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According to the company's annual report for 2020, the total operating income was 509.85 billion yuan, up 6.4% from the same period last year; the net profit from the home was 8.08 billion yuan, down 53.3% from the same period last year; and the core net profit was 30.13 billion yuan, down 26.2% from the same period last year. It is proposed to pay a dividend of 1.52 yuan per 10 shares, with a dividend rate of 24.9%.

Comments:

More than 500 billion of revenue leads the industry, with outstanding contributions from two major business sectors, real estate development and property management. In 2020, the company achieved 507.25 billion yuan in main business income, an increase of 6.2% over the same period last year, ranking first among the housing enterprises that have published annual reports. Specifically, the real estate development and sales sector accounted for the largest proportion of total revenue (97.5%). In 2020, the operating income was 494.55 billion yuan, an increase of 6.5% over the same period last year. The increase was mainly due to the delivery of 948 projects during the year, and the delivery area increased by 11.6% over 2019. The rental income was 1.28 billion yuan. Affected by the epidemic, preferential rent reduction measures were adopted in the first half of the year, resulting in a decrease of 6.5% compared with the same period last year, but rental income in the second half of 2020 increased by 51.2% compared with the same period in 2019. Revenue from property management services was 6.56 billion yuan, a year-on-year increase of 49.8%, mainly due to the expansion of property management scale. Other businesses mainly include new energy vehicle business, hotel operation, Internet business, health business and investment business, with a total revenue of 4.87 billion yuan, down 32.9% from the same period last year. By the end of 2020, the company had received 185.75 billion yuan in advance, a sharp increase of 43.2% over the same period last year, with an advance of 0.37% / operating income, which was lower than that of its peers and 0.1 higher than that of the company at the end of 2019.

Net profit fell by more than 50% compared with the same period last year, and profitability declined. In 2020, the company realized a net profit of 8.08 billion yuan, a decrease of 53.3% compared with the same period last year. The main reasons are as follows: 1) the gross profit decreased by 7.8% compared with the same period last year, mainly due to the influence of the epidemic, the company carried out national promotional activities, implemented sales price concessions, and the average sales price decreased. In addition, the company's average settlement cost per square meter increased by 0.8% compared with the same period last year. As a result, gross profit margin fell 3.7 percentage points to 24.2%. 2) in terms of the three expenses, the sales expenses increased by 37.2% to 31.96 billion yuan compared with the same period last year due to the impact of the market environment, the management expenses increased by 6.3% to 21.06 billion yuan due to the increase in R & D expenditure on new energy vehicles, and the three expense rates increased by 5.8% to 10%. 3) the investment income dropped from 2.97 billion yuan in 2019 to-1.38 billion yuan. 4) due to the increase in cooperative projects, the profit and loss of minority shareholders increased by 43.4% to 23.32 billion yuan compared with the same period last year, and the proportion of minority shareholders' profit and loss in net profit increased significantly from 48.5% in 2019 to 74.3%. The company's net interest rate and homing net profit margin fell by 0.8 and 2.0 percentage points to 6.2% and 1.6% respectively in 2020, respectively, to 5.5% from 11.9% in 2019.

The effect of reducing debt during the year is obvious, and the company plans to achieve the "three red lines" in three steps within two years.

From red to green. Since the new development strategy of "high growth, debt reduction and scale control" was put forward at the end of March 2020, the company's interest-bearing liabilities have decreased significantly. As of December 31, 2020, the company's interest-bearing liabilities were 716.5 billion yuan, down 11.2% from a year earlier to 674 billion yuan at the end of March 2021. By the end of 2020, the company's interest-bearing debt ratio had dropped by 5.4% to 31.1%. The company plans to reduce interest-bearing liabilities by 150 billion yuan in 2021, and interest-bearing liabilities have dropped by 42.5 billion yuan in the first quarter, exceeding the quarterly debt reduction target; the reduction target for the next three years is that 2021H1, 2022H1 and 2023H1 interest-bearing liabilities will be reduced to less than 5900 yuan, 4500 yuan and 350 billion yuan respectively. Since March 2020, without issuing overseas bonds, we will use our own funds to repay 59.1 billion yuan of principal and interest on overseas bonds, and plan to use our own funds to repay all overseas debts due this year. Since March 2020, the company has raised a total of HK $88.8 billion in equity financing through the introduction of strategic investment, spin-off and listing of high-quality assets, and comprehensively optimized its debt structure, including HK $23.5 billion for Evergrande Property Services and HK $14.08 billion for its listing. China Evergrande New Energy Vehicle two rights issues HK $30 billion, China Evergrande Group rights issue HK $4.3 billion, Hengteng Network shares sold HK $600 million, Fangche Bao launched HK $16.35 billion. In 2020, the asset-liability ratio excluding prepaid accounts was 83.4%, a slight increase of 0.8% over 2019; the net debt ratio decreased by 13.1% to 159.2%; the monetary fund was 158.8 billion yuan, an increase of 5.8% over the same period last year, and the cash-to-short debt ratio increased by 0.07 to 0.47. At present, the company's "three red lines" targets have not been met, but it has set the goal of reducing debt across the board, and plans to reduce the net debt ratio to less than 100% by June 2021; the cash-to-short debt ratio will reach more than 1 by the end of 2021; and the asset-liability ratio excluding prepaid accounts will be reduced to less than 70% by the end of 2022, fully meeting the regulatory requirements.

There has been a strong growth in sales scale and sales rebate, with a sales payback rate of more than 90%; this year's sales target is 750 billion yuan. The company opened 149 new projects in 2020, with a sales amount of 723.25 billion yuan and a sales area of 8085.6 million square meters, with year-on-year growth rates of 20.3% and 38.3% respectively, exceeding the sales target of 650 billion yuan. At the same time, equity caliber sales reached 669.03 billion yuan, an increase of 15.7% over the same period last year. Equity caliber sales steadily ranked first, and it was also the only real estate enterprise whose equity sales exceeded 6,000 yuan, with the proportion of sales rights and interests as high as 92.5%. In terms of full-caliber sales, the market share broke 4% for the first time, up 0.4 percentage points from 2019 to 4.2%. In 2020, the company achieved a sales rebate of 653.2 billion yuan, with a sales payback rate of 90.3%, a sharp increase of 12 percentage points over 2019. Since February 2020, we have pioneered the implementation of online sales, promoting strong sales growth. Under the influence of the epidemic, the company also adopted preferential promotional activities, and the average sales price fell 13% year-on-year to 8945 yuan / ping in 2020. In 2021, the company's sales target is 750 billion yuan, a year-on-year growth rate of about 3.7%. The sales volume in the first quarter was 151 billion yuan, an increase of 2% over the same period last year, and the sales rebate was 133 billion yuan in the first quarter, an increase of 17% over the same period last year. By the end of 2020, the sales value of the company is 137 million square meters, which is 1.7 times of the sales area in 2020.

We will continue to maintain an adequate and high-quality land reserve to ensure considerable development in the future. The company purchased a total of 140 pieces of land reserve in 2020, and further purchased surrounding land for 42 existing projects, adding 6892 million square meters of land storage area, an increase of 2.8% over the same period last year; the average floor price was 1992 yuan per square meter, down 5.2% from the same period last year; and the amount of land acquired was 137.3 billion yuan, down 2.5% from the same period last year. The amount of land acquired / sales was 19.0%, 4.4 percentage points lower than that in 2019. Affected by the strategy of controlling scale and reducing liabilities, the intensity of land acquisition decreased significantly; the average floor price / sales price was 22.3%, although it was 2 percentage points higher than that in 2019, but it was low among comparable companies, and the profit space for new land was larger. The new projects are mainly distributed in Beijing, Guangzhou, Shenzhen, Wuhan, Chengdu, Taiyuan, Hefei and other first-and second-tier and third-tier cities. As of December 31, 2020, the company has 798 total land reserve projects, distributed in 234 cities in China, with a total planned construction area of 231 million square meters and a goods value of about 490.1 billion yuan. under the strategy of controlling the scale, the land reserve has decreased by 6200 million square meters compared with the end of 2019, but it can still meet the development needs in the next 2-3 years. The energy level of the overall land reserve increased significantly, and the average floor price of the land reserve was 2638 yuan per square meter, an increase of 46.6 percent compared with the end of 2019. Among them, the value of land reserves in first-and second-tier cities accounted for 67.1 percent, an increase of 0.3 percent, and the average floor price was 2638 yuan per square meter, an increase of 17.1 percent. The land storage value of third-tier cities accounted for 33 percent, and the average floor price was 1515 yuan per square meter, an increase of 18.3 percent over the same period last year. The company also has 100 old reform projects, including 78 in Dawan District (55 in Shenzhen), 8 in Taiyuan, 2 in Shijiazhuang, 2 in Zhengzhou and 10 in other cities.

The company carefully co-ordinates the opening and completion plan to ensure the achievement of performance. In 2020, the new construction area was 8237 million square meters, an increase of 29.7 percent over the same period last year; the completed area was 7392 million square meters, down 4.0 percent from the same period last year. The company delivered 948 projects for the whole year, with a settlement amount of 494.55 billion yuan, an increase of 6.5 percent over the same period last year. As of December 31, 2020, the company has 787 projects under construction, with an area of 132 million square meters, an increase of 6.9% over the same period last year.

The company has completed the transformation of real estate to "diversified industries + digital technology", and the era of "New Evergrande" has come. 1) Evergrande Property Services: by the end of February this year, the contracted area of the property has reached 679 million square meters, and the area under management has reached 413 million square meters, which is expected to exceed 800 million and 600 million respectively by the end of 2021, and has been successfully listed in December 2020. In 2020, Evergrande property achieved an operating income of 10.52 billion yuan, an increase of 43.3% over the same period last year, and a net profit of 2.65 billion yuan, an increase of 184.7% over the same period last year. The company plans to set up a thousands-person science and technology team to cooperate with science and technology leaders such as Tencent, BABA and Shangtang to create an all-ecological smart city operation system; deeply mine tens of millions of household data and integrate the resources of Evergrande Group in various formats to provide a full range of services for owners. 2) China Evergrande New Energy Vehicle: so far, China Evergrande New Energy Vehicle has invested a total of 47.4 billion yuan in simultaneous research and development of 14 cars, and 9 have been released, which will create a Zhaopin mobile space of "car and family in one". The revenue of Evergrande Automobile reached 15.69 billion yuan in 2020, a sharp increase of 177.3% over the same period last year. The company plans to achieve the annual production and sales target of 1 million vehicles by 2025 and 5 million vehicles by 2035. 3) Hengteng Network: complete the transformation to the Internet streaming media platform. In January 2021, the acquisition of all shares in Pumpkin Film and Ruyi Pictures was completed. Pumpkin Film members have shown a geometric growth since the beginning of this year, with 38.61 million registered members and 8.41 million paid members by the end of February. In 2020, Hengteng Network realized operating income of 230 million yuan and net profit of 12.02 million yuan. 4) Rangche Bao Group: after 5 years of development, it has become one of the largest online and offline trading platforms for real estate and cars, with 21.29 million national broker members, 387000 professional brokers and 43000 stores. The transaction volume is expected to exceed 2 trillion yuan in 2021. In March 2021, strategic investors such as Hony Investment, CITIC, Zhongrong and Chow Tai Fook Jewellery were successfully introduced, with a total investment of HK $16.35 billion, which is planned to be listed by the end of this year or early next year. 5) Evergrande Children's World: to create a large-scale indoor, all-weather, all-season theme park for children between the ages of 2 and 15. The first phase of Haihua Island, Hainan, China, was put into operation by New Year's Day in 2021, receiving a total of more than 1.45 million tourists, and 28 formats will be fully opened by the end of 2021. 6) Health industry: Evergrande Health Valley currently has 30 health programs, and plans to distribute 70 health programs nationwide in the next three years. 7) Evergrande Bingquan: the company currently owns 49% of Evergrande Bingquan. Evergrande Bingquan covers mineral water, grain and oil, dairy and fresh four plates, a total of 14 series of more than 50 products, business covers more than 30 provinces and cities, with more than 1000 high-quality dealers across the country to establish cooperative relations, has more than 500000 sales outlets in the country.

Investment advice and profit forecasts:

The company fully implements the development strategy of "high growth, scale control and debt reduction", maintains steady growth in sales, appropriately reduces land reserves on the premise of ensuring future development, and plans to reduce the regulatory indicators of the "three red lines" to green in three steps within two years, and the performance is expected to return to high-quality growth. At the same time, the company has initially formed a brand-new industrial ecology, fully covering the areas of clothing, food, housing, transportation, culture, travel, health, etc., eight major industrial platforms are linked to form a data closed loop, and has completed the transformation from real estate "diversified industries + digital technology". And plans to gradually spin off the company's high-quality assets listed. We expect the revenue growth of the company's property management and saloon car business to be more obvious next year. We expect the company's operating income to be 5854 / 6715 / 815.8 billion yuan from 2021 to 2023, an increase of 15% / 15% / 21% respectively over the same period last year; the net profit from home is 181 / 225 / 22.8 billion yuan, an increase of 124% / 24% / 28% respectively over the same period last year; the corresponding EPS is 1.36 / 1.70 / 2.18 yuan, and the current stock price PE is 8.7x / 7.0x / 5.4x respectively.

Risk Tips:

Sales and settlement are not as expected; real estate regulation is tighter than expected; financing continues to tighten; diversified business development is not as expected.