Net shareholders' profit increased 19.0% year over year to HK$4,063 billion in 2019. In 2019, Shenzhen's holding revenue fell 10.4% year on year to HK$14.919 billion, mainly due to a decrease in carry-over construction in 2019. We expect the company's core net profit from 2020 to 2022 to be HK$4.302 billion, HK$4,049 billion and HK$3,817 million respectively.

Shenzhen's holding contract sales have been impacted by the COVID-19 pandemic, but with the value of HK$18.1 billion of sold and uncarried forward goods, the company's 2020 carry-over revenue was locked ahead of schedule. In 2019, corporate contract sales recorded RMB 16.798 billion, up 2.1% year on year; in January-January 2020, corporate contract sales recorded RMB 2,571 billion, up 77.4% year on year. The COVID-19 pandemic has delayed the company's construction schedule and new project entry schedule, and some new projects will be delayed until 2021. As a result, Shenzhen Holdings lowered its 2020 contract sales target to about 13 billion yuan, which meant a 22% year-on-year decline and a removal rate of about 36%.

At the end of 2019, the company's land reserves were 4.38 million square meters, the lowest in 5 years. Since some projects in Shenzhen were completed in 2019, the share of land reserves in Shenzhen fell to 45%, down from 70% in the previous four years. With its background as a state-owned enterprise in Shenzhen, Shenzhen Holdings is expected to increase investment and expansion in 2020, acquire more high-quality land to supplement land storage, and support future development.

We gave the company a target price of HK$2.80, which is a 45% discount compared to the 2020 valuation of HK$5.07 per share, which is also equivalent to 5.6 times the 2020 core price-earnings ratio and 0.5 times the 2020 net price-earnings ratio, respectively. The investment rating is “buy”. Risk factors include: 1) uncertainty about land acquisition and 2) the continued worsening of the COVID-19 pandemic.