Revenue of Zhongliang Holdings rose 16.4 per cent in 2020 from a year earlier, while gross profit margin fell 2.3 per cent to 21 per cent.
Affected by the decline in gross profit margin, operating profit rose less, rising 1.7 per cent year-on-year to 8.75 billion yuan. The profit of the joint venture company fell 22% year-on-year to 970 million yuan, resulting in a 16.7% year-on-year drop in recurrent core net profit to 3.11 billion yuan. The company actively optimizes the asset structure, and the soil storage structure is transferred to high-line cities. among the three new financing indicators, only the assets and liabilities are higher than the prescribed level, and the overall asset leverage risk is low. However, in the context of state regulation and control, we believe that price restrictions, loan restrictions and other regulatory policies will continue for some time. Taking the above considerations into account, we adjust the 2021-22 net profit forecast-22% gamma 20%, and the target price is adjusted to HK $6.80 per share. Maintain the buy rating.
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The gross profit margin fell slightly. Revenue of Zhongliang Holdings rose 16.4% year-on-year to 42.1 billion yuan in 2020, gross profit rose 5.1% to 13.85 billion yuan, and gross profit margin fell 2.3% to 21%. Affected by the decline in gross profit margin, operating profit rose slightly, rising 1.7 per cent year-on-year to 8.75 billion yuan, while net profit fell 2.4 per cent to 3.74 billion yuan. After deducting one-time gains or losses such as changes in the fair value of investment properties, gains from the sale of shares in the project company, write-offs of inventory and other assets, we estimate that the recurrent core net profit of Zhongliang decreased by 16.7% to 3.11 billion yuan compared with the same period last year. The core net interest rate decreased by 1.9% to 4.7%, mainly due to the decline in profits of the joint venture company. It fell 22% year-on-year to 970 million yuan.
The structure of assets and liabilities has been continuously optimized. Under the new rules on real estate financing, real estate companies are trying to reduce their debt, and the market is also concerned about the improvement of their balance sheet structure. By the end of 2020, Zhongliang had total assets of about 270.8 billion yuan and total debts of about 240.7 billion yuan. After deducting contractual liabilities from clients, the debt-to-asset ratio was about 80%, slightly higher than the required 70%. The cash is about 34.2 billion yuan, the interest-bearing debt due within one year is about 23.7 billion yuan, and the cash-to-debt ratio is about 144%, which is better than the prescribed 100%. The total interest-bearing liabilities and net debts are 53.8 billion yuan and 19.5 billion yuan respectively, the total capital is about 30.2 billion yuan, and the net leverage ratio is about 65%, which is lower than the prescribed 100%. Among the three new financing indicators, only assets and liabilities are higher than the prescribed level, and the overall asset leverage risk is low.
Transfer to high-line cities. The company added 1490 square meters of land storage in 2020, accounting for 47% of second-tier cities and 45% of third-tier cities according to the amount of land purchased, and the soil storage structure was further transferred to high-line cities. By the end of 2020, the total land storage is about 6510 square meters. Excluding the outstanding portion, the estimated sales value is about 480 billion yuan, of which 43 per cent are in second-tier cities and 45 per cent in third-tier cities. The company plans to supply 2600 billion worth of marketable resources in 2021, with a target sales of 180 billion yuan, equivalent to about 70 percent of the removal rate. By the end of 2020, the outstanding amount of sales is about 250 billion yuan, which will be carried forward in 2021-22.
Maintain a "buy" rating. Under the restrictions of the new rules on real estate financing, the financing of real estate enterprises is restricted, and large real estate enterprises have a comparative advantage in the competition for resources. After experiencing rapid sales growth in the past, Zhongliang has grown into a large and medium-sized housing enterprise, ranking 20th in national sales. Relying on its scale advantage, it will benefit from the Matthew effect of the industry. In addition, the company attaches importance to the deep ploughing strategy of urban layout, which is beneficial to the background of land supply in major cities in China. A more accurate judgment can be made on the ground, so as to reduce the risk of project degeneration. However, in the context of state regulation and control, we believe that price restrictions, loan restrictions and other regulatory policies will continue for some time. Taking the above considerations into account, we adjust the 2021-22 net profit forecast-22% gamma 20%, and the target price is adjusted to HK $6.80 per share. Maintain the buy rating.
Risk tips: real estate regulation and control policies, economic downturn on sales pressure.