BINJIANG REAL ESTATE(002244)：2021 EARNINGS TO STEADILY RISE AS SALES LAND ACQUISITION GROW DESPITE SECTOR DOWNTURN

　　2021 earnings likely to grow 10% YoY
　　We expect Binjiang Real Estate’s earnings to grow steadily in 2021. While growth of recognized sales revenue in 4Q21 may miss expectations due to delayed sales and delivery of some projects, we expect the firm’s attributable net profit to grow double digits （lower than our previous forecast） despite the headwinds facing comparable companies. In 3Q21, the firm’s contract liabilities stood at Rmb90.7bn, largely enough to cover the estimated sales revenue to be recognized over the next two years. The firm estimates that sales of over 30 projects will be recognized in 2022. Meanwhile, we think the profit margin of recognized sales will decline at a slower pace, and the firm’s stake in recognized sales will stabilize. Therefore, we lower our 2021 earnings forecast 13% to Rmb2.6bn. We maintain our 2022 earnings forecast at Rmb3.6bn, and introduce a 2023 earnings forecast of Rmb4.2bn, implying YoY growth of 10%, 39% and 18% over 2021-2023.
　　Trends to watch
　　Sales likely to exceed targets in 2021 and grow steadily in 2022. In 2021, the firm’s sales increased 24% to Rmb169.1bn （based on data from CRIC, the same below） despite the industry downturn, exceeding its target of Rmb150bn. Its ranking also climbed five places to No.22 in China. Meanwhile, its stake in recognized sales was 52%, vs. 51% in 2020. According to the company, it started to develop in 2016-2018, prospered in 2019-2021, and should begin to grow steadily in 2022. We think it will achieve higher quality growth while maintaining stable sales volume.
　　Acquiring land despite industry downturn; profit margin of land acquisition improving. The firm purchased 38 land parcels in 2021, with land cost at Rmb74.1bn and a stake at 60%. Its attributable land cost increased 8% YoY, and land-cost-to-sales ratio stood at 50%, vs. 59% in 2020. Binjiang entered into a strategic cooperation agreement with Yuexiu Property and started to develop projects in Guangzhou in 2021. We expect the firm to keep focusing on property development in Zhejiang, Jiangsu, and Guangdong, as well as Shanghai. Since 2H21, the firm has been acquiring land at low premium in the cooling land market. We estimate that the net profit margin of the firm’s new land stood at around 10%, improving vs. previous years.
　　Safe financials on par with those of quality state-owned enterprises. The company's average funding cost declined to 4.9% at end-2021, vs. 5.2% in 2020. Despite tightening financing regulations of the real estate industry, the firm successfully issued Rmb900mn of short-term bonds in December and Rmb960mn of ultra-short-term bonds in January, with a nominal interest rate of 4.2% and 4.0%. In addition, it recently announced a plan to issue no more than Rmb3.5bn of medium-term notes and short-term financing bills. We think that the firm remained a “green” property developer under the “three red lines” regulation at end-2021. We expect the firm to keep growing on the back of a solid balance sheet.
　　Valuation and recommendation
　　The stock is trading at 4.8x 2022e and 4.1x 2023e P/E. We maintain OUTPERFORM. Considering improved risk appetite of investors for real estate companies with steady sales growth, safe financials and strong product competitiveness, we raise our TP 20% to Rmb6.88, implying 6.0x 2022e P/E, offering 25% upside.
　　Risks
　　Unexpected tightening of housing regulations in major cities; disappointing revenue or profit margin of recognized sales.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。