The current situation of the company
We recently participated in the company's reverse roadshow. We believe that under the background of the high transaction premium rate in the two sets, the company has abundant land reserves and diversified land, and the Dengjia commercial real estate sector has both brand, operational efficiency and scale, which will effectively consolidate its growth prospects. Reiterate the outperformance of the industry rating and target price of HK $15.96 (5.6cm 4.8 times 2021 Universe 2022 price-to-earnings ratio, 33% upside).
Comment
There are plenty of soil reserves, and there is a grasp of diversity. In 2020, there are 34 urban renewal projects not being promoted by the company, with a potential value of 650 billion yuan, of which Guangzhou accounts for 81%. The company expects the confirmed projects to supply about 10 billion yuan this year and is expected to reach 200-30 billion yuan next year, and the average gross profit margin of the project is higher than 35%. The old reform and increasing reserves are continuing to make efforts. The company is also actively expanding the industrial application area in the Yangtze River Delta, winning a total construction area of 1.07 million square meters in Jiaxing and Yancheng last year. At present, the company has abundant land reserves, which can cover about 4 years of sales, and the proportion of the Great Bay area and the Yangtze River Delta is 53% and 17% respectively, and the overall land-to-goods ratio is about 30%, which is competitive.
Commercial real estate is the icing on the cake. By the end of 2020, the company has opened 37 investment properties, including 9 shopping malls, 8 office buildings and 20 hotels, basically located in Chengdu, Guangzhou and other core first-and second-tier cities. The company plans to open 26 shopping malls and 10 office buildings in 2021-23. If it opens smoothly, the compound growth rate of rental income will reach about 30 per cent within three years. Although the proportion of about 50% of the company's land storage and consolidation table is low in the industry, through the index of "equity land storage value / home rights and interests", we believe that the company's broad leverage level is still in the middle. The company is in the "yellow file" under the "three red lines" at the end of 2020 (75% after deducting the pre-debt ratio), and plans to enter the "green file" by the end of 2022. According to our calculations, the annual land acquisition intensity of 40-45% this year and next can be achieved, while the company does not consider the old investment land acquisition intensity of only 49% from January to April this year. In addition, we expect medium-term average financing costs to be roughly the same as 6.2 per cent at the end of last year. Growth has been realized in a solid manner. Restricted by the business model, it is difficult to provide explosive contributions to the increase of reserves in the short term, such as old reform and industrial application, but considering the solid support of existing land reserves, we believe that the growth of the company's short-to medium-term dimensions is guaranteed. The company plans to supply 205 billion yuan (20% year-on-year increase) this year, corresponding to the sales target of 124 billion yuan (20% year-on-year). We expect the success rate in the first half of the year to be 45-50%, corresponding to a year-on-year growth rate of more than 50%. We estimate that the sales gross profit margin remains above 30%, and the equity ratio is 65-70%, up from 64-65% last year. Dengjia has been sold abundantly and its rights and interests have reached 73 billion yuan. We estimate that this year's profit is expected to grow by about 20% to 7.8 billion yuan.
Valuation proposal
Maintain profit forecasts. The company currently trades at a price-to-earnings ratio of 4.2gram 3.6x 2021max 2022, corresponding to a dividend yield of 10.9 per cent and 12.7 per cent for 2021-22.
Risk.
The landing progress of urban renewal is not as expected.