2021 results in line with our expectations
　　CIFI Holdings announced 2021 results: Revenue rose 50.2% YoY to Rmb107.8bn, gross margin fell 2.4ppt YoY to 19.3%, and attributable core net profit dropped 9.2% YoY to Rmb7.28bn, in line with market expectations. The firm distributed cash dividend of HK$0.19 per share and 4 bonus shares per 100 shares, maintaining dividend yield at around 35% in 2021.
　　Turned green-grade developer in 2021. CIFI became a green-grade　developer under the “three red lines” (new financing rules for real estate developers) at end-2021 thanks to effective cash collection (cumulative collection rate over 95%) and cautious land acquisitions (land cost was 32% of contract sales). Specifically, at end-2021, liability-to-asset ratio (excluding sales deposits) fell 2.4ppt vs. 1H21 to 69.7%; net gearing ratio remained largely stable at 62.8%; cash to short-term debts ratio was 2.6x; and average financing cost edged down from 5.1% in 1H21 to 5.0%. At end-2021, CIFI had Rmb114.1bn of interest-bearing debts (up 3% vs. 1H21), of which short- to medium-term debts accounted for 16%. In the open market, it only has one RMB-denominated bond (Rmb1.48bn) due in April 2022. Year to date (YTD), CIFI has maintained stable ratings by Standard & Poor’s, Moody and Fitch, and issued US$150mn of bonds and Rmb1bn of medium term notes with coupon rate of 4.75%.
　　Horizontal and vertical integration steadily progressing. CIFI kept　diversifying its business portfolio, exploring new businesses such as commercial property and property services. By end-2021, it had opened 14 shopping malls with total reserves of 31, and the firm expects rental income from these properties to grow at a CAGR of nearly 50% over the next 3 years. As for the long-term rental apartments, CIFI managed around 80,000 rooms by end-February 2022, ranking top 3 among long- term rental apartment brands launched by property developers.
　　Trends to watch
　　Expecting stable equity sales in 2022. CIFI plans to deliver Rmb360bn　of projects in 2022 (excluding newly acquired land sites), with over 80% located in core downtown areas in first- and second-tier cities.
　　Financials and valuation
　　Given adjusted forecast for settlements, we lower our 2022 and 2023　earnings forecasts by 13% and 17% to Rmb7.3bn and Rmb7.7bn. The continued credit risks related to some large non-state-owned companies might increase financing difficulties and weaken housing demand. This may also impact firms with solid fundamentals, leading to lower risk preference. We maintain OUTPERFORM and cut our TP by 21% to HK$6.16, implying 6.0x 2022e P/E and 49% upside. The stock is trading at 4.1x 2022e and 3.9x 2023e P/E.
　　Risks
　　Real economy recovery disappoints; possible spillover effect from credit risks related with some property developers.