Revenue rose 23.7 per cent to 33.5 billion yuan (the same below) in the first half of 2020, while net profit rose 1.0 per cent to 5.12 billion yuan, 5.1 per cent less than we expected. By the end of July, Agile had achieved 55% of its sales target. We raised our target price from HK $13.71 to HK $13.89. Maintain the buy rating.
Profits grew moderately in the first half of the year. In the first half of 2020, revenue increased by 23.7% to 33.5 billion yuan, and net profit increased by 1.0% to 5.12 billion yuan, which was 5.1% lower than our forecast of 5.4 billion yuan. During the period, the income from property sales increased by 18.7%, and the income from property management rose 1.1 times to 3.18 billion yuan. The gross profit margin increased by 4 percentage points to 34.4%, but the reduced other income dragged the profit margin before low interest tax demolition (EBIT) by 4 percentage points to 36.5%. Underlying profit rose 32.9% to 5.31 billion yuan in the first half of 2020, while the interim dividend fell from HK $0.60 in the same period last year to HK $0.50 during the period.
The target customer base of the product is the first place and the improved type. Agu is happy to have a contract sales of 55.1 billion yuan in the first half of 2020 and 10.6 billion yuan in July, which has achieved 55% of the annual sales target of 120 billion yuan. The company will launch properties worth 165 billion yuan for sale in the second half of the year. Of the properties sold throughout the year, 89% are aimed at home buyers and improved customers, and about 43% of the properties are in East China and Greater Bay.
41.95 million square meters of land reserve for attributable rights and interests. Agu is happy to buy 20 real estate projects in the first half of 2020, with an equity area of 3.47 million square meters. As of June 2020, the equity reserve amounted to 41.95 million square meters, with an average floor price of 3373 yuan per square metre. As of June 2020, the company has locked in 7 million square meters of urban renewal projects, with a total value of 240 billion yuan.
Diversified business is the trump card. Following the successful spin-off of 3319 HK in February 2018, Agile is pushing ahead with a spin-off of its Yacheng shares and a separate listing on the Hong Kong Stock Exchange. Diversified business is becoming more and more important to the company. The value of elegant life accounts for 28% of our projected net asset value in 2020, while the contribution of diversified business to revenue increased from 9.0% in the first half of 2019 to 12.6% in the first half of 2020.
More splits in the future will reflect the true value of Agile.
Raise the target price. We keep our profit forecast unchanged. As at June 2020, the value of pre-sold properties pending accounting is $95 billion, of which $45.8 billion is available for consolidation. We raised our net asset value at the end of 2020 from HK $27.41 to HK $27.78 per share. Based on a 50% discount on net asset value, we raised our target price from HK $13.71 to HK $13.89.