Medium-term core net profit growth exceeded expectations
As of June 30, 2021, the company achieved operating income of 30.065 billion yuan, an increase of 35% over the same period last year, and revenue maintained rapid growth; gross profit was 9.278 billion yuan, an increase of 23.1% over the same period last year; net profit was 3.003 billion yuan, an increase of 8.5% over the same period last year; core net profit was 3.932 billion yuan, an increase of 28.9% over the same period last year, exceeding market expectations; basic earnings per share was 0.47 yuan, an increase of 5.2% over the same period last year. Gross profit margin and net profit margin were 30.9% and 10.2% respectively, down 2.9 and 0.4 percentage points respectively from the same period last year. Thanks to the improvement of the company's management expense rate and financial expense rate, the company's net profit margin remained stable during the industry adjustment period.
The optimization of debt structure exceeded expectations, and the "three red lines" index entered the "green file" ahead of schedule.
As of June 30, 2021, the company's interest-bearing liabilities were 123.8 billion yuan, an increase of 2% over the end of last year, and the average financing cost was 8.7%, the same as at the end of last year. After excluding the accounts received in advance, the asset-liability ratio and net debt ratio of the company were 69.9% and 93.7% respectively, down 0.2 and 2.4 percentage points respectively compared with the same period last year, and the cash short-debt ratio was 1.53 times. The optimization of the company's debt structure exceeded expectations, and all the three red line indicators turned to "green". During the period, the company's credit rating remained stable. In terms of debt maturity, 20% of the debt matured within one year. In terms of debt structure, bank loans accounted for 29%, foreign preferred bills accounted for 58%, and domestic non-bank loans accounted for 13%.
Contract sales are growing steadily
The company's annual sales target for 2021 is 130 billion yuan, an increase of 21.6% over last year's sales. In the first half of the year, the company achieved contract sales of 63.85 billion yuan, an increase of 77 percent over the same period last year, and a target completion rate of 49 percent in the first half of the year. The contract sales area was 3.806 million square meters, an increase of 80 percent over the same period last year. The average sales price was 16777 yuan per square meter, down 1.3 percent from the same period last year. In the second half of the year, the company expects to have a sales value of 127 billion yuan, corresponding to a removal rate of 52.1%, to achieve the annual sales target. The proportion of the company's salable value in first-tier and second-tier cities is 38% and 53% respectively, and 55% of the saleable value is located in the Great Bay area. With abundant sales value and superior location, the annual sales target is expected to be achieved.
The land reserve is abundant, and the urban renewal project has entered an accelerated transformation period.
As of June 30, 2021, the company has a land reserve of about 31.14 million square meters, with an equity ratio of 67%. It can cover a 20-year sales area of 5.1 times, and the land reserve is abundant. 61.8% of the land reserve is located in the Dawan area, with a land storage value of 734.7 billion yuan. In the first half of the year, the company added 2.46 million square meters of equity construction area, down 12.5% from the same period last year, the equity ratio was 79%, the corresponding value was 103.1 billion yuan, the equity consideration was 25.2 billion yuan, and the average land price was 10235 yuan per square meter; the ratio of land to sales amount was 40%, and the ratio of land to sales area was 64.6%. In terms of land acquisition, the proportions of urban renewal, bidding, and mergers and acquisitions were 33%, 45%, and 22%, respectively, and those from urban renewal increased by 9 percentage points compared with the same period last year. After years of hard work, the company's urban renewal project has entered an accelerated transformation period, providing a strong guarantee for the company to cope with industry fluctuations.
Investment suggestion
The company has abundant land reserves in the Greater Bay area and has a large number of high-quality urban renewal project resources. we believe that the current stock price has a large margin of safety and has fully responded to the negative expectations of the industry and the company. We estimate that the company's 2023 operating income will be 69.155 billion yuan, 83.678 billion yuan and 96.229 billion yuan respectively, and the net profit will be 6.405 billion yuan, 7.515 billion yuan and 8.494 billion yuan respectively, corresponding to the EPS points of 0.91,1.07,1.21 yuan. We will give the company a target price of HK $4.50 times the 2021 PE4.1, maintaining the "buy" investment rating.
Risk hint
The progress of the transformation of commercial housing sales and urban renewal projects is not as expected; the optimization of debt structure is lower than expected; and the regulation and control policies and financing environment are tightened more than expected.