There has been a substantial increase in revenue and a decline in profitability. Dexin China achieved an operating income of 7.65 billion yuan (+ 1175%) in the first half of 2020 and a net profit of 700 million yuan (- 29.7%). There is a big difference between the growth rate of the company's net profit and revenue, mainly as follows: 1) the land cost of the settlement project in the first half of 2020 was higher than that in the same period last year, and the gross profit margin decreased by 8.9pct to 25.7%. 2) the proportion of equity in settlement projects fluctuated in the first half of the year, with the share of joint venture companies' performance as a share of revenue dropped sharply 15.4pct to 6.8 per cent, and net profit as a share of net profit fell 25.5pct to 52.1 per cent. On the whole, the company achieved a substantial increase in revenue in the first half of the year, while the change in the equity ratio of the land settlement project had a certain impact on the decline of the return net interest rate.

Deep ploughing the advantageous area of the Yangtze River Delta, the layout of the national key urban agglomeration. In the first half of 2020, the company actively expanded its high-quality land storage, adding 2.86 million square meters of land reserve (about 94% of which are located in first-and second-tier cities). The company's land reserve area reached 15.71 million square meters in the middle of 2020. In terms of regional layout, the company continues to plough the dominant area of the Yangtze River Delta, and the proportion of soil storage area living in the Yangtze River Delta is as high as 83.3%, of which the soil storage area in Hangzhou, Wenzhou and Ningbo accounts for the highest proportion, accounting for 31.7%, 19.0% and 6.5% of the total soil storage area, respectively. At the same time, the company has also made efforts to lay out other key urban agglomerations across the country, accounting for 14.2% of the total soil area in Chengdu, Chongqing and the middle reaches of the Yangtze River and 2.4% in the Pearl River Delta. The high-quality regional layout has made the company's contract sales pick up quickly in recent months, and the company's sales volume reached 25.71 billion yuan (+ 17.8%) in the first half of 2020, of which Zhejiang Province accounted for 88.9%. An adequate, high-quality and more balanced land reserve may help the company steadily achieve sustainable scale growth.

Liquidity has performed well and leverage has improved slightly. Under good sales performance and cash control, the company's total cash in mid-2020 increased by 38.9% to 13.29 billion yuan compared with the end of 2019, the total interest-bearing liabilities increased by 36.4% compared with the end of 2019, and the short-term debt ratio remained below 40%. The cash-to-short-debt ratio is 1.4 times the same as at the end of 2019, which can effectively cover short-term debt. In terms of leverage, due to the increase in borrowing for land acquisitions and property development, the company's net debt ratio has increased by 7.6pt to 76.3% compared with the end of 2019, and the average financing cost has increased by about 0.5pct to 8.9%. In the current stage of expansion, the company's liquidity performance remains good, leverage level is still relatively controllable, and the company's financial situation is expected to improve with future scale growth.

Maintain a "buy" rating with a target price of HK $4.50. The core EPS of the forecast company from 2020 to 2022 is 0.70,0.90 and 1.15 yuan respectively, with a year-on-year increase of 31.7% 29.9% and 27.5% in core net profit.

Considering the high quality of the company's regional layout, the national expansion is moving forward steadily, maintaining a 50% discount on NAV, with a target price of HK $4.50, corresponding to 5.7x PE in 2020, which is 50% higher than the current price. (the latest share price is the closing price on August 25, 2020)

Risk hints: there is a certain degree of uncertainty in the regulation and control policy; there may be some fluctuations in the company's money sale and settlement.