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    We estimate 2021 attributable net profit down 5% YoY

    We estimate that Jinke Property (Jinke)’s revenue in 2021 grew steadily by 30% and settled gross margin (after tax) fell to around 18% (20% in 2020). We expect that the company’s stakes in settled projects to be lower than in 2020. Considering non-recurring losses, we estimate attributable net profit in 2021 dropped by 5% YoY to Rmb6.7bn, largely in line with market consensus.

    Trends to watch

    Sales to remain stable; land acquisition still prudent. The company’s sales in 2021 fell 16% YoY to Rmb187.6bn and gross floor area (GFA) sold dropped by 11% YoY to 19.97mn sqm. Starting from 2H21, the company reduced inventories such as garages and residual projects etc thereby bringing the average selling price (ASP) down by 6% YoY to Rmb9,394/sqm. As the fundamentals of the housing sector are trending down, the company slowed its land acquisition rate, with its land cost at Rmb40bn and land cost/sales ratio at 20%. We believe Jinke will remain prudent about land acquisition in the short term. As the land reserve (60mn end-2021) is sufficient to cover 2-3 years of sales, we expect the company to see steady progress in sales.

    Interest-bearing liabilities falling; the company likely to maintain “green” grade under the Three Red Lines regulations. For end-3Q21, the company’s net gearing ratio, debt-to-asset ratio (excluding advance receipts) and cash-to-short-term debt ratio stood at 74.2%, 68.5% and 1.4x. Interest-bearing liabilities (including perpetual bonds) declined 8% to Rmb92.6bn. We believe the company’s year-end interest-bearing liabilities will continue to fall thanks to its efforts to scale down debts. Meanwhile, net profit settlement will enhance the equity. Therefore, we believe the company’s indicators under the framework of the Three Red Lines regulations will marginally improve and maintain its “green” grade. In December 2021, the company successfully issued ultra-short-term bonds of Rmb0.8bn (coupon rate at 6.8%) despite industry-wide credit pressure.

    Operating capability enhanced; contracted construction projects to offer new growth driver. We believe Jinke would make steady progress in improving its profitability, core competitiveness and asset operations and cutting its liabilities and inventories. The company built a contracted construction project team in 2H21, and secured Rmb20bn worth of business to date, with sales of contracted projects in 2021 amounting to Rmb2.0bn. We believe contracted projects can help Jinke reduce capital investment and control operating risk, and the firm will likely continue to expand the business.

    Valuation and recommendation

    Considering lower-than-expected gross margin of settled projects, we cut our earnings forecast by 5% to Rmb6.7bn for 2021(-5% YoY) and by 7% to Rmb7.2bn for 2022 (8% YoY), and introduce our 2023 earnings forecast at Rmb7.9bn (10% YoY). The stock is trading at 3.9x 2022e and 3.5x 2023e P/E. We maintain an OUTPERFORM rating and our target price at Rmb5.33, implying 3.9x 2022e P/E and offering 2% upside.

    Risks

    Tightening real estate policies in major cities and/or financing policies.

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