The performance in 2020 is lower than we expected.
Huayuan Real Estate announced its 2020 results: operating income was 7.7 billion yuan, up 4% from the same period last year, and its net profit was 410 million yuan, down 45% from the same period last year, corresponding to 0.18 yuan per share, which was lower than we expected. The company plans to pay a dividend of 0.06 yuan per share, with a corresponding dividend rate of 34%.
The provision for a large inventory price decline results in lower-than-expected results. During the period, the company's real estate settlement income was 7.3 billion yuan, an increase of 4% over the same period last year, the after-tax gross profit margin rose to 21.6%, and the three-item expense rate fell 7.5 percentage points to 5.4%. During the period, under the influence of the tightening of urban regulation and control policies, the company prepared for inventory decline in Changsha, Xi'an, Tianjin and other projects, totaling 660 million yuan (10 million yuan in 2019), resulting in a sharp decline in performance.
The operating cash flow is positive, and the financial indicators are still in the "red file". The company's annual return rate rose 3.8ppt to 77% in 2020, operating cash flow became regular for the first time in 2018, and cash on hand increased by 7% to 7.6 billion yuan compared with 2019. At the end of 2020, the company's net debt ratio is 182% (234% at the end of 2019), the pre-asset-liability ratio is 79% (81% at the end of 1H20 in 2019), and the cash-to-short debt ratio is 0.58 times (0.52 times in 2019 and 0.43 times at the end of 1H20), which is better than that at the beginning of the year, but it is still a "red file" under the "three red lines".
Real estate company. The average cost of financing in 2020 is 6.68 per cent higher than the upstream 0.06ppt in 2019.
Development trend
Pay attention to the progress of improving financial indicators. Since the beginning of the year, the company has raised a total of 3 billion yuan in two corporate bonds, with coupon rates of 4.5% and 4.4% respectively, with a maturity of three years. The cost of issuing bonds has dropped compared with the same type of products last year, and the debt rating has been upgraded from AA to AAA. We expect that the company will be able to maintain the smooth flow of financing channels and stable financing costs in the future. at the same time, in the future, the company will strive to achieve the three red lines by increasing the payback rate, taking land cautiously and improving operational efficiency.
The sales target for the whole year is expected to be achieved smoothly. The company realized contract sales of 19.1 billion yuan in 2020, an increase of 27% over the same period last year, exceeding the original target of 16.5 billion yuan by 16%. The contract sales area was 1.88 million square meters, an increase of 55% over the same period last year We expect that with the support of 30 billion yuan of saleable value for the whole year, the company will be able to achieve the sales target of 18 billion yuan in 2021, corresponding to a 60% removal rate.
Keep your hands on the ground and be careful. In 2020, the company continued its deep ploughing of covered cities, adding 960,000 square meters of soil storage in Changsha, Xi'an and Yinchuan, down 60% from the same period last year. We believe that in the context of the tightening of financing control policies for real estate enterprises and the company's primary goal of reducing leverage, the company will remain cautious in order to ensure the adequacy of cash on hand in the future. At the same time, we judge that the company is expected to participate in Beijing urban renewal and old residential district renovation projects, through multiple ways to obtain high-quality resources in Beijing.
Profit forecast and valuation
Taking into account the higher-than-expected impairment of inventories, we lowered the 2021 earnings per share forecast by 45% to 0.21 yuan, and introduced the 2022 earnings per share forecast of 0.23 yuan. The company's current share price trades at 9.4 times 2021 Universe's 2022 price-to-earnings ratio. The neutral rating and target price remain unchanged (mainly because the company's financial improvement process is better than expected), which corresponds to 10.1 pm 9.2 times 2021 MP 2022 target price-to-earnings ratio and 2% downside space.
Risk
The regulation and control policies of the main layout cities tightened more than expected; the improvement on the financial side was less than expected.
