Main points of investment
Our view: in the first half of 2020, due to the impact of public health events, the company's revenue declined as a whole, in line with expectations. The company's office format has a strong anti-risk ability, Wuhan Yuexiu Wealth Center and Hangzhou Victoria achieve counter-trend growth, and the overall income recovery is expected to accelerate in the second half of the year. Shanghai, Wuhan, Guangzhou and Hangzhou as regional economic centers, the kinetic energy and consumer demand of office buildings brought about by industrial development are still sufficient, and there is still room for value-added in office buildings and retail formats. We believe that the quality of the underlying property of the company is good, the overall operation recovery speed is fast, the financing cost is low, and the distribution rate is above the average of the industry. Investors are advised to pay active attention to it.
The interim results are in line with expectations: the company achieved operating income of 831 million yuan in the first half of 2020 (the same below), down 16.9% from the same period last year. The net property income was 654 million yuan, up 10.3% from the same period last year. Among them, the National Finance Center, Baima Building, Wuhan property, Yuexiu Building, Finance Square, Urban Construction Building, Victoria Square and Hangzhou Victoria accounted for 42%, 22%, 12%, 8%, 5%, 5%, 5%, 4% and 2%, respectively. The profit margin of property income was 78.7%, an increase of 5.8 percentage points over the same period last year.
Unit distribution per share declined: mainly affected by public health events, in order to maintain stable distribution, the company provided medium-term special distribution of 32 million yuan in the first half of 2020, with a total accrued distribution of 319 million yuan, down 24.8% from the same period last year; medium-term distribution per fund unit was 11 Hong Kong cents, down 29% from the same period last year. The annualized distribution yield in the first half of 2020 was 6.2 per cent (based on the closing price on June 30), an increase of 1.1 percentage points over 2019 and remained above the industry average.
Growth projects bucked the trend: despite the impact of public health events, the rental rate of Wuhan Yuexiu Wealth Center rose steadily to 82.9% in the first half of 2020, an increase of 17.1% over the same period last year, and operating income was 76.7 million yuan, an increase of 33.6% over the same period last year. The rental rate of Victoria in Hangzhou was 97.8%, an increase of 1.1 percentage points over the same period last year, and the unit price of rent increased by 2.9% over the same period last year. In addition, in terms of lease management, Wuhan Yuexiu Wealth Center and Hangzhou Victoria have completed the lease expansion and renewal of high-quality customers to further optimize the tenant structure.
Financing costs have fallen sharply: by 2020, H1, the company's interest-bearing liabilities totaled 14.73 billion yuan.
The debt structure is reasonable, and the debt due within one year accounts for 30%, which is relatively small. Through active management, the company's financing cost has dropped significantly. As of H1 in 2020, the company's average financing cost was 3.13%, down 1.07 percentage points from the end of 2019.
Risk hints: macroeconomic growth slows, property rental rates fall short of expectations, liquidity tightens, and rental income falls short of expectations.
