The reported net profit of RMB28bn was 13.2% higher than our forecast of RMB24.7bn because of higher than our expected gross margin and more contribution from JCE. We raise our 2020 earnings forecast by 7.1% and raise TP to RMB22.16, which is equivalent to 8.0x 2020E P/E. Reiterate BUY recommendation.
- Net profit surged 48% in 2019. Revenue and net profit surged by 21.3% to RMB235.9bn and 47.9% to RMB28.0bn in 2019, respectively. The robust results were driven by increase of delivery GFA and margin improvement. GM for property development expanded by 2.7ppts to 35.4% in 2019. The reported net profit was 13.2% higher than our forecast of RMB24.7bn because of higher than our expected gross margin and more contribution from JCE. The Company declared final dividend of RMB0.82 per share, representing increase of payout ratio to 35%.
- Top five in contracted sales in 2019. Contracted sales amount increased by 14.1% to RMB461.8bn in 2019, respectively. Market share climbed to 2.89%. Cash collection ratio was 93% and cash collection from contracted sales amounted to RMB431.2bn in 2019. So net gearing ratio improved by 23.6ppts to 56.9% and cash on hand amounted to RMB139.4bn as at Dec 2019. Cost of debt reduced by 8bp to 4.95% in 2019. Balance sheet was strong. Although contracted sales dropped by 35% to RMB71bn in 1Q20, we expect Poly Development achieved 5% sales growth in 2020 due to its strong saleable resources.
- 213mn sq m land bank. Poly Development acquired 127 projects of 26.8mn sq m land bank for considerations of RMB155.5bn in 2019. Meanwhile, attributable ratio for new land increased from 68% in 2018 to 71% in 2019. As at Dec 2019, GFA under development and for future planning were 132mn sq m and 81mn sq m, respectively. We estimate NAV to be RMB27.73 per share.
- Leading property management company. Poly Property Development (6049 HK, BUY) posted 49% net profit growth to RMB491mn in 2019. As at Dec 2019, it managed 1,490 properties projects in 170 cities. Total contracted GFA reached 498mn sq m as at Dec 2019.
- Raise TP and forecast. We raise our earnings forecast by 7.1% to RMB33.0bn in 2020 and 8.5% to RMB38.4bn in 2021. Accordingly, we raise our target price from RMB20.72 to RMB22.16, based on 8.0x 2020E P/E. Maintain BUY recommendation.
