Sinic delivered an in-line 2020 results with core earnings up 1% YoY (incl. RMB164mn write-off). It is even more positive to see: 1) a diversified land bank structure (YRD region at 20%) with disciplined land costs/ASP ratio at 32% to support sustainable growth. 2) An all-round balance sheet improvement with debt to asset at 73.6% in 2020 (76% in 2019), which made green category reachable in 1/1.5 years. Therefore, we expect its attributable sales to grow >10% YoY with stable GP Margin at 24-25% and gradual improvement in the attributable ratio.
- Expect attributable sales to grow >10%. For 2021E, the Company prepared RMB85bn attributable saleable resources and expected attributable sales to reach RMB55bn (+10%) based on 65% sell-through rate (similar to 2020). Based on 2M20 sales data, it has almost met the additional RMB5bn sales growth so with the momentum continuing especially in YRD, we expect the actual sales growth to be higher than 10%. As regards to the attributable sales ratio of 44%, we expect a gradual improvement as seen from 2020 land acquisitions owning 60% stakes. Also, with total sales reaching RMB114bn, Sinic has more resources to increase its ownership. GP Margin is estimated to stabilize at 24/25% on diversified land acquisitions channel and composition.
- More balanced land bank structure with disciplined land costs/ASP ratio: despite maintaining the no.1 position in Jiangxi, Sinic has achieved a more balanced bank composition with 33% in GBA, 31% in Jiangxi, 20% in YRD and 16% in Southwest. YRD region has become the top priority in terms of penetration as 43% of 2020 land acquisitions were allocated in YRD. With the fast asset turn and sales growth in YRD and profitability-driven models in its deep-rooted regions, we think Sinic could achieve a more sustainable growth. For land acquisitions, we believe industrial land acquisitions could contribute 20% of total, together with 50% in public auction and 30% in M&A. This may help maintain a healthy land costs/ASP ratio (32% in 2020).
- 2020 results – in line with improving B/S: Sinic delivered 4% YoY growth in revenue to RMB28.1bn. GP Margin declined to 24% in 2020 vs. 30%, which is in line with the industry trend. SG&A/Revenue ratio dropped by 0.6ppts YoY to 5.5%. Together with lower effective tax rate, core net margin stayed flat at 6.7% and core earnings grew 1% YoY to RMB1.9bn. Full-year dividend was RMB0.14/share in 2020 (27% payout ratio). Also, gearing has been improved to 63.6% (67% in 2019) and debt to asset to 73.6% in 2020 (76% in 2019). Management guided to reach green category within 1.5 years.
- Maintain BUY. The Company is trading at 5.3x 2022E vs. industrial average of 5.5x. We keep our earnings and TP unchanged. Maintain Buy.
