Overview of events

In 2020, the company achieved operating income of 509.85 billion yuan, an increase of 6.4% over the same period last year, and its net profit was 8.08 billion yuan, down 53.3% from the same period last year.

Performance fluctuates and profit margins are expected to pick up

In 2020, the company achieved operating income of 509.85 billion yuan, an increase of 6.4% over the same period last year, and its net profit was 8.08 billion yuan, down 53.3% from the same period last year. In terms of profitability, the company's return on net assets, gross profit margin and net profit margin in 2020 were higher than those in the same period last year-6.36pct,-3.67pct,-0.84pct. The company conducted a national promotion in response to the COVID-19 epidemic, the average sales price decreased and the unilateral delivery cost increased, so the profit margin level declined, but as the epidemic and other external factors receded, the company's profitability is expected to gradually pick up.

Sales maintain high growth, land reserve control scale

In 2020, the company realized sales of 723.25 billion yuan, an increase of 20.3% over the same period last year, and realized a sales area of 80.856 million square meters, an increase of 38.3% over the same period last year. In recent years, Evergrande adhered to the strategy of "high growth, scale control and debt reduction". In 2020, the company's total land reserve was 231 million square meters, down 21.2% from the same period last year.

Implement the downgrade target and strictly control interest-bearing liabilities

In 2020, after excluding the accounts received in advance, the asset-liability ratio of the company was 76.7%, the net debt ratio was 152.9%, and the cash-to-debt ratio was 0.47. At present, the company's three red line indicators have not yet reached the standard, but the company has made a downgrade plan: on June 30, 2021, the net debt ratio will fall below 100%; on December 31, 2021, the cash-to-short debt ratio will reach more than 1; and on December 31, 2022, the asset-liability ratio will be reduced to less than 70% after excluding accounts received in advance, reaching the green requirement.

Investment suggestion

China Evergrande Group's strong sales performance, the full implementation of the "high growth, scale control, debt reduction" strategy, performance is expected to return to high-quality growth, sufficient land reserves, financial risks can be controlled. Taking into account the decline in the company's profit margin and the slower-than-expected settlement speed, we downgrade the company's profit forecast. The company's operating income for 2021-2023 is estimated to be 5893max 6751MB 835.8 billion (2021Universe 6343MB 710.4 billion yuan), EPS 1.40Univ 1.72pm 2.24 (2021Unix 2022 pre-2022 value 2.53pm 2.86 yuan), corresponding to PE 8.233669max 5.13, maintaining the company's overweight rating.

Risk hint

Sales fell short of expectations; profit margins fell; business operations were lower than expected.