China Aoyuan's revenue in 2020 rose 34.2% year on year, and gross margin fell about 4.6 percent year on year to 25.1% year on year. Net profit for returning to the mother rose 40.6% to 5.91 billion yuan. We estimate Aoyuan's recurring core net profit rose 2.8% year over year to 4.06 billion yuan. The company paid a dividend of 0.77 yuan per share for the whole year, up 40% year on year, and maintained a distribution ratio of 35%. Apart from the guidelines for housing enterprises with a slight balance ratio exceeding the new financing regulations, the other two are in line with the requirements of the regulations. Aoyuan actively manages debt and aims to reduce interest-bearing liabilities by 5% per year from 2021-23 to optimize the balance and liability structure. The company's new land reserves converted from urban renewal projects accounted for 16% in 2020, entering the harvest period. It is estimated that the total value of the inventory of urban renewal projects is about 673 billion yuan, plus authorized land reserves of about 620 billion yuan. Aoyuan has trillions of sales resources to support future development and maintain Aoyuan's purchase rating. The target price is HK$16 per share.
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Maintain optimal dividend distribution. China Aoyuan's revenue in 2020 rose 34.2% year on year to 67.79 billion yuan, gross profit increased 13.2% year on year to 170.1 billion yuan, and gross margin fell about 4.6 percent year on year to 25.1% year on year.
The management and marketing expenses ratio increased by 0.4 percentage points to 8.6% year on year, operating profit increased 6.7% year on year to 11.15 billion yuan, and net profit to parent rose 40.6% to 5.91 billion yuan. After deducting one-time gains or losses such as changes in fair value of investment properties and changes in net exchange differences, we estimate that Aoyuan's recurring core net profit increased 2.8% to 4.06 billion yuan year on year, and core net interest rate dropped slightly by 1.8 percentage points to 6.0%. The company paid a dividend of 0.77 yuan per share for the whole year, up 40% year on year, and maintained a distribution ratio of 35%.
The target is to reduce annual debt by 5%. By the end of 2020, Aoyuan's total assets were about 325.7 billion yuan and total debt was about 271.4 billion yuan. After deducting contract liabilities from customers, the debt-to-asset ratio was about 78.9%, slightly higher than the required 70%.
Cash at the end of the period was about 70 billion yuan, interest-bearing liabilities due within one year were about 52.3 billion yuan, and the ratio of short-term cash debt was about 134%, which is better than the required 100%. Total interest-bearing debt and net debt were $114.9 billion and $44.8 billion respectively, with total capital of approximately $54.3 billion. The net leverage ratio was about 82.7%, below the required 100%. Aoyuan actively manages debt and aims to reduce interest-bearing liabilities by 5% per year from 2021-23 to optimize the balance and liability structure.
Master trillion in sales resources. The company added 2015 million square meters of land storage in 2020, adding an additional value of about 240 billion yuan. In terms of value of goods, projects from urban renewal and industrial land acquisition accounted for about 16%, tenders accounted for 27%, and mergers and acquisitions accounted for 57%. The share of land acquisition for urban renewal projects has further increased. By the end of 2020, total land reserves were about 57.18 million square meters, with an estimated saleable value of about 620 billion yuan. In addition, Aoyuan also has 60 urban renewal projects at various stages, and is expected to provide additional saleable resources of about 673 billion yuan. The total value of authorized land reserves plus urban renewal projects is estimated to be around 1,300 billion yuan. Aoyuan's contract sales in 2020 were about 133 billion yuan, ranking 29th according to Kerley.
The company targets sales of 150 billion yuan in 2021, which is equivalent to an increase of 12.7%.
Maintain buy ratings. Aoyuan has been deeply involved in the Greater Bay Area for many years and has an absolute advantage in obtaining urban renewal projects. The company expects to convert 160 billion yuan worth of urban renewal projects over the next 3 years to supplement land storage. Under the double centralized land supply policy, the company's comparative advantages in old reform are highlighted and reliance on land acquisition is reduced. We continue to be optimistic about Aoyuan's long-term development and maintain Aoyuan's purchase rating. The target price is HK$16 per share.
Risk warning: Uncertainty about real estate regulation policies and old reforms and transformation.