Incident: The company released its 2021 semi-annual report. During the reporting period, it achieved operating income of 30.065 billion yuan, an increase of 34.8% over the previous year, and achieved net profit of 3,003 billion yuan, an increase of 8.5% over the previous year, and a core net profit of 3.93 billion yuan, an increase of 28.9% over the previous year.

Gross margin has rebounded from the end of 2020, and core net profit is growing at a high rate. The steady increase in revenue was mainly driven by the increase in the scale of real estate settlement. The amount of real estate settlement during the period was 27.67 billion yuan, +34.0% year on year, and the corresponding settlement area was 1,441 million square meters, +32.3% year on year. In terms of profit margin, the company achieved a gross profit margin of 30.9% during the period, -3.0 pct over the previous year, up 2.3 pct from the end of 2020; the net interest rate returned to the mother was 10.0%, up -2.4 pct from the end of 2020, up 0.2 pct from the end of 2020. At the end of the period, contract debt was recorded at 51.55 billion yuan, +9.0% year on year, covering 0.92 times 2020 revenue. In terms of expense ratio, the three fees/revenue for the period were 10.0%, year-on-year -3.8 pct, sales management costs/current sales amount were 3.5%, year-on-year -2.1pct, financial costs/revenue was 2.6%, and -2.1pct year-on-year.

Urban renewal with high sales is progressing steadily, and the value of old renovation and conversion during the period exceeded that of 2020. During the period, the company achieved equity sales of 63.85 billion yuan, +77.2% over the same period last year, and achieved nearly 50% of the annual sales target, with the Greater Bay Area accounting for nearly 51% and the Yangtze River Delta accounting for 20%. The company's sales value in the second half of the year is 127 billion yuan, and it is estimated that the removal rate of 52% will meet the annual sales target; achieve a sales area of 3.86 million square meters, +79.6% year on year; and achieve an average sales price of 16,778 yuan/square meter, -1.3% year on year. In terms of land acquisition, the company's equity acquisition area during the period was 2.46 million square meters, -12.5% year on year, accounting for 79% of equity in terms of area; equity acquisition amount was 25.22 billion yuan, +13.5% year on year; floor price was 10,250 yuan/square meter, +29.8% year on year, floor price/average sales price 61.1%, year-on-year +14.7pct, land acquisition amount/sales amount 39.5%, year-on-year rate of -22.1pct. In terms of structural division, judging by the share of land acquisition by equity, bidding, old reform, and mergers and acquisitions were 45%, 33%, and 22% respectively, while the Greater Bay Area, Central China, and the Yangtze River Delta were 63%, 18%, and 12% respectively. The company's land acquisition was concentrated in high-energy cities and the Greater Bay Area. In terms of old reform, the company successfully converted 3 urban renewal projects in Shenzhen, Guangzhou and Zhanjiang during the period, transforming a saleable area of about 1.125 million square meters, with a sales value of about 72.7 billion yuan (conversion value for the full year of 2020 was 64 billion yuan). Looking at land reserves, at the end of the period, 31.14 million square meters of land storage were recorded, with an equity ratio of 67%, and the corresponding value of goods was 7346.6 billion yuan. Looking at the share of goods value, the city was updated to 47%.

The three red lines turned green, and financing costs were the same as at the end of last year. In terms of the three red lines, the company's balance ratio (after deducting accounts received in advance) was 69.9%, compared to the end of last year - 0.2 pct; the net debt ratio was 93.7%, compared to -2.4 pct at the end of last year; the short-term cash debt ratio was 1.53, compared to -0.03 at the end of last year. The three red lines were optimized to the green range (yellow at the end of 2020). Looking at the long-term and short-term debt structure, short-term debt accounted for 20.2%, -5.7pct over the previous year; long-term debt accounted for 79.8%. In terms of financing costs, the company's weighted average capital cost during the period was 8.7%, the same as at the end of last year.

Investment advice: Maintain the company's buying rating. The company's 2021-23 EPS is expected to be 0.90/1.04/1.19 respectively, and the corresponding PE is 2.39/2.08/1.80 times.

Risk warning: The decline in sales sentiment in the industry has exceeded expectations; the tightening of policy regulation has exceeded expectations.