Morningstar | Poly Real Estate's preliminary 1H Results Showed Better Margin
Poly Real Estate Group reported preliminary first-half results with revenue and attributable earnings of CNY 60 billion and CNY 6.4 billion, respectively. The top line was up 10% compared with the same period a year ago, and earnings were up 15%. This stronger growth in earnings was attributed to a better gross margin on certain projects and higher investment incomes. Both achieved operating margin and net margin slightly higher than our projection. We estimate full-year earnings per share of CNY 1.58 and CNY 1.92 for 2018 and 2019, respectively. The share price has pulled back during the year, and now trading at less than 7 times the projected 2017 earnings. We believe the shares are now undervalued at this point. We maintain our fair value estimate of CNY 13, along with our no-moat rating for the company.First-half revenue accounted for 30% of our full-year estimate, slower than the run rate a year ago. The slower pace of booking is mitigated by strong contract sales for the half, which totaled CNY 215 billion and gross floor area 14.5 million square meters, up 38% and 47% year on year. The run rate is about 57% to its full-year target, faster than the pace seen a year ago. The contract sales pace is impressive relative to most of its peers, as the overall market has continued to slow, with volume up 3% and value up 15% so far this year. We remain concerned about the company's stretched balance sheet given its ambitious contract sales target of CNY 500 billion by 2020. We will examine that in more details once the formal half-year results are released.
Poly Real Estate Group is engaged in the real estate development; leasing of Co.'s developed commodity housing; the design of housing engineering; old building relocation; road and earthwork construction; interior renovation; the installation of air-conditioning project and management; property and hotel management; and trading of wholesale and retail. Through its subsidiaries, Co. is also engaged in the community intellectualization of integrated system engineering; club management; construction supervision; the provision of commercial consultation services; field management; and the sale and agent of real estate.
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