It is forecast that the first-half profit will grow by 3% compared with the same period last year, slightly exceeding market expectations. We expect the company's first-half net profit to grow by 3% to 5.2 billion yuan over the same period last year. The dividend payout rate based on the return net profit is 40-50%, which is basically the same as before, and the corresponding interim dividend yield is 7%.
All lines of business have developed in an all-round way. We expect strong revenue growth in 2020 (20% Murray 30% year-on-year growth), providing solid support for profitability. Specifically, we expect that the company's settlement income in Hainan in the first half of the year will exceed 10 billion yuan, and the gross profit margin will be as high as 60%.
In addition, we expect diversified business revenue to grow by 75% year-on-year in the first half of the year, accounting for 12% of total revenue (9% in 2019). The company also obtained a disposal income of 700 million yuan through the disposal of part of the equity interest in the Egret Lake project, providing additional support for profits.
Marginal improvement in the financial situation. Taking into account the cautious acquisition of land in the first half of the year (excluding mergers and acquisitions, the total cost of acquiring land accounts for only 16% of sales in the same period), we expect the scale of interest-bearing liabilities to remain stable at the end of the first half of the year, with the net debt ratio unchanged from that at the end of 2019 (131%). At the same time, we believe that average financing costs are expected to decline slightly in the first half of the year.
Pay attention to the main points
The annual sales target (120 billion yuan, unchanged from the same period last year) is expected to be successfully completed. Agile plans to push 220 billion yuan (10% year-on-year growth) in 2020, mainly concentrated in its advantageous areas (Guangdong, Hainan, Yunnan and the Yangtze River Delta) to provide protection for resilience. The company's first-half sales reached 55 billion yuan (down 5% from the same period last year), achieving 46% of its annual sales target, of which more than 80% contributed to the above-mentioned regions.
The current valuation is attractive, and the market expects that the improvement and the split listing of Yacheng will lead to a revaluation. The company's current share price corresponds to a price-to-earnings ratio of 5 times 2020 earnings, a 40 per cent NAV discount and a market capitalization of HK $38 billion, while we estimate that Yacheng's fair value is HK $9.6 billion. We also expect dividend yields of 10.5% and 11.5% for 2020 and 2021, respectively.
Valuation and suggestion
We keep our profit forecast unchanged. Maintain an outperform industry rating and target price of HK $10.98 (corresponding to a price-to-earnings ratio of 5.6 times 2020 earnings and a NAV discount of 32 per cent), with 13 per cent upside from the current share price.
Risk.
Tighter real estate and financing policies