Q3 performance is poor, downgraded to "overweight" rating

The company released three quarterly reports on October 25, showing that 1-3Q achieved revenue of 426.8 billion yuan, + 33% year-on-year; net profit of 11.2 billion yuan,-7%; and non-return net profit of 10.7 billion yuan,-11% of the same period last year. Taking into account the slowing down of the carry-over pace of the company, we reduced the revenue of the real estate business and adjusted the company's EPS for 21-23 to 1.19,1.34,1.50 (the previous value was 1.34,1.57,1.84 yuan). The average PE of the comparable company in 21 years is 5.8x (Wind consensus expectation). Considering the increasing financial pressure of the company in the downward period of the industry, we think that the reasonable PE of the company in 21 years is 4.3x, and the target price is 5.12RMB (the previous value is 6.43RMB), which is downgraded to "overweight" rating.

Infrastructure business maintained rapid growth, real estate completion delivery slowed down 1-3Q infrastructure business driven by Guangxi construction, revenue + 44% to 211.4 billion yuan, become an important growth pole of the company's revenue; the newly signed contract amount is + 37% to 545.7 billion yuan compared with the same period last year, laying the foundation for future growth. The completion and delivery of Q3 real estate business have slowed down, but the company has proposed to "ensure the completion of delivery". With the improvement of the financing environment of the industry and the gradual optimization of the company's finance, we expect that the resources to be settled may be released in an orderly manner. Q3 contract liabilities are still abundant relative to the real estate revenue coverage of 242% in 2020. The year-on-year growth rate of 1-3Q net profit is lower than that of revenue, mainly because: 1) the proportion of revenue from low gross profit margin infrastructure business compared with the same period last year + 4pct to 50%; 2) the gross profit margin of real estate business declined with the trend of the industry (1H21 23.2% VS 1H20 25.8%); 3) the investment income was-1.7 billion yuan compared with the same period last year.

Sales are subject to market decline and a high base, and land acquisition tends to be more cautious under the influence of the real estate market environment, especially the decline in third-and fourth-tier cities and the high base in the same period last year. Q3 company's sales area is-28% to 5.24 million square meters compared with the same period last year. The sales amount is-22% to 66.1 billion yuan compared with the same period last year. The cumulative sales area of 1-3Q is + 3% to 1817 million square meters compared with the same period last year, the sales amount is + 6% to 230.2 billion yuan compared with the same period last year, and the payback rate remains at a high level of 93%. Under the combined influence of reduced debt and weak sales, the company became more cautious. Q3 took the construction area of land from-89% to 1.2million square meters compared with the same period last year, and the amount of land taken was-91% to 3.3 billion yuan compared with the same period last year. 1-3Q accumulated land construction surface compared with the same period last year-67% to 8 million square meters, the amount of land is-54% to 37.2 billion yuan compared with the same period last year, the amount of equity ratio is higher than 20 years-8pct to 82%, land goods comparison 20 years + 11pct to 37%. Despite the reduction in land acquisition, the company's land storage is still abundant, with the 1H21 soil storage area reaching 200 million square meters.

Continued improvement in finance and substantial increase in cash flow

As of Q3, the interest-bearing debt was 252 billion yuan, a further drop of 29.6 billion yuan compared with 1H21. The net debt ratio, the asset-liability ratio deducting accounts received in advance, and the short-term debt coverage rate are 101%, 81% and 159% respectively, all of which continue to improve. The company expects the net debt ratio to reach the target by the end of the year, thus turning the "two red lines" to green. The average financing cost of the company remains low. With the help of money recovery and land control, the net cash flow of operating activities of 1-3Q company was + 880% to 49.1 billion yuan compared with the same period last year.

Risk tips: epidemic situation, capital chain, real estate policy, downside risk of real estate market.