We forecast revenue and net profit to grow by 6.1% to RMB28.8bn and 6.5% to RMB5.4bn in 1H20, partly benefited from Hainan housing policy relaxation. Furthermore, we adjust upwards earnings forecast and NAV estimate due to more booking from Hainan and rise in A-Living (3319 HK, BUY) share price. Target Price is raised from HK$10.65 to HK$13.71. Maintain BUY.
- Forecast a mildly profit growth in 1H20. In 1H19, net profit grew 35% to RMB5.08bn partly due to RMB2.2bn after tax gain from disposal equity interest in a project company and RMB435mn re-measurement gains resulting from a JV transferred to a subsidiary. We believe this kind of gain will be reduced in 1H20 but partly compensated by increase of contribution from Hainan Clearwater Bay in the same period. As a result, we forecast revenue and net profit to grow by 6.1% to RMB28.8bn and 6.5% to RMB5.40bn in 1H20, respectively. Lastly, Agile achieved RMB55.1bn contracted sales in 1H20 or completed 46% of full year sales target of RMB120bn.
- Policy relaxation for Hainan home buying. Hainan government announced housing policy relaxation in Oct 2019 that tertiary education graduates with 1-year social security payment can buy home in Hainan. Therefore, Agile benefits from this policy change. The Company had already sold Hainan Clearwater Bay to some buyers 1 year ago. Their completions are pending for 2-year full social security payment and now reduce to 1-year. We expect about RMB4bn revenue from property development came from Hainan in 1H20 and enhanced profitability.
- Another spin-off. On the other hand, Agile is working to spin off A-City Group and listing on HKEx. A-City Group is a leading ecological habitat service provider with operation in 119 cities in 27 provinces in China. Revenue and net profit amounted to RMB5.1bn (up 45.1% YoY) and RMB775mn (up 58.0% YoY) in 2019, respectively. Given the successful performance of A-Living, we expect spin-off of A-City would enhance the value of Agile.
- Raise forecast and TP. Benefited from Hainan housing policy relaxation, we raise net profit forecast by 6.4% to RMB7.91bn in 2020 and 7.1% to RMB9.36bn in 2021. Furthermore, we raise our end-20 forecast from HK$26.62 to HK$27.41, partly due to the rise in A-Living share price. We raise TP from HK$10.65 to HK$13.71, based on 50% discount to NAV.
