Exploring the Midea Real Estate Holding Ltd.(03990)

Midea Real Estate Holding Ltd. purchase which is listed for half a year, surrendered its first performance after listing last month and achieved excellent results.

Let me talk about the basic situation:

Midea Real Estate was listed in October 2018, with an offer price of 17 yuan. After the listing, the total number of shares issued was 1.109 billion shares. The major shareholder He Jianfeng held 1 billion shares, equivalent to 84% of the shares, and another cornerstone investor Youngor (600177. SH) holds 60.35 million shares or 5.07% of shares and Foshan Yesheng Investment holds 13.71 million or 1.15% of the shares. The cornerstone investors have a six-year lock-up period, and there is no lock-up limit. If the cornerstone investors do not reduce their holdings, then the market circulation is only 9.8%, and the market circulation is only about 2.56 billion yuan.

The group just announced its first results last month. In 2018, its revenue was 30.2 billion yuan (RMB, the same below), gross profit was 9.854 billion yuan, the gross profit margin was 32.7%, core net profit was 3.284 billion yuan, and net profit margin was close to 11%. The fully diluted net profit per share was 2.76 yuan or 3.22 Hong Kong dollars. The annual dividend payment was 1.0768 yuan or 1.26 Hong Kong dollars, and the dividend payout ratio was about 39%, which is close to the company’s 40% dividend payout guide.

By the end of 2018, the Group’s total land bank reached 45 million square meters, with an average land price of 2,337 yuan per square meter. It was distributed in the Pearl River Delta Economic Zone, the Yangtze River Delta Economic Zone, the Yangtze River Midstream Economic Zone, North China and the Southwest China Economic Zone.

The Group has a net interest-bearing debt of approximately RMB 23 billion and a net gearing ratio of 97%. The weighted effective interest rate of interest-bearing liabilities is as low as 5.91%, which is lower than that of most of its peers. It is estimated to benefit from the higher credit rating of the parent company.

The Group’s annual contracted sales for the year 2018 reached RMB 79 billion, compared with RMB 206 and RMB 50.7 billion in 2016 and 2017 respectively. At the performance conference, the management disclosed that the 2019 contract sales target was 100 billion yuan. Based on the above data, it estimated that the income confirmed in 2019 will reach 50 billion yuan. In 2020, the opportunity will reach 80 billion yuan. If the net profit rate is maintained at about 11%, the profit and dividend will be very substantial in the next two years.

In fact, in terms of expected profit, most of the Chinese property stocks are very cheap, but the risk lies in a relatively high debt ratio. Once sales slow down, the funds will slow down, and many will have problems with the capital chain. At the time, the speed of goods delivery in the inner room was accelerated, which was favorable for the high-indebted expansion of the intimate house. In the same year, Evergrande, Sunac and Xincheng were in such a high position. Now the US homeownership is the net gearing ratio among the medium-sized Chinese property stocks. The tall one, if the mainland continues to liberate the money to promote the valley economy and no strict domestic control measures, perhaps Midea Real Estate can take the opportunity to surpass other medium-sized housing.

Midea Real Estate currently has a market circulation of only about 10%, and retail investors do not hold much. The main circulating supply is in the hands of institutional investors, and the stock price is better than its peers. Of course, the Group has the opportunity to raise funds to reduce debts, and the cornerstone investors also have the chance to reduce their cash, which is a short-term risk.