1-3Q20 performance is lower than we expected.
Chinese enterprises announced 1-3Q20 results: operating income was 6 billion yuan, down 43% from the same period last year; net profit from home was 600 million yuan, down 66% from the same period last year, lower than our expectations, mainly because: 1) the carry-over income and rental income from real estate development fell less than expected, resulting in a year-on-year decline in operating income; 2) the gross profit margin declined, and the company's after-tax gross profit margin fell 4.8ppt to 31.5% year on year during the period. 3) the proportion of minority shareholders' profit and loss in after-tax profits has increased (mainly due to the decline in the proportion of settlement rights and interests), to 47% from 23% in the same period last year. If non-recurrent gains and losses such as investment income (143 million yuan) realized by the transfer of Shanghai Xingxin real estate equity are deducted, the company's non-net profit deducted from the parent will drop 79% to 400 million yuan compared with the same period last year.
The financial side is safe and sound, and the cash flow of business activities is positive. The company's net debt ratio at the end of the third quarter fell to 22% from the end of the first half (28%), and the asset-liability ratio excluding advance receipts was 59% (61% at the end of the first half), keeping the industry low. The company realized a net cash inflow of 2.7 billion yuan in operating activities in the third quarter (mainly due to an increase in sales rebates and a decrease in tax and fee expenses), which led to a net cash flow of 1.6 billion yuan in operating activities in the first three quarters (a net outflow of 1.1 billion yuan in the first half of the year). At the end of the period, the company's cash on hand increased by 6% to 10.9 billion yuan compared with the end of the first half, which was 2.9 times of the interest-bearing liabilities due within one year (2.3 times at the end of the first half).
Trend of development
Sales for the whole year are expected to record negative growth compared with the same period last year. The company achieved sales of 6.3 billion yuan in the first three quarters,-16% compared with the same period last year (50% in the first / second / third quarter respectively); the sales area was 110000 square meters, which was-37% compared with the same period last year; the corresponding average sales price was + 34% to 56368 yuan per square meter (mainly due to the substantial increase in the proportion of sales in Shanghai to 80%). We expect the company to continue to actively promote the elimination of sales of Shanghui Haoting, Binjiang Yuefu and Banshan No.1 in the fourth quarter, narrowing the year-on-year decline in sales to about 10%.
Rental income in the fourth quarter is under pressure and is expected to fall by nearly 20% for the whole year. The company's rental income in the first three quarters was-25% to 340 million yuan compared with the same period last year (compared with the same period in the first / second / third quarter, respectively,-45%, 18%, 14%, respectively), and the rental income in the third quarter returned to 86% in the same period last year (55% in the first / second quarter, respectively). 82%). Looking ahead, we expect the company's rental income to pick up in the fourth quarter but still record negative year-on-year growth, with full-year rental income falling by about 20% year-on-year. In the future, with the completion of office buildings in the core area of Shanghai, such as China Enterprise International Financial Center, China Enterprise Fortune Century Building and China Enterprise Future Century Building, we expect that the rental income of company-owned properties is expected to increase year by year. contribute to stable cash flow and profits.
Profit forecast and valuation
Considering that the company's full-year carry-over progress and rental income may be lower than we had expected, we lowered our 2020 Universe earnings forecast by 52% per share in 2021 to 0.19x0.32 yuan per share. The company's current share price trades at 20.6 pound 12.0 times 2020 pound 2021. Maintain a neutral rating and a target price of 3.91 yuan per share (taking into account the increased risk appetite of financially sound companies under the financing stall management of real estate enterprises), corresponding to 20.8x12.1 times 2020max 2021 target price-to-earnings ratio, which has 1% upside compared to the current stock price.
Risk.
The scope and extent of COVID-19 's epidemic situation exceeded expectations, and the progress of carryover was not as expected.