1H18 earnings likely surged 100.3% YoY
We now estimate that attributable core net profit at ChinaEvergrande Group （CEG） surged 100.3% YoY to Rmb37.1bn in 1H18,benefiting from intensive deliveries and margin improvement. Wealso foresee attractive interim and FY18 dividends, each implying ayield of 9.5%.
Intensive deliveries drive top-line boom. Supported by unbookedproperty sales of Rmb500bn at end-FY17, CEG’s total revenue likelygrew 94% YoY to Rmb364bn in 1H18.
Margin improvement further boosts earnings. In CEG’s core businessof property development, we believe recurring net margin isexceeded 15% in 1H18, up 1.3ppt from FY17.
Lucrative dividends. Assuming a neutral payout ratio of 50%, CEGoffers FY18e and FY19e dividend yields of 9.5% and 12.0%.
Deleveraging on track. By slowing land replenishment （we estimateCEG’s paid land premium at 24% of January–May sales） andincreasing equity, we believe the firm lowered its net gearing ratio toaround 130% in 1H18 （vs. 184% in FY17）。
Trends to watch
Sales expected to rise 30% to more than Rmb650bn in 2018. CEGachieved 47% of our full-year sales estimate in 1H18, on par with thesector average. Abundant saleable resources, attributable to robustland reserves （312mn sqm at end-2017） and rapid turnover, shouldcontinue to enable sufficient sales coverage.
Valuation and recommendation
The firm trades at 6.4x FY18e and 5.3x FY19e P/E. Maintain HOLD,given concerns over possible policy headwinds in tier-3/-4 cities, butraise target price 9% to HK$32.64 （8x FY18e P/E; 24% upside） onstrong interim results and generous dividend payout.
Risks
Dividend payout could be less than we expect.