Earnings to grow 25% YoY in 2019 with upside risk
We expect core net profit of Rmb5.2bn （+24.7% YoY） in 2019 and a payout ratio of 30%, implying a yield of 6.0% on current valuation.
Faster-than-expected progress in urban renewal project conversion.We think Times converted 6-8 urban renewal projects in 2019 （adding 2-2.5mn sqm to its land bank） and also recorded Rmb0.9bn of profit from primary land development. Another nine projects in new markets （including Shenzhen and Dongguan） have been added to the pipeline with potential conversion from 2020. We think total land replenishment came to around 6.5mn sqm in 2019 （for about Rmb100bn of saleable resource） with attractive land cost at about 30% of ASP.
Solid financials. We saw improved cash collection in 2019 （rate of 80-85%, vs. 70% in 2018） and disciplined land purchases （total cost at around 45% of sales proceeds）. Hence, we expect net gearing ratio at end-2019 to stay at 70-75% （70.8% at end-1H19）.
Trends to watch
Sales to extend solid momentum. Sales reached Rmb78bn in 2019 （+29% YoY）. We think the solid land replenishment in 2019 will support the Rmb150-160bn of saleable resources in 2020 to help deliver 20-25% sales growth.
Earnings growth to accelerate. We project earnings growth of 25% in 2019 （to Rmb5.2bn） and 27% in 2020 （to Rmb6.7bn）. Active delivery and stable margin （28-29%） should lay a solid foundation, and primary land development income could lend extra support （we expect over 20% growth in 2020 thanks to smooth progress from urban renewal）.
Financing cost could trend down to below 7% in 2020. We expect average funding cost at end-2019 to remain stable from end-1H19 （7.4-7.7%）. 2020 could see a decline to below 7% after refinancing of some high-yield bonds.
Valuation and recommendation
Keep earnings forecast, OUTPERFORM and TP of HK$19.2 （6.3x/5.1x 2019e/20e P/E, 45% discount to 2020e NAV, and 26% upside）. Stock now trades at 5x/4x 2019e/20e P/E, and 56% NAV discount.
Risks: 2019 earnings missing our expectations.