1H results in line with market expectationsShimao announced its 1H20 results: Revenue increased 14.1% YoY toRmb64.55bn; core net profit rose 4.7% YoY to Rmb5.56bn, orRmb6.16bn (YoY up 16%) if including gains from introducing strategicshareholders into its property management business. Interim DPSHK$0.7 (including special DPS HK$0.1) implied 2% yield.
　　Disciplined landbanking further enhances resource edge. Nearly halfresource value of new projects acquired in 1H20 was generated fromnon-public methods, leading to total landbank worth Rmb1.45trnwith estimated GPM of around 28% at end-1H20.
　　Healthy financial position well maintained. Net gearing ratio(perpetual capital securities treated as debt) improved from 63.9% asof 2019 to 60.7% at end-1H20. Average funding cost inched downfrom 5.6% in 2019 to 5.5% in 1H20, and the IG rating from Fitch hasremain unchanged.
　　Trends to watch
　　Sales likely to reach Rmb330bn (YoY +27%). After achievingRmb110.5bn sales in 1H20 (YoY +10%), completing 33% of ourestimate), the firm has prepared Rmb400bn saleable resources for2H20. We expect monthly sales to exceed Rmb30bn in August, andRmb40bn in remaining months. Quality has been maintained, withsolid YTD sales GPM of around 28% and a stake of around 60%.
　　Major focus on quality growth and investor return in 2020-2024.
　　Shimao is aiming for sales CAGR of 20-30% and core net profit CAGRof over 20% in 2020-24. Moreover, the company has revised up thepayout ratio guidance from 30-40% to 35-45%. In practice, its payoutratio has stayed over 40% since FY17.
　　Financials and valuation
　　Keep earnings forecast unchanged. Reiterate OUTPERFORM but raiseTP 10% to HK$45.20 (9.0x 2021e P/E) offering 30% upside, asgrowing investor confidence in the firm’s mid-to-long term growthprospects should further unlock its re-rating. The stock is trading at8.4x/6.9x 2020-2021e P/E and 30% NAV discount.
　　Risks
　　Sales and earnings performance below market expectations.