Revenue gained by 20% to RMB14bn but core profit tumbled by 12% to RMB942mn in 1H20, respectively. Contracted sales grew 51% in 1H20 and hit rate reached 54% by Jul. RMB100bn sales target is expected to be achievable. The Company has just filed a listing of property management business on HKEx. Our TP of HK$4.82 is equivalent to 50% discount to NAV (i.e. HK$9.65). Maintain BUY.
- Core profit to shareholders declined 12% in 1H20. Revenue advanced by 20.4% to RMB14bn in 1H20. Gross margin tumbled by 3.6ppts to 23.4% in 1H20 because of RMB510mn adjustment on projects in Wuhan, Suzhou, Qingdao and Hefei. Excluding this, GM was 27.0% in 1H20, same as 1H19. But JCE recorded a loss of RMB176mn in 1H20, compared with gain of RMB240 a year ago. Furthermore, deduction from minority interests increased 98% to RMB531mn. As a result, core profit declined by 12.4% to RMB942mn in 1H20. Yuzhou declared an interim dividend of HK$0.12.
- Aiming at RMB100bn contracted sales. Contracted sales amount and area soared 50.5% to RMB42.9bn and 40.8% to 2.61mn sq m in 1H20, respectively. Sales in YRD represented about 62% of contracted sales in 1H20. It is because Yuzhou acquired RMB100bn land reserve in 2019 so that it can launch RMB180bn properties for sales this year. In 2H20, about RMB115.8bn of properties are available for sales, of which 62% are located in YRD. Till Jul, accumulated contracted sales reached RMB53.9bn.
- Spin-off of property management business is a plus. Yuzhou disclosed that it has just filed the application of listing of property management business on HKEx. As of Jun 2020, contracted and managed GFA were 22mn sq m and 13mn sq m, respectively. Furthermore, management had disclosed that revenue and net profit of property management business was RMB570mn and about RMB45mn in 2019, respectively. After listing, property management business will be totally separated from Yuzhou Group and be an independent listed company. Shares of property management business will be distributed in a specie to the shareholders of Yuzhou Group.
- Maintain BUY. Properties pre-sold and unbooked amounted to RMB100bn as of Jun 2019, of which RMB45bn were consolidated and RMB30bn are delivered in 2H20. Earnings visibility is high. We forecast net profit to grow by 26.1% to RMB4.41bn in 2020 and 20.2% to RMB5.30bn in 2021. We also raise end-20 NAV estimate from HK$9.62 to HK$9.65. As a result, our TP is HK$4.82, based on 50% discount to NAV.
