Incident: On March 12, 2021, the company released its 2020 annual performance report. 1) In 2020, the company achieved operating income of 21.27 billion yuan, an increase of 7.99% over the previous year; the net profit of the mother was 1,803 billion yuan, an increase of 25.89% over the previous year; and the net cash flow from operating activities was 2.22 billion yuan, an increase of 374.32% over the previous year. 2) By the end of the 2020 period, the company had a balance ratio of 77.62%, a net debt ratio of 48.21%, and cash on hand of 7.03 billion.
Comment: The “three red lines” are green, operations are gradually speeding up, property management listing increases equity 1) Financial performance is steady, and the “three red lines” are green. By the end of 2020, the company's balance ratio after deducting advance collection was about 69.14%, the net debt ratio was 48.21%, and the short-term cash debt ratio was about 1.16, all of which met the “three red lines” requirement. The company's overall average financing cost in 2020 was 8.69%, which is basically the same as the same period last year (the company's overall average financing cost in 2019 was 8.64%).
2) Gradually speed up operations and speed up the pace of land acquisition. In 2020, the company achieved real estate sales of 22.72 billion yuan, an increase of 1.28% over the previous year, with a sales area of 1,830,500 square meters, an increase of 15.46% over the previous year. In terms of land acquisition, the company continued to select in-depth cultivation strategies, adding 5.168,300 square meters of land reserve construction area in 2020 (compared to the same period last year, an increase of about 3 million square meters), and the pace of land acquisition accelerated markedly.
3) Split the holding subsidiary “Donghara Hitoshi” and go public overseas for the listing of property management. On December 8, 2020, the company announced that it would split the holding subsidiary “Higashihara Sumikata” and go public overseas; on January 22, 2021, the company announced that “Donghara Sumikata” had completed the name change and shareholding system reform, and changed to “Dongyuan Jinzhi City Operation and Service Group Co., Ltd.” (hereinafter referred to as “Dongwon Service”).
According to the annual report, by the end of 2019, the Dongyuan service had covered the four major regions of East China, Central China, South China and Southwest China, and entered 22 cities, with a cumulative contract area of over 20 million square meters and a management area of nearly 15 million square meters. According to Saiwei Consulting's 2019 Housing Satisfaction Survey and Analysis Report, Dongyuan's service satisfaction score in 2019 was 94, ranking first in the industry. The current valuation level of the property service sector is higher than that of the real estate sector. The split listing of Dongyuan Services will help the company increase its rights and interests, as well as enhance the company's overall collaborative ability of “real estate development+property service”, which will help speed up land acquisition in the future.
Profit forecasting, valuation and ratings: Recently, real estate policies have been heavily regulated, and banks have implemented centralized loan management, which may have a certain impact on subsequent sales and construction. We slightly lowered the company's 2021-2022 forecast net profit of 2,041 million (down 1.64%) and 2,332 million (down 1.89%), and added the forecast for 2023 to net profit of 2,680 million yuan. The company's finances are sound, and the pace of land acquisition and operation is gradually accelerating. The property management sector is about to be split and listed. The stock price corresponds to the 2021-2023 forecast of PE valuation 4/3/3 times, respectively. The valuation is highly attractive and maintains the “buy” rating.
Risk warning: sales progress is limited by centralized bank loan management or falls short of expectations; project construction and settlement progress falls short of expectations; listing progress in the property services sector falls short of expectations.