2020 performance exceeded market expectations
Shimao Group's performance exceeded market expectations in 2020: its core net profit increased by 17.2% to 12.28 billion yuan compared with the same period last year. If you consider the disposal income of 2.94 billion yuan from the sale of part of Shimao's stake in Shimao services (the amount exceeds market expectations), the core net profit will grow by 45.2% year-on-year, exceeding market expectations. For the whole year, in addition to the regular dividend of HK $1.5, the company also declared a special dividend of HK $0.3 per share for the return to shareholders and the spin-off of property management, with an overall dividend rate of 44.4% and a corresponding dividend rate of 7.5%.
Successfully entered the "green file" in 2020. Thanks to the cautious acquisition of land (30 per cent of sales), the addition of two rights issues (about 7 billion yuan net) and split management ($1.45 billion net), the company's pre-debt ratio dropped to less than 70 per cent (68 per cent) at the end of 2020. the net debt ratio is 50%, and the cash-to-short debt ratio is 1.2 times. Looking ahead, we expect the company to continue to invest prudently and maintain a "green" position, accounting for 50% of sales and 40% of rebates each year in the future. In addition, S & P and Moody's upgraded the company's credit rating outlook in 2020, and the average financing cost remained at 5.6%.
The land reserve is abundant and solid. At the end of 2020, the company has abundant unsold value of land reserves (which can cover more than 3.5 years of sales), and first-and second-tier cities account for 72%, and the cost has an advantage (land-to-goods ratio of 30%). Taking into account the current quality of resources on hand, even if the company takes land prudently in the next few years, we believe that its overall resource market can still support robust sales growth.
Non-housing business is developing rapidly. Even as a result of the epidemic, non-housing income rose 33 per cent to 8.63 billion yuan in 2020 from a year earlier, reaching 99 per cent of the annual target. Looking at 2021, we expect non-housing income to increase significantly to 15 billion yuan, leading to a further increase in the share of revenue contribution from 6.8% to 9.1% (5.6% in 2019). In the hotel sector, we expect a year-on-year growth rate of 50% in 2021-22. Property management revenue increased by 80% year-on-year and 55% to 9.1 billion yuan and 14 billion yuan in 2019-22.
Development trend
Sales are expected to continue solid and quality growth in the next few years. According to our estimates, the company's sales will grow by 10-15% in the next three years. In 2021, the company plans to supply 550 billion yuan (15% year-on-year growth), and the corresponding sales target is 330 billion yuan (10% year-on-year growth). In addition, we believe that the quality of sales will also be maintained, mainly due to the healthy supply structure in 2021 (87% in first-and second-tier and strong third-and fourth-tier cities, and 70% in sales within one year). And the company will still strictly manage quality indicators such as de-capitalization, payback and regional equity sales profit (63% in 2020, and 75% health rebate rate led to a 42% year-on-year increase in pre-received accounts to 106.1 billion yuan).
Profit forecast and valuation
We slightly lowered our core net profit forecast for 2021 by 4% to 14.1 billion yuan (up 15% from a year earlier), mainly based on the adjustment of delivery schedule. Introduce a profit forecast of 16.2 billion yuan in 2022 (a year-on-year increase of 15%). Maintain the outperform industry rating and lower the target price by 4% to HK $29.91 based on earnings per share adjustment (corresponding to 6.4 times 2021 price-to-earnings ratio, 22% upside). The company is currently trading at 5.3 times 2021 earnings.
Risk
Demand for housing fell more than expected.