Summary. Revenue and core net profit increased by 10.7% to RMB10.4bn and 28.9% to RMB1.54bn in 1H19, respectively. We estimate end-20 NAV to be HK$8.05. As a result, we raise TP from HK$4.56 to HK$4.83. Maintain BUY.
- Interim core profit gained 29% to RMB1.5bn. Revenue increased by 10.7% to RMB10.4bn in 1H19. 65% rise in recognized GFA to 0.94mn sq m offset 33% decline of recognized ASP to RMB10,669 per sq m. GM was affected by declining ASP and narrowed from 32.3% in 1H18 to 28.9% in 1H19. In the period, China SCE recorded a gain of RMB564mn from bargain purchase. Excluding non-cash items, core earnings increased by 28.9% to RMB1.54bn in 1H19.
- 78% contracted sales growth in 1H19. In 1H19, over 100 projects in 32 cities were launched for pre-sales. Contracted sales amount and area soared by 77.9% to RMB37.0bn and 80.3% to 2.97mn sq m in 1H19, respectively. The Company focused on the property sales in Yangtze River Delta region, where contributed 36.8% of contracted sales amount in the period. By Jul, hit rate was 60.3% based on RMB70bn sales target. As at Jun 2019, pre-sold and unbooked properties totaled RMB35bn, of which RMB8bn will be recognized in 2H19. The management also hints that they are looking to have RMB130bn sales target next year.
- 01mn sq m total land bank in 37 cities. China SCE acquired 27 new projects in 19 cities with total GFA of 5.27mn sq m, for a total consideration of RMB24.0bn in 1H19. As at Jun 2019, China SCE had invested properties projects in 37 cities with total GFA of 29.01mn sq m (attributable GFA 16.32mn sq m). In terms of land cost, investment in the first and second tier cities accounted for 12.4% and 65.2% of total land cost as at Jun 2019, respectively. In the future, the Company will focus to absorb land bank in the second and leading third tier cities. Average land cost was RMB3,787 per sq m, which is equivalent to 30.3% of pre-sales ASP in 1H19.
- Healthy balance sheet. As at Jun 2019, cash on hand and total debt amounted to RMB23.5bn and RMB40.3bn, respectively. Net gearing ratio stood at 66.2%, which was a safe level. Although cost of debt increased to 6.7% in 1H19 from 6.4% in 1H18, it would not cause significant impact to its debt repayment ability as cash to short-term debt ratio was 2.6x.
- Maintain BUY. We raise our earnings forecast by 22.2% to RMB3.70bn in 2019. We also forecast end-20 NAV to be HK$05. As a result, we raise TP from HK$4.56 to HK$4.82, based on 40% discount to NAV.
