Yuzhou achieved 21% core earnings growth in 1H19 to RMB1.4bn. In 7M19, the Company achieved RMB34.5bn contracted sales, up 19.6% YoY, completing 52% of RMB67.0bn sales target. We trim our TP from HK$5.48 to HK$5.28. Maintain BUY.
- 6% core earnings growth in 1H19. In 1H19, Yuzhou achieved 25.9% growth of revenue to RMB11.6bn. Gross margin dropped to 27.0% compared to 35.4%/30.7% in FY17/18 due to less YRD projects recognized during the period. On the other hand, effective tax rate dropped 5.6ppt to 42.1%, thus core net profit was up 20.6% to RMB1.4bn, representing core net margin of 12.0%. The Company declared an interim dividend of HK$0.15 per share (incl. special dividend of HK$0.03), up 36% YoY. The payout rose to 46.8% (incl. 10% of special dividend).
- 52% hit rate in 7M19. In 1H19, the Company achieved RMB28.5bn contracted sales with 1.85mn sq m GFA sold, up 32.5% and 17.4%, respectively. This represented ASP of RMB15,366/sq m. YRD remains the core market of Yuzhou, contributing RMB19.7bn sales in 1H19, representing 69% of total sales. Yuzhou’s FY19 sales target was RMB67.0bn and 2019 saleable resources amounted to RMB110.0bn (1H:40% 2H:60%). Thus, 1H19 sell-through was 65% and 2H saleable resources amounted to RMB80.0bn (2H newly launched: RMB66.0bn). Yuzhou only needs to achieve 48% sell-through in order to complete RMB67.0bn target. In 7M19, Yuzhou realized contracted sales of RMB34.5bn, completing 51.5% of annual sales target. As FY19 target was 19.6% higher than FY18 sales, we believe RMB67.0bn is a moderate and achievable target.
- Increased land investment. Yuzhou has increased its land investment in 1H19. During the period, Yuzhou added 2.12mn sq m new land bank, of which 82% were in tier-one/two cities or 46.3% in YRD and 18.8% in GBA. Total consideration amounted to RMB23.6bn and attributed land cost was RMB14.1bn. Total land cost to contracted sales was 83%. By comparison, total/attributable land cost in FY18 was RMB17.3bn/RMB8.1bn.
- Attractive valuation, maintain BUY. Due to margin decline, we trim FY19/20 core earnings forecast by 7.1%/4.2% to RMB3,900mn/5,024mn. We raise our FY19-end NAV forecast from HK$7.84 to HK$8.80. Given 40% discount, we trim our TP from HK$5.48 to HK$5.28. The counter is trading at 3.5x/3.0x FY19/20E P/E, lower than small-cap peers’ average, with dividend yield of 11.5%/11.8% in FY19/20E, in our estimates. Hence, we believe current valuation is attractive. Maintain BUY.
