Overview of events

Huaxia Happy released its semi-annual report 2020. The company achieved 37.37 billion yuan in operating income in the first half of the year,-3.5% last year, and returned to its mother with a net profit of 6.06 billion yuan,-28.5% compared with the same period last year.

The performance has declined, and the profit level has dropped.

2020H1 realized operating income of 37.37 billion yuan, down 3.5% from the same period last year, and its net profit was 6.06 billion yuan, down 28.5% from the same period last year. During the reporting period, the growth rate of the company's net profit was lower than that of revenue: 1) the gross profit margin decreased by 1.8pct to 46.9%; 2) the expense rate increased by 3.4pct to 14.7% during the period; 3) the profit and loss ratio of minority shareholders increased by 6.4pct to 7.5% compared with the same period last year.

The scale of sales is shrinking and investment tends to be positive.

2020H1 achieved sales of 41.93 billion yuan, down 35.0% from the same period last year, and the sales scale has declined. The decline in the company's sales scale is mainly due to the company's low land acquisition efforts in 2018-2019. With the increase of the company's land acquisition intensity, it is expected to recover in the future. During the reporting period, the company added 4.71 million square meters of construction capacity, corresponding to a land premium of 24.15 billion yuan, accounting for 57.6% of the current sales amount, an increase in 35.6pct compared with the whole of last year, and a substantial increase in investment level.

Leverage is significantly reduced and financing channels are unobstructed.

At the end of the reporting period, the company's net debt ratio was 191.85%, lower 33.93pct and leverage ratio than the same period last year. At the same time, after Ping an Life Insurance took a stake in the company and the company became an important strategic cooperative enterprise of Ping An Insurance, the company's financing environment and structure were further improved and optimized, providing a solid guarantee for the sustainable development of the company's business in the future.

Investment suggestion

The happy performance of Huaxia has increased rapidly, the industrial new town model has achieved remarkable results, the financing situation has been improved, and the financial security has been improved. We keep our profit forecast unchanged, as a result of the company's increase in equity, the 20-22 EPS has been adjusted from 6.35 + 7.91 to 4.89-6.09, with a PE of 3.5-2.8-plus 2.3 times, maintaining the company's "overweight" rating.

Risk hint

Sales fall short of expectations, and provision for a decline in inventory prices affects performance.