Core earnings of RMB1.25bn in 2019 was 13% below our estimate because of more than expected deduction from minority. Redsun has solid foundation in Jiangsu and plans to expand to other regions. We cut our earnings forecast by 21% in 2020 and 18% in 2021. We cut TP from HK$3.37 to HK$3.22. Maintain BUY.
- More deduction from minority. Revenue and net profit surged 64.2% to RMB15.2bn and 3.9% to RMB1.47bn in 2019, respectively. Gross margin declined by 6.1ppt to 25.1%. Core earnings increased by 2.7% to RMB1.25bn in the period, which was 13.0% below our forecast. Major discrepancy came from larger than expected deduction from minority. Full year dividend was RMB0.111, up 22% YoY, with core payout ratio of 30%.
- Contracted sales increased 38% in 2019. Contracted sales amount and area gained by 37.6% to RMB65.1bn and 38.8% to 4.9mn sq m in 2019, respectively. We believe its brand name and increased cooperation with other developers help the sales growth. Redsun expanded its footprint out from Jiangsu. Contracted sales outside Jiangsu increased from 17% in 2018 to 27% in 2019. In 2020, the Company sets sales target at RMB75bn and saleable resources from Jiangsu to account for 50%.
- Total land bank of 16.93mn sq m. Redsun acquired 57 plots of land with total GFA of 6.93mn sq m (attributable ratio of 49%) in 2019. Total and attributable land bank amounted to 16.93mn sq m and 9.25mn sq m as at end-19, respectively. Land bank in Jiangsu, YRD ex-Jiangsu and others accounted for 58%, 25% and 17% respectively.
- Asset-light expansion plan. Re-opening part of Nanjing Hong Yang Plaza in Aug 2019 drove the rental income up 14.6% to RMB411mn in 2019. In addition, the Company adopts asset-light model to accelerate its growth. In 2019, two asset-light shopping malls in Yantai and Tengzhou opened in 2019. The Company plans to open three malls in Yanjiao, Yangzhou and Hengyang through asset-light model in 2020 and number of shopping malls under its management will reach 15 in 2021 and beyond.
- Trim forecasts and TP. Financial status is well managed with net gearing ratio of 70% as at end-19. After consideration of minority, we cut earnings forecast by 20.6% to RMB1.56bn in 2019 and 18.1% to RMB2.11bn in 2021. We also cut end-20 NAV estimate from HK$5.61 to HK$5.36. As a result, we trim TP from HK$3.37 to HK$3.22, representing a 30% discount to NAV.
