Maintain a "buy" rating with a target price of HK $18.00: the company has sufficient reserves of urban renewal projects and is concentrated in the Greater Bay area. Thanks to the policy dividend, the company is expected to speed up the transformation of urban renewal, replenish high-quality and low-cost land reserves, and the company's gross profit margin has room for improvement. We expect the company's core net profit in 2022 to be 5.94 billion yuan, a year-on-year increase of 19.7% and 19.5%. Maintaining the "buy" rating, based on a downward valuation of the property sector as a whole, the target price was cut by 10 per cent from HK $20.00 to HK $18.00, corresponding to the 2021 prime 5.0 times and 4.2 times PE in 2022, with a current dividend yield of more than 8 per cent, with 68 per cent room for improvement from the current share price.
The company's 2020 performance was lower than expected: the company's 2020 operating income was 38.58 billion yuan (the same below), down 9.1% from the same period last year; the company's core return net profit was 4.96 billion yuan, down 9.2% from the same period last year.
The gross profit margin was 28.8%, down 0.5 percentage points from the same period last year; the core return net profit rate was 12.9%, basically unchanged. The company's dividend is stable, with a dividend of 76.68% in 2020, with a dividend rate of 28% of the core net profit, and the performance is slightly lower than expected.
Urban renewal and transformation accounted for 60% of the new land storage: in 2020, the company added a total of 3.6 million square meters of land storage, of which urban renewal and transformation contributed 2.2 million square meters, accounting for 61% of the new land storage. The company accelerates the progress of urban renewal and transformation, replenishes high-quality and low-cost land storage, and effectively controls land costs. By the end of 2020, the company's land reserve is 2159 million square meters, enough for the development of the next three years; the company has more than 160 urban renewal projects, with a potential soil reserve of 5337 million square meters, and the urban renewal business is expected to enter the harvest period.
Contract sales exceeded 100 billion yuan: in 2020, the company's contract sales volume was 100.4 billion yuan, an increase of 28.1% over the same period last year, and achieved 122% of the annual sales target, of which 78% were contract sales in the Greater Bay area.
The company's sales target for 2021 is 110 billion yuan, an increase of 10% over 2020. The company is expected to maintain steady growth by strengthening sales and cash flow management.
The debt structure has been optimized and financing costs have been reduced: by the end of 2020, the company's net debt ratio was 65.6%, down 1.6 percentage points from the end of 2019; and the average financing cost was 7.3%, down 0.2% from the end of 2019, mainly due to the replacement of new and old debts. the debt structure is further optimized. By the end of 2020, the company has 37.96 billion yuan in cash on hand, 18.07 billion yuan in debt due within one year, and 2.1 times the cash-to-debt ratio.
Risk tips: slower macroeconomic growth; tighter industry regulation and control policies; tighter liquidity; lower-than-expected corporate sales; devaluation of RMB; and lower-than-expected progress of urban renewal projects