Revenue and core net profit increased by 42.2% to RMB38.6bn and 26.0% to RMB4.70bn in 1H19, respectively. We raise our earnings forecast by 6.8% to RMB17.8bn in 2019. We estimate end-20 NAV to be HK$37.23. As a result, we raise TP from HK$23.23 to HK$26.06. Maintain HOLD.
- Interim core profit gained 26% to RMB4.9bn. 30% increase in delivery GFA to 2.84mn sq m and 9.5% increase in recognized ASP to RMB12,044 per sq m drove revenue growth by 42.2% to RMB38.6bn in 1H19. In addition, 39% rise in rental income also fueled the revenue growth. GM narrowed from 37.1% in 1H18 to 32.6% in 1H19. Contribution from JCE of RMB1.06bn stimulated the earnings growth. Excluding non-cash items, core earnings increased by 26.0 % to RMB4.7bn in 1H19. As at Jun 2019, pre-sold and unbooked properties amounted to RMB247bn with GM about 25-30%.
- Steady growth in contracted sales in 1H19. In 1H19, contracted sales amount and area tumbled by 8.8% to RMB105.6bn and 3.5% to 6.51mn sq m, respectively. Sales in Chongqing and Hangzhou amounted to RMB14.2bn and RMB10.6bn, respectively, in 1H19. Longfor will launch about RMB240bn of properties, of which 57% are new ones, for sales in 2H19 so that it will accomplish full year sales target of RMB220bn.
- Leasing apartment is a surprise. In 1H19, rental income grew by 39.2% to RMB2.58bn. Longfor disclosed that rental income from leasing apartments totaled RMB0.43bn in 1H19 and aims to have RMB1bn in 2019. Number of rooms under operation is expected to increase from 60k as at Jun 2019 to 80k as at Dec 2019. In 2H19, nine new shopping malls will commence operation. By the end-19, Longfor will operate 38 shopping malls with 3.62mn sq m leasable GFA.
- Total land bank of 70.93mn sq m. In 1H19, the Company acquired 50 plots of land with total GFA of 9.24mn sq m (attributable GFA of 6.71mn sq m). Attributable consideration was RMB52.1bn. As at Jun 2019, total and attributable land bank amounted to 70.93mn sq m and 49.11mn sq m, respectively. Average land cost was RMB5,632 per sq m, which is equivalent to 34.7% of contracted ASP in 1H19. This land bank is sufficient for four years development and provides 25-30% GM.
- Maintain HOLD. We cut delivery assumptions in 2019 but include revaluation gain in 2019. As a result, we adjust upwards our earnings forecast by 6.8% to RMB17.8bn in 2019. We also forecast end-20 NAV to be HK$23. As a result, we raise TP from HK$23.23 to HK$26.06, based on 30% discount to NAV.
