1-3Q20 performance is lower than we expected.
The first joint stock announced 1-3Q20 performance: the operating income was 24.4 billion yuan, down 17% from the same period last year; the net profit was 1.4 billion yuan, down 42% from the same period last year, which was lower than our expectation.
The lower-than-expected performance was mainly due to the lower-than-expected progress and gross profit margin of the real estate business. The profit-making area of the company's real estate sales in the first three quarters was-38 to 870000 square meters compared with the same period last year, the after-tax gross profit decreased by 12.8ppt to 18.7%, and the after-tax gross profit decreased by more than 50% compared with the same period last year. During the period, the company's three-item expense rate increased by 4.1ppt to 15.1% compared with the same period last year, and the investment income increased significantly to 1.5 billion yuan (mainly due to the increase of 200 million yuan in the same period last year due to the disposal of the shares of subsidiaries and the recognition of the investment income recognized by the joint venture). The fair value change income recorded 400 million yuan (32 million yuan in the same period last year), resulting in a year-on-year drop in net profit of more than 40%.
The cash flow of operating activities is positive in a single quarter, and the solvency of short-term debt has improved. The company realized a net cash inflow of 4 billion yuan from operating activities in the third quarter, narrowing the cumulative net cash outflow in the first three quarters to 3.8 billion yuan (7.8 billion yuan in the first half of the year). At the end of the period, the company's cash on hand increased by 9% to 29.5 billion yuan compared with the end of the first half of the year, which is 1.0 times of the interest-bearing liabilities due within one year (0.9 times at the end of last year).
Trend of development
Sales are expected to remain stable throughout the year. The company's sales in the first three quarters are-2% to 67.5 billion yuan compared with the same period last year (+ 23% in the first / second / third quarter respectively), and the corresponding equity ratio is 60% (Kerry caliber, 66% in 2019). The sales area is-3% to 2.35 million square meters, and the average sales price is 28769 yuan per square meter (basically the same as in the same period last year). In 2020, the company plans to achieve contracted sales of 101.1 billion yuan (year-on-year level). We expect the company to achieve its sales target smoothly (implied fourth-quarter sales + 4% year-on-year) with the support of about 180 billion yuan of saleable value.
Take the land intensity up, deeply ploughing the core urban agglomeration. In the first three quarters, the company's new land reserve increased by 70% to 2.77 million square meters compared with the same period last year, equivalent to 118% of the sales area in the same period (64% in 2019). The company's new land reserves are mainly distributed in core urban agglomerations such as the Yangtze River Delta / Beijing-Tianjin-Hebei / West Coast of the Taiwan Strait / Guangdong-Hong Kong-Macau Greater Bay Area, accounting for 39%, 33%, 16%, 2%, respectively. We expect that the company will continue to dig deep into the core area and optimize the soil storage structure.
Profit forecast and valuation
Considering that the company's settlement progress and gross profit margin were lower than we had expected, the earnings per share forecast for 2020 / 2021 was reduced by 6% by 8% to 1.12% by 1.26 yuan. The company's current share price trades at 5.5max 4.9 times 2020max's 2021 forecast price / earnings ratio. Maintain the neutral rating, downgrade the target price by 3% to 6.15 yuan (to reflect earnings adjustment), corresponding to 5.5ta 4.9 times 2020amp 2021 target price-to-earnings ratio and 0.3% downside.
Risk.
The progress of the carry-over was lower than expected; the gross margin for settlement fell by more than expected.
