We transfer the coverage of Yuzhou Group and maintain forecast and TP unchanged. We forecast net profit to grow by 25.9% to RMB4.40n in 2020 and 20.3% to RMB5.30bn in 2021. Our TP is HK$4.81, based on 50% discount to NAV. The Company built dual headquarters in Shanghai and Shenzhen that will accelerate its development in Greater Bay Area. We are optimistic about its long term development and expect it to accomplish RMB100 sales target in 2020. Maintain BUY.
- Contracted sales grew 50% in 1H20. Yuzhou is doing well in property sales. Contracted sales amount and area soared by 50.5% to RMB42.9bn and 41.1% to 2.61mn sq m, respectively. It accomplished about 43% of RMB100bn sales target in 2020 by Jun. Yuzhou’s hit rate was better than peers. Yangtze River Delta (YRD) region and West Strait Economic Zone were the two largest contributors and accounted for 62.4% and 19.0% of contracted sales in 1H20, respectively.
- Spin-off of property management business is in pipeline. Founded in 1997, Yuzhou Property Management ranked 36th on the list of “China Top 100 Property Service Providers in 2019” by CIA. In 2019, revenue from property management services amounted to RMB448mn and managed GFA was 13mn sq m. Following the recent sector rally, Yuzhou plans to spin off its property management business, which will be listed on HKEx this year.
- Dual headquarters in Shanghai and Shenzhen. After relocated headquarters in Shanghai in 2016, Yuzhou established another headquarters in Nanshan District, Shenzhen in Jun 2020. Since then, Yuzhou started two-wheel-drive strategy that focuses on the business development in YRD region and Greater Bay Area. As of Dec 2019, total land bank amounted to 20.12mn sq m, of which that in Greater Bay Area only accounted for 6.2% of total land bank. Currently, Yuzhou had penetrated property market in HK, Huizhou, Foshan and Zhongshan. There are huge business opportunities for Yuzhou in Greater Bay Area.
- Maintain forecast and TP unchanged. Properties pre-sold and unbooked amounted to RMB90bn and gross margin amounted to 26% as of Dec 2019, of which RMB50bn were consolidated. Earnings visibility is high. We forecast net profit to grow by 25.9% to RMB4.40n in 2020 and 20.3% to RMB5.30bn in 2021. We also estimate end-20 NAV to be HK$9.62. As a result, our TP is HK$4.81, based on 50% discount to NAV.
