Revenue and core net profit increased by 32.9% to RMB56.6bn and 20.6% to RMB5.31bn in 1H19, respectively. We raise our earnings forecast by 7.6% to RMB12.5bn in 2019. We estimate end-20 NAV to be HK$37.91. As a result, we raise TP from HK$26.21 to HK$26.54, based on 30% discount to NAV. BUY.
- Interim core profit gained 21% to RMB5.3bn. 23% increase in recognized ASP to RMB15,713 per sq m and 6% increase in delivery GFA to 3.39mn sq m and drove revenue growth by 32.9% to RMB56.6bn in 1H19. GM narrowed from 31.0% in 1H18 to 30.1% in 1H19. Core earnings increased by 20.6 % to RMB5.31bn in 1H19. As at Jun 2019, pre-sold and unbooked properties amounted to RMB135bn.
- 39% growth in contracted sales in 1H19. In 1H19, contracted sales amount and area increased by 38.7% to RMB100.3bn and 23.3% to 5.56mn sq m, respectively. Sell through rate was 50%+ in 1H19. Shimao has accomplished 48% of full year sales target of RMB210bn. About RMB300bn of properties are launched for sales in 2H19. Shimao is confident to achieve the target sales. Meanwhile, the Company has hinted that there will be RMB500bn of properties available for sales in 2020. In other words, Shimao may have RMB300bn of sales in 2020 based on 60% sell through rate.
- 60% of land were acquired by M&A in 1H19. Shimao acquired 60 projects with 14.21mn sq m land bank in RMB78.8bn in 1H19. About 60% of land in terms of value were acquired through M&A. The acquisition cost was well controlled and average land premium was RMB5,581 per sq m in 1H19 (or 31% of contracted ASP). Shimao has invested 301 projects in 101 cities with a total GFA of 64.07mn sq m (attributable GFA 40.72mn sq m). Total saleable value of total land bank is estimated to be RMB1,050bn.
- Spin off hotel and property management businesses. Recurrent income soared 75.3% YoY to RMB3.33bn in 1H19. Following the completion of renovation of several commercial properties and hotels as well as the expansion for property management business, we forecast recurrent income to grow at an 18.2% CAGR next three years. Shimao aims to spin off hotel and property management businesses next three years in order to reflect their fair value.
- Raise TP to HK$26.54. We roll over end-20 NAV forecast to HK$37.91. So we raise TP from HK$26.21 to HK$26.54, representing a 30% discount to NAV.
