The current situation of the company

The company's final dividend in 2020 is HK $0.58 per share, with a yield of 4.9% corresponding to the current dividend. The net date is July 2. Based on the company's deep ploughing of resources in the Greater Bay area and a solid balance sheet, we believe that the company has allocation value at the current low valuation (currently trading at 4.0 times 2021 earnings). We expect generous dividend yields of 10.1 per cent and 11.8 per cent for 2021-22. We reiterate the target price of HK $15.38 (5.1 times 2021 price-to-earnings ratio, 29% upside).

Comment

Steady progress has been made in the landing of the old reform project. By the end of 2020, the company has locked in 109 old renovation projects with a total value of 710 billion yuan, 95% of which is located in the Greater Bay area. The company estimates that the overall net interest rate is 15-20%. The value of the old reform project can be divided into two aspects. First, from the point of view of taking land, we estimate that the value of the right goods in 2021-23 is expected to exceed 150 billion yuan, of which it will be transformed into 300-50 billion yuan this year (30 billion yuan in 2020), which will further consolidate soil storage resources. Second, from the perspective of profit, the company expects that the 20% sales target of land consolidation at the first level of the old reform project is expected to contribute to the core net profit every year. The company plans to supply 240 billion yuan (up more than 40% year-on-year) this year, and the corresponding equity sales will increase by 20% to 144 billion yuan, of which sales in the Yangtze River Delta are expected to double to more than 20 billion yuan. From January to May, the company's sales rose 71 per cent from a year earlier to 63.6 billion, with a target achievement rate of 44 per cent. Considering the high prosperity of the real estate market in Dawan area and abundant available resources in the second half of the year (about 120 billion yuan for new sales), we believe that the annual sales target can be achieved smoothly.

The financial situation is stable and improving. At the end of last year, Longguang was a "green" housing enterprise under the new "three red lines" regulations, with a pre-debt ratio of 70%, a net debt ratio of 61%, and a cash short-debt ratio of 1.8 times. Taking into account the caution of land acquisition since the beginning of the year (the intensity of land acquisition is 34% from January to May), we expect it to remain in the "green range" in the medium term. In addition, thanks to the marginal decline in the cost of new debt issued abroad (4.5% for the $300 million debt due in 2028 in January and 4.25% for the $300 million debt in 2025 issued in April), we expect the medium-term average financing cost to be slightly lower than the 5.6% at the end of last year.

Valuation and suggestion

We keep our earnings forecasts, ratings and target prices unchanged.

Risk.

Developer financing Xiaobai Maimai Inc policy tightened more than expected.