The results of the three quarterly reports in 2020 were lower than we expected.
Huaxia Happiness announced 1-3Q20 results, operating revenue fell 12% year-on-year to 56.7 billion yuan, and home net profit dropped 25% to 7.3 billion yuan, lower than our expectations, mainly due to:
1) the decline in the settlement income of the real estate business, resulting in a decrease in operating income compared with the same period last year; 2) a substantial increase in financial expenses, resulting in an increase of 301% to 3.7 billion yuan due to the increase in interest expenditure during the period; 3) a high increase in the provision for bad debts (mainly for the settlement of accounts receivable from the park), and credit impairment losses increased by 119% to 950 million yuan over the same period last year. 4) the profit and loss of minority shareholders has increased by more than four times, the company's cooperative projects have been settled one after another, and the proportion of settlement rights and interests has dropped significantly.
Trend of development
The revenue of the industrial park is expected to increase by 40% for the whole year, and the growth rate of real estate sales is under pressure. In the first three quarters of the company, the settlement income of the industrial park increased by 37% to 26.1 billion yuan compared with the same period last year. We expect that with the support of about 200 billion yuan of unlanded settlement park investment, the industrial park income will continue to grow at a relatively high rate in the fourth quarter, and is expected to record about 40% growth for the whole year. In the first three quarters, the company's contracted real estate sales fell 61% year-on-year to 30.9 billion yuan, and the contracted area fell 64% to 3.29 million square meters (Beijing, Tianjin, Hebei and other cities fell 60% and 66% respectively). As the current availability is still low, we expect the company's full-year property sales growth to be under pressure; total contracted sales are expected to fall by about 10% year-on-year.
Land acquisition slowed down in the third quarter, and the intensity of land supply for the whole year may be lower than expected. In the first three quarters, the amount of land held by the company fell 9% to 26.6 billion yuan compared with the same period last year, and the area of land occupied decreased 18% to 5.48 million square meters compared with the same period last year, including 89% and 69% respectively in the third quarter compared with the same period last year. We believe that the slowdown in land acquisition is mainly due to the reduction of leverage after the tightening of financing policy. It is expected that the company will remain cautious in obtaining land in the fourth quarter, and the land subsidy for the whole year may be lower than expected.
Financial indicators still need to be improved, focusing on short-term cash security. The company's commercial real estate business is active, and the value of goods will be launched one after another. During the period, the company obtained 4 commercial projects, with a total construction area of 2.1 million square meters, and the expenditure on land acquisition was 10.2 billion yuan, accounting for 51% of the total expenditure on land acquisition. At present, projects in Harbin, Guangzhou, Wuhan and other places have started, with a total construction area of 560,000 square meters during the period. we expect the value of the project to be launched next year, which will lead to an increase in the signed sales volume and price of the company.
Profit forecast and valuation
Considering that the company's real estate settlement income is lower than expected, we cut our 2020% earnings per share forecast for 2021 by 20% per share to 3.58max 4.47 yuan per share. The current share price is trading at 4. 0 / 3.2 times 2020 / 2021. Maintain the outperform industry rating, and lower the target price by 19% to 16.28 yuan to reflect the earnings forecast adjustment, corresponding to 4.5 times 2020 Universe 2021 target price-to-earnings ratio and 13% upside.
Risk.
The growth rate of real estate sales and settlement was lower than expected; the financing environment tightened more than expected; and property market policies in major cities tightened more than expected.