2019 earnings beat Bloomberg consensus by 5%
Times China recorded 2019 attributable core net profit of Rmb5.47bn （+30% YoY）。 Full-year DPS was Rmb84.45 cents, a yield of 6.7%.
Stable profit margin. Primary land development with higher segment GPM （50.1%） supported overall GPM of 29.3% in 2019 （-1.6ppt YoY）。Segment income also boosted the bottom line margin （12.9%, +0.7ppt YoY） by contributing the majority of shared profits.
Solid financials. Attributable operating cash flow recorded a mild surplus in 2019 thanks to disciplined land purchase （payment as 48% of proceeds）， and net gearing ratio was kept at 67.2% at end-2019.
Urban renewal project conversion ahead of schedule. 10 projects were converted in 2019, contributing about Rmb1bn of net profit in primary land development and 3.5mn sqm landbank （46% of total land replenishment）。 Total landbank came to 23mn sqm by end-2019, with competitive land cost at about 25% of ASP. Times China has also locked in potential urban renewal projects of 43mn sqm by GFA.
Trends to watch
2020 sales target of 5% YoY growth should be reached comfortably.We consider the planned supply of Rmb145-150bn as conservative given the company’s abundant resources. We also think it is more resilient in daily operation thanks to its heavy position in the Greater Bay Area, where impact from COVID-19 is less severe. Construction and sales activities have largely returned to normal at Times China.
Financing cost to trend down in 2020. Short-term debt stood at Rmb18.6bn （more than double YoY）， but still well covered by cash （offering 1.6x coverage）。 We expect swift refinancing in 2020 given the majority are standardized instruments （93% share） and the credit market environment is more favorable. We project average financing cost to decline to 6-7% in 2020 （7.5% in 2019, down 0.2ppt YoY）。
Financials and valuation
We cut our 2020 and 2021 earnings forecast 3% and 3% due to delivery changes. We keep OUTPERFORM and cut TP 3% to HK18.6 （30% NAV discount, 4.8x 2020e P/E, 33% upside）。 We expect the firm to generate promising returns from its currently attractive valuation （3.6x 2020e P/E, 47% NAV discount） given its quality resources, resilient operation, solid financials and decent dividend （8.3% 2020e yield）。 Risks: 2020 sales and earnings fall below our expectation.