Zhongnan Construction (000961): Significant increase in profitability and continuous optimization of financial structure

Zhongnan Construction (000961): Significant increase in profitability and continuous optimization of financial structure

The company’s first quarter 2019 results were in line with expectations, and its profitability continued to improve.

The systematic strategic adjustments carried out by the fundamental company have significantly improved operating efficiency; the existing company has sufficient land reserves, its financial structure has been continuously optimized, and its debt ratio has been significantly reduced. The high-standard distribution incentive plan promotes continuous promotion and continuous development.

The current market value is nearly 40% discounted from NAV, with a continuous margin of safety.

The 2019-2021 EPS is expected to be 1.

09, 1.

85 and 2.

39 yuan, the current sustainable corresponding PE is 7 respectively.

6,4.

5 and 3.

5 times, optimistic about the company’s future 四川耍耍网 scale expansion and profitability improvement, maintain “Highly Recommended-A” rating, target price of 13.

1 yuan / share (approximately 10% discount to NAV, or PE = 7X in 2020).

  Key investment points: (1) The first quarter of 2019’s performance was in line with expectations, and the rebound in profitability brought continuous growth in performance.

The company achieved operating income of 84 in the first quarter of 2019.

700 million, before -25.

4%; net profit attributable to mother 4.

800 million, previously +27.

1%; net profit after deduction to mother 4.

5 trillion, +20 for ten years.

8%; overall performance is in line with expectations.

The decrease in the company’s revenue in the first quarter was mainly due to the decline in the completion of the construction sector. The sustained high growth in profits was mainly due to: 1) the profitability continued to improve, and the gross profit margin for the first quarter decreased by +4.

4 points to 29.

2%, with a combined gross profit margin of 24.

3%, a new high since 2015; 2) The company’s settlement of non-consolidated projects increased, and investment income1.

2.5 billion US dollars, turn negative into positive one year; 3) Management dividends continue to be released, while the sales scale continues to grow, the company’s current sales expenses, management expenses decreased by 39%, 14%, the sales expense ratio and management expense ratio decreased by 1.

1pct and 0.

9 points to 1.

1% and 2.

0%.

As of the end of the first quarter of 2019, the company’s advance receipts amounted to 1,162 trillion, every + 49%, and its coverage ratio for operating income in 2018 reached 2.

9 times, future performance growth is guaranteed.

  (2) Sales maintained high growth, investment was cautious, and core city clusters continued to be deployed.

In the first quarter of 2019, the company achieved contracted sales of approximately 308.

700 million, previously + 25%; contracted sales area is about 250.

10,000 square meters, + 29% a year; of which, the monthly sales amount and area in March exceeded 38% and 41%, respectively, and the marginal improvement was obvious.

In the first quarter, the company replenished its soil storage capacity of 192.

80,000 Ping, previously -30.

4%; take the total price of 131.

9 trillion, ten years +12.8%.

The land acquisition / sales amount is 53.

7% a year -17.

8 points.

The newly-added projects in the Yangtze River Delta, the Pearl River Delta and the Mainland ‘s core cities account for more than 85% of the planned construction area. The company ‘s focus on the core city cluster strategy is further improved, and the optimization of soil storage layout promotes continuous acceleration of the delivery of high-quality resources.

At the end of the first quarter, the planned construction area of the company’s development projects under construction totaled 29.78 million square meters, and the planned construction area of unstarted projects totaled 15.03 million square meters, each of which totaled 4500 universal, and statically identified the current sales for about 4 years.

  (3) The financial structure has been continuously optimized, and the follow-up performance has a high degree of certainty.

At the end of the reporting period, the company’s net debt ratio was 167%, a decrease of more than 80pct, and the asset-liability ratio excluding advance receipts decreased by -1.

8pct to 43.

2%; benefiting from efficient sales rebates and current long-term prudent investment strategies, the company’s cash at hand at the end of the period was 24.4 billion, and the protection ratio of cash in hand for short-term debt was 0 compared with 0 at the end of 2018.

75 prominently increased to 1.

85.

The company’s 2018 stock budget incentive plan unlock condition is that the net profit attributable to the parent from 2018 to 2020 is not less than 20.

5, 39.

8, 69.

9 trillion, corresponding performance growth rate of 240%, 94%, 76%.

At present, the company’s financial structure is optimized, the net debt ratio is reduced to a more reasonable level, and high-standard performance indicators are expected to continue to promote the company’s development.

  Investment suggestion: The company’s first quarter 2019 results are in line with expectations, and its profitability continues to improve.

The systematic strategic adjustments carried out by the fundamental company have significantly improved operating efficiency; the existing company has sufficient land reserves, its financial structure has been continuously optimized, and its debt ratio has been significantly reduced. The high-standard distribution incentive plan promotes continuous promotion and continuous development.

The current market value is nearly 40% discounted from NAV, with a continuous margin of safety.

The 2019-2021 EPS is expected to be 1.

09, 1.

85 and 2.

39 yuan, the current sustainable corresponding PE is 7 respectively.

6,4.

5 and 3.

5 times, optimistic about the company’s future scale expansion and profitability improvement, maintain “Highly Recommended-A” rating, target price of 13.

1 yuan / share (approximately 10% discount to NAV, or PE = 7X in 2020).

  Risk warning: the third- and fourth-tier sales exceeded the expectations, and the settlement net interest rate fell short of expectations.