Summary. Revenue and net profit grew by 14.4% to HK$12.8bn and 80.6% to HK$1.83bn in 1H19, respectively. Robust earnings growth was driven by margin improvement from 24.7% in 1H18 to 35.1% in 1H19. We estimate end-20 NAV to be HK$10.47. As a result, we cut TP from HK$5.38 to HK$5.23. Maintain BUY.
- Net profit surged 81% in 1H19. Revenue gained by 14.4% to HK$12.8bn in 1H19. GM improved by 10.4ppt to 35.1% in 1H19 because of booking of some high margin projects. Furthermore, profit shared by Asso/JV increased 1.7x to HK$313mn. So net profit increased by 80.6% to HK$1.83bn in 1H19. As at Jun 2019, about 6.79mn sq m of properties were pre-sold and unbooked. In 1H19, about 1.40mn sq m of properties were completed, of which about 98% were sold.
- Flat contracted sales in 1H19. Contracted sales amount and area gained by 0.6% to HK$28.6bn and 4.9% to 2.37mn sq m in 1H19, respectively. This reflected the difficult situation in the lower tier cities. In order to maintain market share in the lower tier cities, COGO strikes to offer good products and services. It will develop mainstream products with high-quality, green, healthy and technology. Furthermore, it will enrich the range of property products.
- Projects in 26 mainland cities. In 1H19, COGO newly entered Quanzhou. It bought 14 plots of land in nine mainland cities with a total GFA of 3.56mn sq m for a total consideration of RMB15.6bn in the period. As at Jun 2019, total and attributable land bank amounted to 23.86mn sq m and 22.02mn sq m, respectively, in 25 mainland cities. In Jul 2019, COGO further explored new property market in Qingyuan. It will adopt a prudent expansion strategy given the current situation. As at Jun 2019, properties under construction and completed for sale totaled 12.22mn sq m and 0.87mn sq m, respectively.
- Ample cash in the war chest. Cash on hand and total borrowing amounted to HK$27.3bn and HK$33.2bn as at Jun 2019, respectively. Net gearing ratio stood at 27.0% in the same period. The financial position is healthy. In addition, the Company has the undrawn bank facilities of HK$10.5bn so that total available funds reached HK$37.8bn as at Jun 2019. The Company has sufficient resources for business expansion.
- Cut TP to HK$5.23. We raise our earnings forecast by 20.8% to HK$3.83bn in 2019 and 8.4% to HK$4.32bn in 2020. In addition, we estimate end-20 NAV forecast to be HK$10.47. As a result, we cut TP from HK$5.38 to HK$5.23, representing a 50% discount to NAV. Upside potential is 31.4%. Reiterate BUY.
