Main points of investment
The performance has increased substantially, and the dividend payout has been stable and generous. During the reporting period, the company realized operating income of 67.79 billion, year-on-year + 34%; net profit of 5.91 billion, + 41% of the same period last year; excluding non-main business gains and losses such as fair income of investment properties and exchange gains and losses, the company realized core net profit of 4.86 billion, + 18% of the same period last year. At the end of the period, the company's gross profit margin on sales was about 25.1%, year-on-year-4pct, and the core net profit margin was 7.2%, year-on-year-1pct. The decline in gross profit margin is mainly due to the continuous increase in the proportion of the company in the first and second line layout in recent years, superimposed by a slight drop in sales prices in low-energy cities to make a moderate profit, which has a short-term impact on gross margin. In addition, the board of directors recommended a dividend of 0.77 yuan per share, with a dividend rate of 35.2%, corresponding to the current dividend yield of 11.0%.
With the steady growth of sales and a more balanced regional layout, the energy level of the city has been further improved. In 2020, the company achieved 133 billion of property contract sales, + 13% compared with the same period last year. The proportion of sales in South China / Central and Western Core regions / East China was 24.7%, 31.4% and 30.5%, respectively, and the overall distribution was relatively balanced. In 2021, the company's sales target is 150 billion yuan, an increase of about 12.8% over the same period last year. The target sales growth rate is high and stable. In terms of land storage, the company added about 2015 million square meters of construction area in 2020, with a new salable value of about 242.6 billion yuan, of which 57% of the land storage value was collected by mergers and acquisitions, 27% by auction and hanging, and 16% by urban renewal and other means. The energy levels of cities with new projects have further increased, with first-and second-tier cities accounting for about 70% of the new salable value. In the case of ensuring reasonable costs and stable profit margins, the company gives full play to the traditional advantages of mergers and acquisitions and strategically replenish the land reserve.
The incubation of urban renewal projects is accelerated. In 2020, the company successfully incubated 10 urban renewal projects, 8 of which were included in the land reserve during the period, contributing a saleable value of about 38.2 billion yuan. By the end of the period, the company has more than 60 urban renewal projects at different stages, all of which are expected to provide a land reserve with a value of more than 600 billion yuan after successful incubation, 97% of which are concentrated in the Greater Bay area. At present, the company's urban renewal is in the accelerated incubation stage, and the follow-up is expected to provide support for the company's overall performance growth.
The financing structure has been continuously optimized, and financial stability is expected to be further enhanced. At the end of the period, the company excluded prepaid asset-liability ratio of 78%, year-on-year-3pct; net debt ratio of 82.7%, year-on-year + 7.8pct; cash-to-short debt ratio of 1.3X, year-on-year-0.3X; the "three red lines" index remained yellow. In terms of debt maturity structure, according to the disclosure of events after the balance sheet date, by the end of March 2021, the company had repaid and renewed short-term debts of 15.3 billion yuan, and short-term interest liabilities accounted for 40% of the total interest-bearing liabilities, down 3.7pct from the end of 2019. In addition, the company's comprehensive financing costs have improved, to 7.2 per cent higher than at the end of 2019 by 0.3pct. The company's financing cost and debt maturity structure have been continuously optimized.
Investment advice: the company's performance grew rapidly in 2020, and the profitability decreased slightly due to the decline in gross profit margin of the carry-over project, which is expected to pick up as the city renews the ownership, sales and carry-over of incubated land reserves. in addition, the company's sales are still expected to maintain double-digit growth in 2020 and 2021, promoting the further expansion of the company. We are optimistic about the company's land acquisition layout, urban renewal project reserve and performance growth. It is estimated that the EPS of 2021, 2022, and 2023 will be 2.54, 3.35, 4.38 yuan, corresponding to PE2.7/2.1/1.6. Maintain the "highly recommended" rating with a target price of HK $10.72.
Risk hints: policy regulation exceeds expectations, economic environment exceeds expectations, and commercial housing sales fall short of expectations.