Responding to all doubts, Shimao delivered a strong 2020 results with core earnings up 17% YoY. More importantly, management has turned more bullish on 2021E sales (>15% growth) and earnings (even outgrow sales due to fast growth of non-property sectors) with stable GP margin at 28-30%. We think behind the figures, the success lied on its regional promotion/demotion scheme which has strongly improved the group-to-region control and efficiency especially during sudden market change (like 2020). Therefore with solid results/guidance + successful scheme, we think it deserves a re-rating from current 5.2x 2021E PE and stood up from where it fell down in Dec after a conservative guide down.
- Management turned more bullish on the sales outlook: despite setting the sales target at 10% YoY growth to RMB330bn, Vice-Chairman is confident to achieve much better figures as 1) 1Q sales could reach RMB66-70bn (+82% YoY or RMB30bn YoY) which is enough to meet the full-year sales growth of RMB30bn. Management sees continuous sales momentum in 2Q so there still be some positive growth. 2) Assumed 60% sell-through rate looks conservative compared to 63% in 2020 given the sales momentum. 3) Sellable resources have not been counted for those from land acquisitions this year. In 2019, new acquisitions contributed 20% sales growth and thus we may expect additional sales in 2021E.
- Earnings to outpace sales growth: with non-property sectors (PM and Hotels) growing at a faster pace and higher margin, we expect core earnings to outgrow the sales growth which may deliver >15% CAGR in the future. In particular, we estimate 2021 earnings to grow 15-20% driven by 15% growth in booked revenue and 70% YoY in non-property sectors (reaching RMB15bn). GPM is expected to stay relatively stable partly because of the higher contribution (9-10% in 2021E) from non-property sector. Dividend payout ratio may keep at 35-45% range.
- Regional promotion/demotion scheme paid off: we think the structure change to promote/demote regions based on KPI ranking is the key reason behind all the success. Since 2018, this scheme has boosted a strong incentive for all regions to compete for the KPI set by the Group as underperformed regions will be merged by other regions (like Nanjing in 2019, Shandong/Central China in 2020). Therefore, the Group has a strong control on the regions and this has improved the efficiency and execution capability especially during big strategy change (like 2020, KPI changed from sales growth to profitability).
- Strong 2020 results supported by high margin: Shimao delivered a solid 2020 core earnings growth of 17% YoY to RMB12.3bn, in line with our estimates. Revenue grew 21% YoY to RMB135bn while GP margin stayed relatively stable at 29.3% which beat our estimates. Core EPS rose 10% YoY to RMB3.52/share and the Company declared a HK$1.8/share full year dividend (41% payout ratio). Also, it met all “three red lines” requirement.
- Reiterate Buy: Company is currently trading at 5.2x 2021E PE which is below industry average of 5.5x. We keep our earnings forecast unchanged and reiterate Buy rating.
