Revenue and net profit gained by 14.1% to RMB64.6bn and 3.1% to RMB5.27bn in 1H20, respectively. Spin-off of Shimao Services is on the way and expected to be completed this year. We raise TP to HK$44.94. Maintain BUY.
- Interim core profit gained 5%. Revenue and net profit gained by 14.1% to RMB64.6bn and 3.1% to RMB5.27bn in 1H20, respectively. Top-line growth was driven by 16.6% increase of delivery GFA to 3.95mn sq m. However, net finance cost increased 3.2x to RMB714mn in 1H20 due to FX loss. Core earnings increased by 4.7% to RMB5.56bn in the period. Interim dividend increased from HK$0.6 in 1H19 to HK$0.7 (including special dividend HK$0.1) in 1H20.
- New business model of “Giant Aircraft Strategy”. Diversification would enhance return and reduce risk. Shimao kicked off a “Giant Aircraft Strategy” business model in 2020. Property development business is main body, commercial properties operation, hotel operation, property management and finance are solid wings while investments in advanced technology, medical treatment, education, elderly care and culture are key empennage. The Company introduced two investors to Shimao Services and recorded RMB600mn gain for existing shares sales. Then, HK$0.1 special dividend was declared in the period.
- Contracted sales up 10% in 1H20. Contracted sales upped 10.1% to RMB110.5bn in 1H20. Shimao will launch RMB400bn properties for sales in 2H20 in order to accomplish its RMB300bn sales target in 2020. In 1H20, Shimao acquired 12.32mn sq m land bank. As of Jun 2020, total attributable land bank amounted to 51.86mn sq m in 423 projects in 135 cities.
- Shimao Services on listing application. Shimao Services filed A1 application proof for IPO on HKEx in Jun 2020. According to China Index Academy, Shimao Services was ranked 12th in 2019. As of 20 Jun 2020, contracted GFA was 124.4mn sq m covering 495 properties projects. We expect listing will be completed in 2020 and create value to shareholders.
- Raise TP to HK$41.94. Net gearing ratio stood comfortable level of 57.8% as at Jun 2020. Looking forward, Shimao aims at 20-30% sales growth and 20%+ core earnings growth in 2020-24. This would be an encouraging signal. We raise end-20 NAV forecast from HK$50.46 to HKR59.92 after new land bank and raise Shimao Services valuation to HK$25bn. As a result, we raise TP from HK$37.85 to HK$44.94, representing. 25% discount to NAV.
