Revenue and net profit declined by 2.1% to RMB44.9bn and 9.3% to RMB11.5bn in 1H20, respectively. Contracted sales gained 2.5% to RMB134.8bn in 7M20, which completed 51% of full year sales target. Spin-off for property management business is expected to process this year. We raise TP to HK$44.79. Maintain BUY.
- Core earnings rose 3% in 1H20. Revenue and net profit declined by 2.1% to RMB44.9bn and 9.3% to RMB11.5bn in 1H20, respectively. GM narrowed 4.7ppts to 33.5% in 1H20. Although delivery GFA increased by 18.2% to 2.93mn sq m, ASP shrank 16.9% to RMB12,289 per sq m due to product mix. CR Land implemented better cost control on SG&A expenses. Core earnings increased 3.2% to RMB8.4bn in the period.
- Contracted sales gained 2.5% in 7M20. Contracted sales declined 6.7% to RMB110.8bn in 1H20 due to less saleable resources and outbreak. CR Land will accelerate sales pace and launch RMB300bn properties in 2H20 to secure full year sales target of RMB262bn. Contracted sales soared by 90% YoY to RMB23.97bn in Jul 2020. As at Jun 2020, about RMB230.4bn of properties were pre-sold but unbooked, of which RMB107bn will be recognized in 2H20.
- Flat rental income in 2019 due to outbreak. Rental income suffered from RMB700mn rental concession and lost 12.5% to RMB5bn in 1H20. Overall occupancy rate stayed at 93.9% in 1H20. Furthermore, CR Land acquired four commercial projects with GFA of 0.27mn sq m from CRH. Number of malls in operation is expected to increase from 64 in 2020 to 88 in 2022 and 120 after 2022. It will support a 15-20% rental income CAGR beyond 2020.
- Footprints in 81 cities. The Company acquired 30 projects with attributable GFA of 3.78 sq m in 1H20. As at Jun 2020, CR Land owned attributable GFA of 49.80mn sq m for development business and 9.38mn sq m for IP.
- Greenlight of property management business spin-off. CR Land received approval from HKEx for property management and commercial operational service business spin-off. As at Jun 2020, managed GFA totaled 112mn sq m, of which 87.5% and 12.5% are residential and commercial properties.
- Raise TP. We slightly cut earnings forecasts by 1.0%, 0.3% and 3.2% to RMB26.4bn, RMB31.8bn and RMB34.7bn in 2020-22, respectively. However, we raise our end-20 NAV forecast from HK$63.22 to HK$63.98. Accordingly, TP is changed from HK$44.25 to HK$44.79, representing a 30% discount to NAV. Reiterate BUY.
