It is predicted that the net profit of homecoming in the first half of the year will increase by 12% compared with the same period last year.

We expect the company's first-half revenue to increase by about 16% year-on-year to 38.8 billion yuan, although the reported gross profit margin may worsen by about 46 percentage points to 28-30% compared with the same period last year. Considering that the company has completed the transfer of some equity interests in seven projects with Ping an, and the resulting after-tax disposal income is likely to be confirmed in the first half of the year, we expect the first-half net profit to increase by about 12% year-on-year to 5.7 billion yuan.

The financial situation has improved steadily, and the company plans to enter the "green file" by the end of the year. If according to the "three red lines" regulatory requirements, sustainable bonds issued before August last year as equity, Agile will only deduct the pre-debt ratio (72%) at the end of 2020, in the "yellow file", and the company plans to enter the "green file" by the end of this year. Taking into account the restraint of land acquisition in the first half of the year (the intensity is about 27%) and the interest-bearing debt is still within 100 billion yuan (compared with 97.8 billion yuan at the end of last year), we expect the company's net debt ratio to be generally stable in the medium term, and the pre-debt ratio is expected to decline steadily (but still higher than 70%). Thanks to the marginal decline in the cost of new debt issuance in the first half of the year, such as the coupon of 5.5 per cent on the five-year $300 million bond issued in May, we expect the medium-term average financing cost to fall slightly to 6.5 per cent from 6.6 per cent at the end of last year.

Pay attention to the main points

It is expected that the annual sales target of 150 billion yuan (an increase of 9% over the same period last year) will be achieved smoothly. At present, the company takes land within the limits of revenues as the principle, and maintains the overall stability of the soil reserve scale. For example, it plans to replenish 10 million square meters of land this year, which is close to the expected sales area. Considering that the current value of its unsold land reserves can support sales for more than four years, we expect sales to maintain a compound growth rate of about 10 per cent in the next few years. In the first half of the year, the company has achieved 50% of its annual sales target (an increase of 37% over the same period last year). Taking into account the abundant resources available in the second half of the year and 150 billion yuan in new push goods, we believe that this year's sales target can be achieved smoothly. We estimate that the gross profit margin of sales in the first half of the year is stable at 25-30%, and the equity ratio is maintained at about 75%.

The dividend yield is generous, expected to reach 13% and 15% this year and next. The company plans to maintain a dividend yield of about 40% this year, and the dividend yield is already at the highest level in our covered houses this year and next. In addition, we expect a double-digit year-on-year increase in the interim dividend per share, corresponding to an interim dividend yield of at least 6%.

Valuation and suggestion

To maintain earnings forecasts and outperform industry ratings, we have lowered our target price by 10% to HK $11.42 (4 times 2021 price-to-earnings ratio and 18% upside), taking into account recent increased investor concerns about the financial side of real estate companies.

The company currently trades at 3.4x and 3x 2021-22 p / e.

Risk

Developer financing Xiaobai Maimai Inc policy tightened more than expected.