 37%.
Real estate settlement income increased slightly, and rising taxes and fees were a drag on performance growth. In 2019, the settlement income of the company's real estate business increased by 10% to 7 billion yuan compared with the same period last year, and the land value-added tax increased by 41% to 390 million yuan. The gross profit after tax was only the same as last year, and the gross profit margin after tax fell 1.8% to 20.9%. The rate of expenses for the three items increased by 4.8% to 12.9%, of which sales expenses increased by 54% to 500 million yuan over the same period last year, and financial expenses totaled 170 million yuan (- 10 million yuan in the same period last year, mainly due to a substantial increase in interest expenses and exchange losses).
The net debt ratio is still high, focusing on short-term debt repayment pressure. The company's net debt ratio at the end of 2019 was 230%, up 87 percentage points from the beginning of the year and at a high level in the industry. Due to the high expenditure on land acquisition and construction and security during the period, the cash outflow from operating activities was 4.3 billion yuan (3.1 billion yuan in 2018). At the end of the period, the cash on hand shrank by 30% to 7.1 billion yuan, accounting for only 52% of short-term interest-bearing liabilities.
Trend of development
Sales are expected to increase by nearly 10% in 2020, and the scale of land investment will remain stable. At the end of 2019, the reserve value of the company exceeds 70 billion yuan, which can cover the sales growth in the next 2-3 years. We expect to achieve the sales target of 16.5 billion yuan in 2020, corresponding to a year-on-year growth rate of nearly 10%. The company took a total of 8.6 billion yuan of land in 2019 (corresponding to 57% of the land acquisition intensity). We expect the company to actively replenish the warehouse in 2020, the land acquisition intensity will be maintained at about 50%, and the corresponding land investment is about 8 billion yuan, the same as in 2019.
The performance is expected to grow steadily in 2020 and 2021. At the end of 2019, the company's housing payment in advance increased by 43% year-on-year to 10.2 billion yuan (1.2 times our projected settlement income in 2020), and plans to complete 1.37 million square meters in 2020, an increase of 49% over the same period last year, with sufficient carry-over resources. We judge that the company's settlement gross profit margin will decline slightly in 2020 and 2021, and the return net profit will grow steadily (corresponding to 10% and 9% year-on-year growth respectively).
High dividend and high dividend yield are expected to continue. The company plans to pay a dividend of 0.12 yuan per share in 2019, with a corresponding dividend ratio of 37% (38% in 2018) and a dividend yield of 5.5% in 2019 (we cover an average of 4.9% of real estate enterprises). We expect the company to maintain a dividend ratio of more than 30% in 2020 and 2021.
Profit forecast and valuation
Keep profit forecasts for 2020 and 2021 unchanged. The company's current share price trades at 6.1 pounds, 5.6 times 2020 pounds, 2021 times earnings. Keep the neutral rating and target price 2.15 yuan unchanged, corresponding to 6.0pm 5.7 times 2020max 2021 target price-to-earnings ratio and 1% downside.
Risk
The progress of sales and settlement was lower than expected; the regulation and control policies of major cities tightened more than expected.
