We expect income to grow 6.1 per cent to 28.8 billion yuan and net profit to rise 6.5 per cent to 5.4 billion yuan in the first half of 2020, partly due to the benefits brought about by the relaxation of Hainan's real estate policy. At the same time, the earnings and NAV forecasts are raised according to the increase in pre-sales in Hainan Province and the stock price performance of Yasheng (3319 HK, buy). Raise the target price from HK $10.65 to HK $13.71. Maintain the buy rating.
Profits are expected to rise steadily in the first half of the year. The company's net profit increased by 35% to 5.08 billion yuan in the first half of 2019, partly from 1) 2.2 billion yuan of after-tax income from equity disposal and 2) 435 million yuan of after-tax income from the transfer of joint ventures. We believe that such revenue will decrease in the first half of 2020, but the difference will be partially filled by income from Qingshui Bay in Hainan. Accordingly, we forecast that revenue in the first half of 2020 will grow by 6.1% to 28.8 billion yuan, and net profit will increase by 6.5% to 5.4 billion yuan. Agile completed contract sales of 55.1 billion yuan in the first half of the year, 46% of the annual plan of 120 billion yuan.
The relaxation of Hainan's house purchase policy is the first good. In October 2019, the Hainan provincial government relaxed restrictions on the purchase of houses for college graduates, allowing college graduates who have paid social security for one year to buy houses in the province. In Agile's sales in Qingshuiwan, Hainan, a year ago, some transactions could not be completed due to social security payment requirements of the previous two years, which have now been reduced to one year. Therefore, it is estimated that the company's income from real estate development in Hainan Province in the first half of the year will reach 4 billion yuan, and its profits will rise accordingly.
After the elegant life, there is another business split. In addition, Agile is pushing for a spin-off of its Yacheng shares and a separate listing on the Hong Kong Stock Exchange. Yacheng is mainly engaged in green ecological landscape services, and its business covers 119 cities in 27 provinces in China. In 2019, Yacheng's revenue was 5.1 billion yuan (an increase of 45.1% over the same period last year) and net profit was 775 million yuan (an increase of 58.0% over the same period last year). According to the successful case of Yashi, we believe that the spin-off of Yacheng business can also increase the value of the company.
Raise profit forecasts and target prices. Due to the benefits brought by the relaxation of Hainan policy, we have raised our net profit forecast for 2020 to 6.4% to 7.91 billion yuan and 2021 to 9.36 billion yuan. In addition, because of the rise in Yashi's share price, we raised our net asset value at the end of 2020 from HK $26.62 to HK $27.41 per share. Based on a 50% discount on net asset value, we raised our target price from HK $10.65 to HK $13.71.