Longguang Group's revenue in 2020 increased by 23.7% compared with the same period last year, and its gross profit margin remained at a relatively high level in the same industry. Operating profit rose 13.7 per cent from a year earlier, while net profit rose 15.5 per cent to 13.02 billion yuan. We estimate that Longguang's recurrent core net profit rose 17.8 per cent to 12.05 billion yuan compared with the same period last year. Longguang three new financing indicators can be qualified, is one of a small number of "green" housing enterprises, the overall asset leverage risk is low. Moody's Corporation was upgraded to Ba2 in February.
By the end of 2020, the company will have a total land storage of about 7200 million square meters, with an estimated sales value of about 1.232 trillion yuan, of which about 522 billion yuan will be available for recent development. The company aims to increase sales by 20% in 2021, equivalent to 144.8 billion yuan, which is higher than the average growth rate of the industry. We maintain Longguang's buy rating with a target price of HK $18.50 per share.
Report content
The gross profit margin remains high. Longguang Group's revenue rose 23.7% year-on-year to 71.08 billion yuan in 2020, gross profit rose 17.6% year-on-year to 21.33 billion yuan, and gross profit margin slightly decreased by about 1.5% to 30%, maintaining a high level in the industry. Operating profit rose 13.7% year-on-year to 17.83 billion yuan, while net profit rose 15.5% to 13.02 billion yuan. After deducting one-time gains or losses such as changes in the fair value of investment properties, net changes in the fair value of derivative financial instruments, and changes in net exchange differences, we estimate that Longguang's recurrent core net profit rose 17.8% year-on-year to 12.05 billion yuan. The core net interest rate fell slightly by 0.8 percentage point to 17%. On the whole, the industry volume is large enough to meet expectations, and its profitability is better than that of other general housing enterprises.
The international credit rating rose. By the end of 2020, Longguang had total assets of about 243.5 billion yuan and total debts of about 185.2 billion yuan. After deducting contractual liabilities from customers, the debt-to-asset ratio was about 69.8%, lower than the required 70%.
The cash is about 41 billion yuan, the interest-bearing debt due within one year is about 23.3 billion yuan, and the cash-to-debt ratio is about 176%, which is better than the prescribed 100%. The total interest-bearing liabilities and net debts are 82.5 billion yuan and 41.5 billion yuan respectively, the total capital is about 58.3 billion yuan, and the net leverage ratio is about 71.1%, which is lower than the prescribed 100%. Longguang three new financing indicators can be qualified, is one of a small number of "green" housing enterprises, the overall asset leverage risk is low. Moody's Corporation was upgraded to Ba2 in February.
Sales maintained high growth. The company will add 1857 million square meters of land storage in 2020, with a new equity value of about 386 billion yuan. In terms of goods value, about 78% come from urban renewal projects, 22% come from bidding and auction, and the proportion of land taken by urban renewal projects has further increased. By the end of 2020, the total land storage will be about 7200 million square meters, with an estimated sales value of about 1.232 trillion yuan, of which about 522 billion yuan (3920 million square meters) will be available for recent development and 710 billion yuan (3280 million square meters) for urban renewal projects. The average land-to-cargo ratio of land storage is about 32%, which is mainly concentrated in the Great Bay area. The company's 2020 equity contract sales of about 120.7 billion yuan, according to Kerry ranked 20th. The company aims to increase sales by 20% in 2021, equivalent to 144.8 billion yuan, which is higher than the average growth rate of the industry.
Maintain the buy rating. Longguang has been ploughing the Dawan area for many years and has an absolute advantage in the acquisition of urban renewal projects. the company expects to convert 150 billion yuan worth of urban renewal projects in the next three years to supplement the land reserve for short-term development, under the policy of double centralization of land supply. highlight the company's comparative advantage in old reform. In addition, Longguang's healthy asset-liability structure gives its developers and industrial operations flexibility. In 2025, the company plans to hold more than 5 million square meters of commercial area, open a total of 30 businesses, and earn more than 3 billion yuan in rental income. Further optimize the revenue structure. We maintain Longguang's buy rating with a target price of HK $18.50 per share.
Risk hints: real estate regulation and control policies, the uncertainty of the transformation of the old reform.