The results of the three quarterly reports in 2020 meet expectations.

Nanjing Hi-Tech announced 1-3Q20 results: total operating income was 2.4 billion yuan, an increase of 97% over the same period last year, and net profit was 1.8 billion yuan, an increase of 24% over the same period last year, in line with our expectations.

Revenue is high, gross profit margin is down, and investment income is growing steadily. The completed area of the company in the first three quarters (mainly due to the hardcover delivery of the Ziwei Hall project) increased significantly to 360000 square meters compared with the same period last year (120000 square meters), resulting in a doubling of operating income compared with the same period last year; during the period, the company's after-tax gross profit margin fell to 31% (the cost of land acquisition for the main settlement project was higher), and the investment income increased by 3% to 1.2 billion yuan compared with the same period last year (3.9 million yuan in the first / second / third quarter respectively).

The net debt ratio is marginal upward, and the financing advantage is highlighted. The company's net debt ratio at the end of the third quarter rose to 26% from the end of the first half (16%) (mainly due to new short-term borrowing for business development); the asset-liability ratio excluding advance receipts was 43% (basically the same as at the end of the first half). In the first three quarters, the company realized a net cash outflow of 2 billion yuan from operating activities (mainly due to a decrease in sales rebates and an increase in expenditure on the purchase of land use rights, with a net inflow of 1.3 billion yuan in the same period last year). The monetary funds at the end of the period decreased 61% to 1 billion yuan compared with the beginning of the year, equivalent to 22% of the interest-bearing liabilities due within one year. In the third quarter, the company issued three issues of ultra-short-term financing bonds at coupon rates of 2.85%, 2.85% and 3.00% respectively (raising a total of 900 million yuan), and the financing cost was still at a low level in the industry (the average financing cost in the first half of the year was 3.59%).

Trend of development

There is a shortage of available resources for commercial housing, and annual sales are expected to decline sharply. The company's sales in the first three quarters were-77 to 587 million yuan compared with the same period last year (mainly because the overall removal rate of available commercial housing reached 93 percent at the beginning of the year), of which the sales area in the first / second / third quarter was 5.85 billion yuan. The sales area was + 37 percent to 91900 square meters, and the corresponding sales average price decreased to 6390 yuan / square meter from 37602 yuan / square meter in the same period last year (comfortable housing accounted for an increase in sales).

The overall removal rate of the company's current items on sale (Rongjing and Ziwei Hall) has increased to 95%. We expect the company's sales side to remain under pressure in the fourth quarter, and full-year sales will decline sharply compared with the same period last year.

Bank of Nanjing is expected to continue to contribute investment income, and steady profit growth for the whole year is expected. In the first three quarters, the company realized 1.1 billion yuan in investment income from joint ventures (of which 43.7 billion yuan in the first / second / third quarters respectively), accounting for 91% of the total investment income. And the investment income contributed by Bank of Nanjing (87% of the investment income of the joint venture in the first half of the year). We expect Bank of Nanjing's fourth-quarter profit to grow steadily (the market unanimously expects Bank of Nanjing's fourth-quarter profit to be + 7% to 2.7 billion yuan compared with the same period last year), and is expected to continue to contribute to the company's investment income (the company holds a 9.07% stake in Bank of Nanjing at the end of the period). Lead the company to achieve steady profit growth for the whole year.

Profit forecast and valuation

Keep the company's profit forecast unchanged. The company's current share price trades at 6.0amp 5.8 times forecast 2020 / 2021 earnings. Maintain the neutral rating and target price of 12.65 yuan per share, corresponding to 7.5pm 7.3 times 2020max 2021 target price-to-earnings ratio, which has 25% upside compared to the current stock price.

Risk.

The progress of the real estate completion and settlement of the company is not as expected, and the profit contribution of the investment business is not as expected.