Incident Overview
China Evergrande released an operating data announcement for January to June 22. The company achieved cumulative sales of RMB 315.3 billion from January to June 22, an increase of 11.9% over the previous year.
Sales have continued to increase steadily, and the impact of the epidemic has abated
From January to June 22, 2020, the company achieved a cumulative sales amount of RMB 315.3 billion, an increase of 11.9% over the previous year, and achieved 48.5% of the annual target sales. Furthermore, according to the May operating data announcement, the company achieved monthly sales of 60.22 billion yuan in May, an increase of 12.5% over the previous year. The sales area was 6.367 million square meters, an increase of 28.0% over the previous year. The average sales price was 9458 yuan/square meter, down 12.1% from the previous year and an increase of 3.4% from the previous month. Under the influence of the epidemic, the company's sales remained resilient and ranked in the top three in the industry. At the same time, average sales prices rose month-on-month, showing strong overall strength.
Short-term fluctuations in performance will not change the long-term positive trend
In 2019, the company achieved revenue of RMB 478.96 billion, an increase of 2.4% over the previous year; the net profit of the mother was RMB 17.28 billion, a decrease of 53.8% over the previous year. Furthermore, the company's return on net assets and net sales interest rate in 2019 were 11.86% and 7.00% respectively. Profitability declined from -16.25pct and -7.22pct in the same period last year. In 2020, the company proposed to fully implement the strategy of “high growth, scale control, and debt reduction”. On the one hand, it set high growth targets of 80 billion yuan in 2020 and 1 trillion yuan in 2022. On the other hand, it plans to drastically reduce total debt and net debt ratio. It is expected that the company's overall profitability will gradually increase in the future, and at the same time, performance will return to high-quality growth.
Investment advice
China Evergrande's sales performance is strong. It has fully implemented the strategy of “high growth, scale control, and debt reduction”. Performance is expected to return to high-quality growth, sufficient land reserves, and manageable financial risks. We expect the company's EPS for 20-22 to be 2.19, 2.53, and 2.86 yuan/share, and the corresponding PE is 9.1, 7.9, and 7.0 times. Considering that the company's future fundamentals have more room for marginal improvement, the stability of the top three housing enterprises in the industry is high and covered for the first time, giving the company an “increase in holdings” rating.
Risk warning
Sales fell short of expectations, and settlement margins declined.