Summary. Aoyuan achieved 75% core earnings growth in 1H19 to RMB2.03bn. In 7M19, the Company achieved RMB60.3bn contracted sales, up 30% YoY, completing 53% of RMB114.1bn sales target. We revise up our TP from HK$13.00 to HK$14.30. Maintain BUY.
- 75% core earnings growth in 1H19. Aoyuan achieved 78% and 100% contracted sales growth in 2017 and 2018, respectively. Driven by previous fast-growing contracted sales which was gradually recognized in 1H19, revenue from property development grew 73% to RMB22.4bn. Gross margin slightly improved 1.2ppt to 29.8% compared to 1H18 but lower than the FY18 of 31.1%. Core net profit was up 75% to RMB2.03bn, representing core net margin of 8.6%.
- 53% hit rate in 7M19. In 1H19, the Company achieved RMB53.6bn contracted sales with 5.32mn sq m GFA sold, up 33% and 35%, respectively. This represented ASP of RMB10,080/sq m. South China area remains the core market of Aoyuan, contributing RMB22.8bn sales in 1H19, representing 42% of total sales. In 7M19, Aoyuan realized contracted sales of RMB60.3bn, completing 53% of annual sales target of RMB114.1bn. Furthermore, pre-sold but unbooked properties amounted to RMB145.7bn as at Jul 2019, of which about RMB25-30bn will be recognized in 2H19.
- Competitive land bank. In 1H19, Aoyuan added 7.26mn sq m new land bank, of which 72% came from M&A. As of 30 Jun 2019, Aoyuan had 230 projects located in 75 domestic and overseas cities. Total land bank reached 40.12mn sq m (attributable: 81%) with a total value of RMB425.5bn (expecting ASP of RMB10,606/sq m), of which 27% was attributable to GBA. Thanks to the Company’s active M&A strategy in land acquisition, average land cost was well maintained at RMB2,321/sq m, accounting for 23% of 1H19 ASP. The Company also focuses on urban redevelopment business. Potential saleable resources of urban redevelopment projects reached RMB219.7bn. We believe Aoyuan’s land bank is competitive among other mid-size developers in terms of cost and positioning in GBA.
- Raise TP to HK$14.30, maintain BUY. We revise up FY19/20 earnings forecast by 10.9%/6.3% to RMB4,448/6,123mn. We also raise our FY19-end NAV forecast from HK$26.00 to HK$28.60. Given 50% discount, we raised our TP from HK$13.00 to HK$14.30. On 16 Aug, Hang Seng Index Company announced Aoyuan will be included in The Hang Seng Composite LargeCap & MidCap Index (HSLMI). Among mid-size developers with contracted sales about RMB100.0bn, we favor Aoyuan for its appealing land bank position and strong earnings visibility backed by robust sales growth.
