Steady growth in performance in 2020
By the end of 2020, the company achieved operating income of 55.847 billion yuan, an increase of 16.14% over the previous year; achieved gross profit of 15.907 billion yuan, an increase of 15.02% over the previous year, with a gross profit margin of 28.52%, which was basically the same as the previous year; net profit and net profit of the mother were 5.278 billion yuan and 5.447 billion yuan respectively, up 26.75% and 18.56% from the previous year. The growth rate of net profit and net profit of Guimo was higher than the revenue growth rate. The net profit margin increased 0.79 percentage points to 9.46% from the previous year, and the net profit margin of the mother increased 0.2 percentage points from the previous year to 9.77%. The share of urban renewal business revenue has increased year by year, so that the company's net profit margin has continued to increase slightly during the industry adjustment period in the past three years.
The debt structure was further optimized, and the “three red lines” indicator changed from orange to yellow (1) The debt structure was optimized. As of the end of 2020, the company's interest-bearing debt was $121.5 billion, an increase of 3.67% over the end of the previous year. Among them, debt maturing within one year accounted for 19%, or about 23.1 billion yuan; debt maturing for two years or more accounted for 81%, or about 98.4 billion yuan. The ratio of long-term debt to short-term debt was 4.25, up 1.6 from 2.7 in 2019, and the debt structure was further optimized. The average financing cost during the period was 8.7%, and financing costs continued to decline.
(2) The “three red lines” indicator changed from orange to yellow. The net debt ratio fell to 97.9% from 144% at the end of the previous year, and the short-term cash debt ratio increased 1.56 times from 1.1 times at the end of the previous year. The two indicators are within a safe line. The balance ratio excluding accounts receivable in advance was slightly above the red line standard, but it also fell 5.6 percentage points from 75.9% at the end of the previous year to 70.3%, maintaining a continuous improvement trend.
Urban renewal project transformation is about to enter the release period
The company expects the saleable value of goods to be about 191.2 billion yuan in 2021, and the equity contract sales target is 130 billion yuan, an increase of 21.61 percent over the previous year's contract sales of 106.9 billion yuan. The company expects about 15 urban renewal projects of nearly 4.2 million square meters to be converted from 2021 to 2022, with a corresponding value of about 200 billion yuan. After years of hard work, the transformation of the company's urban renewal project is about to enter a harvest period of accelerated release, providing a strong guarantee for the company to cope with cyclical fluctuations in the industry.
Investment advice and profit forecasting
Affected by recent stock offerings and related acquisitions, the company's recent stock price trend has been relatively low. We believe that the current stock price has fully responded to negative expectations, and that the company has abundant land reserves in the Greater Bay Area and has a large number of resources for high-quality urban renewal projects. In addition, urban renewal projects are about to enter a harvest period of accelerated release. We expect the company's revenue from 2021 to 2023 to be 69.155 billion, 83.678 billion, and 96.229 billion yuan respectively, and net profit of 6.405 billion, 7.515 billion, and 8.494 billion yuan respectively. Corresponding to EPS is 0.91, 1.07, and 1.21 yuan, giving the company a target price of HK$4.9, maintaining the “buy” investment rating for 2021 PE4.5X.
Risk warning
Commercial housing sales and the transformation of urban renewal projects have fallen short of expectations; optimization of debt structures has fallen short of expectations; and regulatory policies and financing environments have been tightened beyond expectations.