Steady growth in performance is in line with expectations. In 2020, the company achieved operating income of 20.06 billion yuan, +32.9% year on year; achieved net profit of 1.66 billion yuan, +13.2% year on year; achieved Guimu's core net profit of 1.31 billion yuan, +11.0% year on year. The current gross margin and net interest rate to the mother fell slightly by 2.8/1.4 pct to 22.4%/8.2%, respectively. The slight decline in short-term profitability was mainly due to a decrease in the carry-over of high-margin projects. As of the end of the period, the company's book contract liabilities were 29.38 billion yuan, covering 1.46X of current revenue, and future performance is highly guaranteed.
Sales targets have been exceeded, and the national layout is more balanced. In 2020, the company achieved contract sales of 86.5 billion yuan, +32.8% year on year, exceeding the 75 billion sales target set at the beginning of the year by 15.3%; achieved a contract sales area of 5.916 million square meters, +21% year on year. As the company's stronghold, Jiangsu accounted for 54% of annual sales, down 10 pcts from the previous year, but Zhejiang and Anhui increased by 13 pcts to 23%. Furthermore, the share of the Pearl River Delta and the Midwest reached 4% and 13%, continuously moving from expanding Jiangsu to a national layout.
Actively acquire land to improve land storage security. The company added 50 new plots of land for the full year of 2020, with a land acquisition amount of about 49.2 billion yuan, +26.6% year on year; added 6.87 million square meters of construction area, -1.0% year on year. The new building/current sales area is 1.16. The company is still in a relatively active replenishment stage. The new expansion includes cities such as Huai'an, Suqian, and Wuhu, and adheres to the strategic layout of “expanding Jiangsu, deepening the metropolitan area, and strengthening the central city”. Also, try diversified land acquisition methods during the period. Land acquisition through mergers and acquisitions and joint commercial and residential land acquisition accounted for 35%. By the end of the period, the company had 187 projects with a cumulative land reserve of about 20 million square meters, with a corresponding value of about 290 billion yuan, to meet sales needs for the next 3 years.
The real estate business is two-wheel drive, and the revenue scale of the holding business is expected to boost in the future. In 2020, the company's commercial business segment achieved revenue of 505 million yuan, +23% year on year; due to the impact of the epidemic, the hotel business sector fell 4% year on year to achieve revenue of 38 million yuan. Combined commercial and hotel revenue accounted for 2.7%, down 0.3 pct from 2019. By the end of 2020, the company's Hongyang Plaza had opened a total of 6 towers and was preparing to open 9, concentrated in Yangtze River Delta cities such as Hefei, Xuzhou, Changzhou, etc., and future holding business revenue is expected to grow rapidly.
The “three red lines” indicator fell to the green level, finances were sound, and the debt structure continued to be optimized. At the end of the period, the company's unrestricted short-term cash debt ratio was 1.1X, +0.4X year on year; the balance ratio after deducting advance payments was 69.4%, -5% year on year; the company's net debt ratio was 50.3%, -20.1% year on year. The “three red lines” indicator dropped from the orange level at the end of 2019 to the green level, achieving “zero stepping on the line”. Furthermore, at the end of the period, the company's short-term loans accounted for 35.4%, compared to -6.6%. The pressure on short-term debt repayment declined further, and finances continued to be stable. In 2020, the company's weighted average financing cost was 7.67%, compared to -0.19%, and financing costs continued to decline.
Investment advice: The company's operating income in 2020 was +32.9% year-on-year, reaching 20.06 billion yuan, corresponding to net profit of 1.31 billion yuan, +11.0% year-on-year; due to the decline in the carry-over share of high-margin projects, the company's profitability was under pressure in the short term. Furthermore, adhering to the strategy of “expanding Jiangsu, deepening the metropolitan area, and strengthening the central city”, the Yangtze River Delta accounted for 77% of sales during the year, and the value of new land storage in Jiangsu Province accounted for 56%.
We are optimistic about the company's future performance growth, in-depth layout and two-wheel drive strategy, and gave the company a 2021/2022/2023 valuation P/E 3.6/3.0/2.3.
Risk warning: policy regulation exceeds expectations, commercial housing sales fall short of expectations, financing tightening exceeds expectations