Profit in 2020 is expected to increase by 20% year-on-year.

We expect the net profit to return to the mother in 2020 is 9 billion yuan, an increase of 20% over the same period last year, which exceeds the consensus expectation of the market. We believe that the scale of the dividend payout for the whole year will be the same, and the corresponding dividend payout rate will drop by 8 percentage points year on year to 39%, but the dividend yield is still as high as 10%, which is attractive.

Multiple engines drive earnings growth. Although the gross profit margin may fall by 2-3 percentage points from the same period last year, we believe that the positive growth in revenue (up 33 per cent year-on-year) and the disposal gain from the sale of some stakes in several projects to Ping an (a pre-tax profit of about 3.5 billion yuan) are expected to boost the company's net profit. In addition to a year-on-year increase of about 20% in settlement revenue, we expect revenue from multiple businesses to more than double (although the contribution to operating profit is still relatively limited in the short term), and the share of revenue will increase from 15% in 2019 to about 25%.

Marginal improvement in the financial situation. By the end of the first half of 2020, if permanent capital securities are regarded as debt, Agile is an "orange" real estate enterprise; if permanent capital securities are regarded as equity, they are "yellow" real estate enterprises. We expect the company's financial situation to improve by the end of 2020, with a net debt ratio of about 110%, a withholding asset-liability ratio of about 76%, and a cash-to-short debt ratio of more than 1.2 times, which is still in the "orange file" (if permanent capital securities are regarded as equity, it is a "yellow file"). The financial improvement benefited from prudent access to land (land acquisition costs accounted for 24 per cent of sales). In addition, cash rebates from diversified businesses increased by 60 per cent year-on-year, and capital expenditure also decreased. We expect the company's average financing cost to be flat at 6.5%.

Pay attention to the main points

Sales are expected to increase steadily in the next few years. We believe that Agile will continue to take land prudently, and the scale of land reserves will remain basically stable. The value of the company's hand goods is enough to cover sales over the next three years (assuming a compound annual growth rate of about 10%). In addition, as the company's focus has shifted to deep ploughing in the city, we expect the situation to improve marginally. The size of dividend payouts is expected to remain stable in 2021. As a result of the company's increased efforts to repair its financial position, we believe that Agile's dividend size will remain stable in 2021, resulting in a continued decline in dividend yield, but the dividend yield remains attractive at 10%.

Valuation and suggestion

In view of the strong contribution of revenue from diversified businesses, we have raised our profit forecasts for 2020 and 2021 by 10% and 15% to 7.7 billion yuan and 9.1 billion yuan respectively, corresponding to year-on-year growth of 20% and 18%. Given that the financial situation is improving, earnings in 2020 are expected to exceed expectations, and dividend yields are attractive and defensive valuations (3.9 times 2021 P / E), we maintain an outperform industry rating and target price of HK $12.07, corresponding to 4.6 times 2021 P / E, 20% upside from the current share price.

Risk.

Housing policy tightened more than expected.