20210901-招银国际-新力控股集团-02103.HK-Profitability_over_scale_after_achieving_more_balanced_land_bank_4页_798kb

Sinic Holdings (2103 HK) Company Update Summary

Core Content Overview

Sinic Holdings reported steady performance in 1H21, with core earnings increasing by 7% YoY to RMB730mn. Revenue rose by 29% YoY to RMB11.22bn, driven by strong sales in property development. However, the gross profit margin (GPM) declined by 8.5ppt to 21.7%, primarily due to higher land costs. The effective tax rate decreased to 50% in 1H21, contributing to a smaller erosion in net margin (only 2.6ppt to 6.8%). Despite the drop in EPS to RMB0.21/share (-9% YoY), the company's balance sheet remained relatively stable and is expected to reach the "green" category within one year due to disciplined land acquisitions.

Key Financial Highlights

• Revenue Growth: 1H21 revenue reached RMB11.22bn, up 29% YoY.
• Core Earnings: Increased 7.4% YoY to RMB730mn.
• GPM: Declined to 21.7% in 1H21, but is expected to stabilize at 22%.
• Net Margin: Eroded by 2.6ppt to 6.8%.
• EPS: RMB0.21/share (-9% YoY).
• Net Gearing: Reduced to 50.5% in 1H21 from 63.6% in FY20.
• Liability to Asset (excl. presales): Remained at 73.5%, slightly above the required 70%.
• Cash to Short-term Debt: Increased to 1.4x in 1H21 from 1.2x in FY20.
• Weighted Average Financing Cost: Decreased to 8.7% in 1H21 from 10.3% in 1H20.
• Contracted Liability: Increased 40% HoH to RMB36bn in 1H21.

Outlook and Strategy

Sinic is expected to maintain a focus on profitability over scale in the coming years. The company has significantly reduced land acquisitions in 1H21, acquiring only 5 plots compared to 7 in 1H20, with 2 in Jiangxi and 3 in YRD. This strategy has led to a 77% YoY drop in attributable land cost to RMB2.18bn, and an average land cost of RMB4.3k/sq m (-24% YoY). This move is seen as positive, as it allows for better budget control and more opportunities in the second half of 2021.

The company is projected to achieve a 15–20% YoY attributable sales growth in 2021/22E, supported by a solid land bank of RMB200bn. The company's focus on maintaining a balanced land bank and disciplined spending is expected to provide a stable foundation for future earnings growth, with the GPM anticipated to remain stable at 22%.

Valuation and Investment Recommendation

• Current Price: HK$4.20
• Target Price: HK$4.95 (+17.9% upside)
• P/E Ratio (2021E): 5.4x, below its 5Y historical average of 5.9x and 1SD-Below-Average of 5.3x.
• Earnings Summary: Net profit to shareholders is expected to grow from RMB1,960mn in FY20A to RMB2,299mn in FY22E.
• Recommendation: BUY (Maintain)
• Rationale: The company's valuation is attractive, and its strategy of prioritizing profitability over scale is seen as a positive move for long-term growth.

Shareholding and Performance

• Shareholding Structure:

  • Zhang Yuanlin: 83.19%
  • Public: 16.81%

• Share Performance (12-mth):

  • Absolute: -2.0%
  • Relative: -3.8%

Key Ratios

Ratio	FY18A	FY19A	FY20A	FY21E	FY22E
Gross margin	37.3%	29.6%	24.4%	27.5%	26.6%
EBIT margin	25.2%	24.0%	19.6%	18.2%	17.3%
Net margin	4.9%	7.3%	7.0%	7.5%	7.2%
Effective tax rate	70.2%	67.8%	59.9%	50.5%	50.0%
ROE	9.7%	24.0%	19.9%	19.6%	17.5%
Net debt / total equity ratio	237.9%	67.0%	63.6%	71.5%	74.6%
BVPS	NA	2.3	2.8	3.2	3.7

CMBIS Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• SELL: Stock with potential loss of over 10% over next 12 months
• NOT RATED: Stock not rated by CMBIS

Disclaimer and Disclosures

• CMBIS or its affiliates have investment banking relationships with the issuers covered in this report within the preceding 12 months.
• The analyst certifies that the views expressed accurately reflect their personal views and that there are no conflicts of interest.
• This report is for informational purposes only and not an offer to buy or sell securities.
• The information is based on publicly available data and is not guaranteed for accuracy or completeness.
• CMBIS does not provide individually tailored investment advice.
• The report is subject to change without notice.

Distribution Restrictions

• United Kingdom: Only for persons falling within Article 19(5) of the Financial Services and Markets Act 2000 or Article 49(2)(a) to (d).
• United States: Intended solely for "major US institutional investors."
• Singapore: Distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser.