The performance in 2020 exceeded our expectations.
The first share company announced its 2020 results: its operating income in 2020 was 44.2 billion yuan, down 7.2% from the same period last year; the net profit from its parent was 3.1 billion yuan, an increase of 14% over the same period last year, exceeding expectations (mainly because the proportion of settlement rights and interests was higher than expected). The proposed dividend per share is 0.4 yuan, with a corresponding dividend rate of 33%.
Gross profit margin fell back to the historical median, and the increase in the proportion of settlement equity led to better-than-expected results. The carry-over amount / area of the company during the period decreased by 7% compared with the same period last year, to 43.4 billion yuan / 1.78 million flat, and the after-tax gross profit margin decreased by 6.2ppt to 22.8%, mainly due to the high base in 2019, with an average of 22.0% in 2016-2018. The increase in settlement of the joint venture company and the revaluation of the value of the subsidiary after the opening of Xutai led to an increase in investment income to 1.4 billion yuan (100 million yuan in 2019). The increase in the proportion of rights and interests in settlement projects led to a 64% year-on-year drop in minority shareholders' profit and loss to 1 billion yuan compared with the same period last year. The proportion of net profit decreased from 51% to 25%, and the profit for the whole year recorded double-digit growth.
The financial conservatism is improved, and the financing cost is marginal downward. The company's operating cash inflow during the period was 5.6 billion yuan (1.7 billion yuan in 2019), cash on hand increased by 41% to 35.6 billion yuan, and interest-bearing liabilities increased by 8% to 141.9 billion yuan compared with the same period last year; the net debt ratio at the end of the period decreased to 180%, and the withholding asset-liability ratio (75%) and cash short-debt ratio (0.9 times) were basically the same as at the beginning of the period. The average full-year financing cost fell 0.22ppt to 5.27%.
Development trend
Sales are expected to reach 120 billion yuan in 2021. The amount of contracts signed by the company in 2020 increased by 6% to 107.5 billion yuan compared with the same period last year, and the corresponding average price increased by 14% to 28163 yuan per square meter, while the amount signed by 1Q21 was 27.8 billion yuan, up 121% from the same period last year. The company plans to complete the contract amount of 110 billion yuan in 2021 and strive to reach 120 billion yuan (+ 2% 12% compared with the same period last year). We expect that this goal can be achieved with the support of the salable value of more than 200 billion yuan.
Reducing leverage is expected to become the focus of operation, and gradually achieve financial targets. The land area of the company in 2020 was 3.45 million square meters, an increase of 32 percent over the same period last year. At the end of the period, the unsold land storage was 1900 million square meters, corresponding to a total value of about 500 billion yuan. We believe that the company's current land reserve margin is relatively high, sales growth is supported, and there is little pressure to replenish the treasury. It is expected that in the future, the company will focus on reducing leverage and controlling liabilities. The company will improve the quality of the statement by adjusting the debt structure and increasing the proportion of rights and interests, and is expected to gradually achieve the "three red lines" target in the next three years.
The diversified business layout is expected to contribute to the new growth pole. At the end of 2020, the company's property rental area reached 780,000 square meters, and plans to continue to speed up the layout of business such as property management, community pension (first opening grass), and actively explore urban renewal, cultural innovation, real estate finance and other businesses. In 2020, Kaiyingxin actively participated in property renewal and renovation and participated in a number of equity investment projects, achieving a net profit of 310 million yuan. We expect that with the gradual withdrawal of the acquisition projects, the investment business will continue to contribute profits to the company in the next two years.
Profit forecast and valuation
Considering that the company's settlement profit margin is better than expected, the earnings per share forecast for 2021 will be raised by 8% to 1.36 yuan, and the 2022 earnings forecast for 1.49 yuan per share will be introduced. The current share price corresponds to the price-to-earnings ratio of 4.5 times earnings per share in 2021. Maintain the neutral rating and raise the target price by 10% to 6.75 yuan (mainly due to the company's settlement equity ratio and profit margin exceeding expectations), corresponding to 4.5 times 2021, 2022 target price-to-earnings ratio and 12% upside space.
Risk
The progress and profit margin of the carryover were lower than expected; the regulation and control policies of the main layout cities tightened more than expected.
