In 1H20, Poly Property recorded growth in revenue and net attributable profit of 27.6% and 27.4% YoY respectively. Managed GFA was up 22% YoY, while overall gross margin decreased due to COVID impact on high-margin businesses. We believe community VAS will rebound after being under pressure, while the Company is set to achieve its FY20E earnings target. We raise TP to HK$90.6 based on its average forward P/E of 47.8x. Maintain BUY.
- Overall results in line; set to achieve FY20 earnings target. Poly Property recorded revenue of RMB 3,601mn in 1H20, and net attributable profit of RMB 400mn, an increase of 27.6% and 27.4% YoY respectively. Managed GFA was up 22% YoY, at 317mn sq m. Overall gross margin decreased by 3.2ppts to 20.4%, mainly due to COVID impact on high-margin community VAS. Management reiterated its earnings target of 30-40% growth in FY20E, which we believe is achievable.
- Stable GFA expansion on multiple fronts. During 1H20, the Company signed 137 new third-party projects with contract value of approximately RMB650mn per year, more than half of which were regarding non-residential properties. New contracted GFA received from the parent company increased by 9.1mn sq m during 1H20, while new contracted GFA from third-party sources decreased by 13.8mn sq m due to expiration of a 60mn sq m public project. Managed GFA remains evenly split between parent company and third-party sources, signaling equal emphasis on both fronts.
- Despite COVID impact, community VAS is where momentum lies. High-margin community VAS business such as certain home services, community media and community space came under pressure during the COVID-19 outbreak, resulting in an overall decline in community VAS GPM (30.2% in 1H20; -13.9ppts YoY). Meanwhile, travel restrictions during the pandemic enabled community retail to thrive, and new vertical businesses such as move-in and furnishing have shown strong momentum. We believe that 1) Poly Property’s strong foothold in tier 1/core tier 2 cities and 2) the sheer scale of community VAS market under the Company are major catalysts for pressured VAS to make a swift recovery post-COVID.
- Raise TP to HK$90.6. We revise down 2020E/21E earnings by 2.4%/0.7% after 1H20 results. We believe that Poly Property remains a top tier player within the sector with a clear edge in terms of developer background, expansion capability in the third-party property market, and public property niche. We raise TP from HK$75.7 to HK$90.6 based on its average forward P/E of 47.8x. Maintain BUY.
