The company's performance is comprehensive and sound, with core income growing by 11% and the balance sheet in the green category. In the short term, we expect the company to reach 100 billion yuan in 2021 (15% year-on-year growth) and will have enough money to accelerate the development of shopping malls (there will be 11 malls by 2022 and 3-5 projects a year thereafter). In the medium to long term, the company will optimize land acquisition channels through more mergers and acquisitions / composite projects to improve its share and profitability, as the land price / average selling price will be 50% in 2020, which may put pressure on profit margins (22% in 2020). Maintain the buy rating.
Contract sales-the target is to grow by 15% year-on-year to 100 billion yuan. In 2020, the company recorded contract / attributable sales of 865,000,000 yuan (an increase of 33%), of which Jiangsu accounted for 53% and other parts of the Yangtze River Delta accounted for 25%. In view of the surge in land purchases in 2020 (49 billion yuan, or 57 per cent of total sales), the company has prepared 155 billion yuan of saleable resources, 60 per cent of which are located in the Yangtze River Delta region, enough to meet the target (65 per cent sales rate). However, it is worth noting that as land prices / average selling prices reach 50 per cent in 2020, profit margins are likely to fall further to 20 per cent (22 per cent in 2020). In addition, the proportion of equity sales may continue to be less than 50% in the short term (47% in 2020), mainly because the proportion of equity land reserve is only 48%. This could expand the MI ratio in the income statement (10 per cent in 2020), compared with 45 per cent on the balance sheet.
Double the number of shopping malls in two years. As a rising star of shopping malls in the Yangtze River Delta region, the company operates six shopping centers, with revenue of 505 million yuan (accounting for 3% of total revenue) in 2020. Based on the reserves, we expect the company to open five shopping malls (2 heavy assets and 3 light assets) within 2 years, which will boost rents by 15% year-on-year. In the medium term, management guides 3-5 composite projects per year and continues to focus on operations and tenant mix (occupancy rate > 90% in 2020).
2020 results-the balance sheet entered the green category, and core income increased by 11% year-on-year. The company's revenue rose 33% year-on-year to 20.2 billion yuan. Gross profit margin fell from 25.1% in 2019 to 22.4% in 2020. Thanks to the disposal income of 252 million yuan, the core net profit margin shrank by only 1.3 percentage points, and the core profit increased by 11% to 1.3 billion yuan compared with the same period last year. The dividend in 2020 is 0.122 yuan per share (the dividend payout ratio is 20%). For the balance sheet, the company meets all the "three red lines" requirements, with a net debt ratio of 50%, unlimited cash / short-term debt of 1.1 times, and liabilities / assets (excluding pre-sales) of 69.4%.
Maintain the buy rating. The company's current share price is worth 3.8 times 2021 earnings, which looks attractive. We keep our earnings forecast unchanged and our buy rating maintained.
