The company's contract sales for the fiscal year 2020 to 2023 are expected to grow steadily at a compound annual growth rate of 3.8%. South China City derives synergies from the diversified business model linked by the eight cities. The company implements a win-win development strategy with local governments to obtain land at low unit costs. We expect the company to slow down the land acquisition process.

Continued revenue for the 2019 to 2022 fiscal year is expected to rise rapidly at a compound annual growth rate of 16.9% and account for an increasing share of total revenue, from 22.5% in FY2019 to 27.9% in FY2022. Cash flow from continuing income will help the company strengthen solvency, reduce capital pressure, and promote a healthy debt structure. The net debt ratio is expected to fall 4.3 percentage points year over year to 64.7% in FY2020.

Shareholders' core net profit for FY2020 is expected to increase 11.9% year over year to HK$1,958 million. We expect revenue for fiscal year 2020 to increase 7.5% year over year to HK$11,047 million and gross profit to HK$4,929 million year-on-year.

Gross profit margin, net shareholder interest rate, and shareholder core net interest rate for fiscal year 2020 are expected to be 44.6%, 34.7%, and 17.7%, respectively.

We gave the company a target price of HK$1.20, which is a 63% discount compared to the valuation of HK$3.25 per share in FY2021, which is also equivalent to 5.0 times the core price-earnings ratio for FY2020 and 0.2 times the FY2020 net price-earnings ratio, respectively. The investment rating is “buy”.

Risk factors include: 1) the continued worsening of the COVID-19 pandemic, 2) future increases in unit land costs, and 3) loss of operations.