Redsun delivered all-round solid results with core earnings up 11% and B/S in the green category. In the near term, we expect it to step into RMB100bn club in 2021E (+15% YoY) so it has the cash to accelerate shopping mall developments (11 malls by 2022 and then 3-5 projects per year). In the mid-to-long term, it will optimize the land acquisition channels with more M&A/complex projects to improve attributable ratio and profitability as land prices/ASP was at 50% in 2020 which may put pressure on the margins (22% in 2020). Maintain Buy rating.
- Contracted sales - aim for 15% YoY growth to reach RMB100bn. In 2020, Redsun recorded RMB86.5/40.7bn contracted/attributable sales (+33%/16% YoY), with contributions from Jiangsu (53% of total) and other parts of YRD (25%). Given aggressive land acquisitions in 2020 (RMB49bn or 57% of total sales), the Company has prepared RMB155bn sellable resources with 60% in YRD region which should be enough to achieve the target (65% sell through rate). However, it’s worth noting that the margin could further slide to 20% (22% in 2020) as the land price/ASP has reached 50% in 2020. Also the attributable sales ratio may stay below 50% (47% in 2020) given the attributable land bank is at a similar ratio of 48%. This may enlarge the MI ratio in the income statement, which was at 10% in 2020 vs. 45% in the balance sheet.
- Double its number of malls in 2 years. As a late comer in the YRD shopping mall space, the Company had 6 malls in operation and it contributed RMB505mn revenue in 2020 (3% of total). Given the pipeline, we expect Redsun to open 5 malls in 2 years (2 asset-heavy and 3 asset-light ones) and thus may drive the rental to grow at 15% YoY. In a mid term, management guided to take 3-5 complex projects/year with continuing to focus on operation and tenant mix (occupancy rate >90% in 2020).
- 2020 results – core earnings up 11% YoY with B/S into green category. Redsun delivered 33% YoY growth in revenue to RMB20.2bn. GP Margin declined to 22.4% in 2020 vs. 25.1% in 2019. Thanks to RMB252mn disposal gain, core net margin only contracted by 1.3ppt and core earnings grew by 11% YoY to RMB1.3bn. 2020 dividend was RMB0.122/share (20% payout ratio). For B/S, it met all the “three red lines” requirements with net gearing at 50%, unrestricted cash/ST Debt at 1.1x and liability/asset (excl. pre-sales) at 69.4%.
- Maintain Buy rating. It is currently trading at 3.8x 2021E PE which looks attractive. We keep earnings unchanged and maintain Buy rating.
