2020 performance is in line with expectations

Nanjing Hi-Tech announced its results for the first quarter of 2020 and 2021: operating income of 2.9 billion yuan in 2020, basically the same as the same period last year; net profit of 2 billion yuan, + 9% compared with the same period last year, corresponding to 1.63 yuan per share, which is in line with our expectations; the proposed dividend per share is 0.50 yuan, and the corresponding dividend ratio is 31%. In the first quarter of 2021, the operating income was 2 billion yuan, + 162% compared with the same period last year, and the net profit was 600 million yuan,-6% compared with the same period last year, which is in line with our expectations.

The gross profit margin rose sharply, and the income from investment increased steadily. In 2020, the company's real estate development income was + 15% to 2.2 billion yuan compared with the same period last year. Ziweitang project hardcover delivery led to the real estate business gross profit margin (pre-tax caliber) to 43% to 43%. The fair value change income of the company in 2020 was + 19% to 800 million yuan (mainly from transactional financial assets), and the investment income was + 4% to 1.5 billion yuan (mainly from the equity holding of Bank of Nanjing).

The net debt ratio is marginal upward, and the financing advantage is highlighted. The company's net debt ratio rose to 26 per cent at the end of 2020 compared with 16 per cent at the end of 1H20 (mainly due to new short-term borrowing); excluding advance receipts, the asset-liability ratio was 46 per cent (44 per cent at the end of 1H20). In 2020, the company realized a net cash outflow of 2.2 billion yuan from operating activities (mainly due to a decrease in sales rebates and an increase in expenditure on the purchase of land use rights, with a net inflow of 1.2 billion yuan in 2019). The monetary funds at the end of the period decreased by 44% to 1.4 billion yuan compared with the beginning of the year, equivalent to 28% of the interest-bearing liabilities due within one year (75% at the beginning of the year). The average financing cost of the company in 2020 is 3.47%, which is at a lower level in the industry (4.30% in 2019).

Development trend

Sales fell sharply in 2020 and are expected to grow in 2021. In 2020, the company realized sales / sales area of 700 million yuan / 100000 square meters, respectively, compared with the same period last year. The corresponding average sales price was 7073 yuan / square meters (mainly due to the increase in the proportion of comfortable housing's sales, 37598 yuan / square meters in 2019). The overall removal rate of the company's current projects on sale is 88% (area caliber). In 2021, the company will focus on launching Rongyuan, Xingyuan, Xingyuan project display and some project opening sales, and we expect annual sales to grow.

Equity investment business to increase investment efforts, is expected to continue to contribute profits. In 2020, the company added investment in Hualan shares, Antian Technology and other projects, and made additional investments in Yiwhale Jie and Elp; at the same time, the company invested about 500 million yuan to set up a high-tech venture capital fund, and 456 million yuan continued to increase its stake in Bank of Nanjing. By the end of 2020, Hualan shares invested by the company have been reviewed by the gem listing Committee, and a number of projects are in the process of applying for A-share listing.

Looking forward, we expect these businesses to enhance the profit contribution of the equity investment business.

Profit forecast and valuation

Keep the company's profit forecast for 2021 unchanged, and introduce a profit forecast of 1.80 yuan per share in 2022, corresponding to a year-on-year growth rate of 4%. The company's current share price trades at 5.4 times 2021 / 2022 forward earnings. Maintain the neutral rating and cut the target price by 11% to 11.27 yuan (mainly considering that the market's risk appetite for real estate stocks may have declined), corresponding to 6.5pm 6.2 times 2021amp 2022 target price-to-earnings ratio, which has 16% upside compared to the current share price.

Risk

The progress of the company's real estate completion and settlement is not as expected, and the profit contribution of the investment business is not as expected.