Results in the first half of 2020 are in line with expectations

Huayuan Real Estate announced 1H20 annual results: operating income of 1.3 billion yuan, down 17% from the same period last year, and net profit of 170 million yuan, down 7% from the same period last year, which is in line with our expectations.

The carry-over of completion decreased and the gross profit margin went up. Income from the decline in the number of properties eligible for carry-over fell in the first half from a year earlier (down 44 per cent in the first quarter and 2 per cent in the second quarter, respectively), and after-tax gross profit margin rose 5.7ppt to 28.5 per cent compared with the same period last year. Investment income fell 79 per cent year-on-year to 40 million yuan (mainly due to a high base due to the settlement of joint venture projects in Tianjin in the same period last year).

The net debt ratio is still high and the operating cash flow is positive. The company's net debt ratio at the end of the period is 234%, which is basically the same as at the beginning of the year. During the period, the cash recovery rate was 99% (73% last year), the operating net cash flow was positive (1.4 billion yuan), and the cash on hand increased 9% to 7.7 billion yuan compared with the beginning of the period. the weighted average issuing rate of corporate credit bonds in the first half of the year was 5.18%, down 0.53ppt from last year and at a lower level in the industry.

Trend of development

Full-year sales are expected to increase by 10% compared with the same period last year. The company's sales / sales area in the first half of the year fell 17% to 5.1 billion yuan / 390,000 square meters (of which sales fell 1% in the second quarter compared with the same period last year), and the average sales price rose 5% to 13170 yuan / ping. With the entry of Renqiu and other projects into the market in the second half of the year, the company will accelerate its sales in the second half of the year. We expect the company to record year-on-year sales growth in the second half of the year, and is expected to achieve the sales target of 16.5 billion yuan (an increase of about 10% over the same period last year).

The company is expected to be cautious on the land side, continue to control leverage and reduce debt. In order to maintain the safety of cash flow and reduce the debt scale, the company has no new land reserves in the first half of the year. Considering that the current unsold value of the company reaches 60 billion yuan, which can cover the sales growth in the next 2-3 years, we expect the company to remain cautious in taking land in the second half of the year. We expect the company to continue to control leverage and reduce debt, and the net debt ratio is expected to decline by the end of the year. The short-term cash loan ratio of the company at the end of the period is 0.4 times, mainly because it is prudent to include the bonds entering the return period into the interest-bearing liabilities maturing within one year, but in view of the low proportion of actual resale of bonds and the smooth financing channels of the company, short-term debt can be replaced by debt rollover, borrowing new and repaying the old, and we expect the company's cash short-loan ratio to pick up at the end of the year.

Annual revenue and earnings are expected to grow steadily. Due to the completion schedule, there is no completed area in the first half of the year, and we expect the company to still meet the completion target of 1.37 million square meters for the whole year (an increase of 49% over the same period last year). The amount of housing received in advance at the end of the period increased by 32% to 13.5 billion yuan compared with the beginning of the period (1.5 times our projected settlement income in 2020). We expect the company's annual revenue and profit to achieve steady growth.

Profit forecast and valuation

Keep the company's profit forecast unchanged. The company's current share price trades at 6.4x2020xx20xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx202020xxxxxxxxxxxxx

Risk

In the main layout, urban regulation and control policies tightened more than expected, and financing policies tightened more than expected.