Core viewpoints

The performance declined compared with the same period last year, and the business performance of the industrial new town was bright. In the first half of 2020, the company achieved operating income of 37.37 billion yuan, down 3.5% from the same period last year, and realized net profit of 6.06 billion yuan, down 28.5% from the same period last year. Mainly due to the impact of the epidemic, the delivery and settlement of real estate projects around Beijing lagged behind, and real estate business income decreased by 30.2% compared with the same period last year. However, the business income of Industrial Metro was 19.84 billion yuan, an increase of 45.7% over the same period last year. In terms of profit margin, the gross profit margin for the first half of the year was 46.9%, an increase of 3.2 percentage points over 2019, and the net return rate was 16.2%, an increase of 2.3 percentage points over 2019.

Sales have declined and investment intensity has increased. The company's total sales in the first half of 2020 were 41.56 billion yuan, down 35.6% from the same period last year, of which real estate sales were 19.57 billion yuan, down 59.1% from the same period last year. The settlement income of the industrial park was 20.23 billion yuan, an increase of 39.8% over the same period last year. In the first half of 2020, the company added 4.084 million square meters of land storage, an increase of 3.3% over the same period last year, with a land investment of 24.15 billion yuan and an investment intensity of 123%. By the end of the reporting period, the company had a total land storage of 12.739 million square meters.

The net debt ratio rose, while the short-term debt coverage ratio decreased. The company's net debt ratio in the first half of 2020 was 191.9%, up 9.1% from the end of 2019. The company's short-term debt coverage ratio also fell to 0.5. The company's payback improved in the first half of 2020, and the payback rate increased by nearly 11 percentage points compared with the same period last year, and we expect the debt ratio to decline gradually with the recovery of the settlement pace in the second half of the year.

The replication of industrial new towns in different places continued to move forward, and the amount of individual contracts continued to grow. In the first half of 2020, there were 176 new enterprises in the park invested and operated by the company, with an additional contracted investment of 62.46 billion yuan. In the face of the uncertainty of the epidemic, the contracted investment decreased by 40.6% compared with the same period last year, but the newly signed investment alone still increased by 10.7%. In the first half of the year, 31 new enterprises entered the park in the area around Beijing, and 145 outside the area around Beijing. The strategy of "remote replication" has achieved remarkable results, among which the industrial clusters in the Yangtze River Delta region are beginning to take shape.

Financial forecasts and investment suggestions

Maintain the buy rating and adjust the target price to 23.20 yuan (the original target price 30.70 yuan). According to the China report data and taking into account the impact of changes in the number of shares, we adjust the company's EPS forecast for 2020-2022 to 4.64 EPS 6.51 yuan. The comparable company is valued at 5X in 2020, corresponding to the target price of 23.20 yuan.

Risk hint

The regulation and control policy in Beijing-Tianjin-Hebei region exceeded expectations. The landing of the framework cooperation agreement or cooperation memorandum is not as expected.

The increase of new landing investment in the park is not as expected. The non-Beijing-Tianjin-Hebei region did not get the land as expected.