Revenue and net profit declined by 6.4% to RMB14.9bn and 3.6% to RMB1.54bn in 1H20, respectively. Contracted sales gained by 9.8% to RMB40.4bn in 7M20, which was equivalent to 49% of hit rate. Total land bank amounted to 21.80mn sq m. The Company is undergoing 150 urban redevelopment projects that will become Times’ land bank next seven years. We maintain our TP unchanged. Our TP of HK$16.2 represents 40% discount to NAV of HK$27.0. Maintain BUY.
- Core earnings retreated 8.5% in 1H20. Revenue and core earnings retreated by 6.4% to RMB14.9bn and by 8.5% to RMB1.56bn in 1H20, respectively. COVID-19 was one of the reasons. Change of product mix dragging down margin was another. Gross margin narrowed by 5.6ppts to 26.9% in the period. Lower gross margin for property development (26.3%) dragged down effective tax rate to 40.6% in 1H20 from 53.9% in 1H19 that supported earnings. Lastly, about RMB812mn profit was booked in other income arising from transformation of Guangzhou Hongwei project.
- Sales promotion boosted pace. Contracted sales amount and area gained by 9.8% to RMB40.4bn and 18.8% in 7M20, respectively. Hit rate was 48.7% based on RMB83bn sales target. The Company admitted that it used promotion to boost sales pace during the outbreak period so margin was sacrificed. Times plans to launch about RMB150bn properties for sales in full year so it is confident to achieve 2020 sales target.
- Rely on urban redevelopment projects. In 1H20, the Company only acquired seven parcels of land in Foshan, Changsha and Dongguan with total GFA of 0.92mn sq m (Attri: 0.55mn sq m). Land bank policy was prudent. It prefers more on urban redevelopment plans. Now, there are about 150 urban redevelopment plans undergoing with total GFA of 52mn sq m. In Jun 2020, Times successfully converted four urban redevelopment projects with total GFA of 1.37mn sq m in Guangzhou and Foshan. The Company believes that replenishing land bank by converting urban redevelopment projects is more cost effective. As of Jun 2020, total land bank amounted to 21.80mn sq m that spread across 16 mainland cities. Average land cost was RMB4,183 per sq m, which is equivalent to 30% of contracted ASP.
- Maintain BUY. We slightly adjust our earnings forecast. We estimate net profit to be RMB6.34bn, RMB7.09bn and RMB8.15bn in 2020-22, respectively. We maintain our TP unchanged. Our TP of HK$16.2 represents 40% discount to NAV of HK$27.0. Maintain BUY.
