Even if the company is faced with an unfavorable industry financing environment, it also has the ability to maintain a sustained and sound operation through prudent operation. In the long run, we think the company may be more likely to bear fruit in the areas of operations and services than in developing its business.

The company's performance was slightly lower than market expectations: in 2021, the company achieved an operating income of 107.8 billion yuan, an increase of 50.2% over the same period last year; the core net profit was 7.28 billion yuan, down about 9.2% from the same period last year; and the gross profit margin and core net profit margin were 19.3% and 6.8%, respectively, down 2.4 and 4.4 percentage points from 2020, mainly due to the influence of the carry-over structure of historical price-limiting projects and the investment income of joint venture companies.

Be in the green, but face the challenge of financing environment. At the end of 2021, the company's net debt ratio was 62.8%, excluding accounts received in advance, the asset-liability ratio was 69.7%, and the cash-to-short debt ratio was 2.6, which really reached the green level, and the company announced that the cost of domestic financing had dropped. But we do believe that the company faces the challenges of the current financing environment. 1. 40% of the company's overall debt is US dollar debt, and the US dollar bond market is facing long-term uncertainty of borrowing and repaying the old. 2. The company has determined that the project equity ratio is 54% (equity land storage / total land storage). The company has no obligation to acquire the equity of the partner with financial difficulties, but for the projects involved with the partner with financial difficulties, the uncertainty of its follow-up investment and sales is expected to be higher, and the company faces higher equity than the company. 3. At present, there is no credit recovery in the industry as a whole.

Sales are growing steadily, and the regional layout has advantages. For the whole of 2021, the company achieved sales of 247.3 billion yuan, maintaining a positive growth rate of 7.03% over the same period last year; the company's average sales price reached 17067 yuan per square meter, up 13.8% from the same period last year, and the sales rebate for the whole year was 240.3 billion yuan, an increase of 20% over the same period last year.

The company accounts for more than 85% of the goods value in first-and second-tier cities. If the market recovers slightly in 2022, we believe that the company has the potential for sales growth with a value of about 360 billion yuan.

Actively deal with risks and be prudent and rational. We believe that the company's actual controllers and core management have indeed been prudent and rational in dealing with risks. On the one hand, the company has controlled the recent increase in land storage investment, on the other hand, the company has actively promoted repayment, and some commercial banks have recently given credit line support to the company, which has also enhanced the safety of the company.

Risk Tip: we believe that the company can tide over the difficulties and the bonds can be repaid on time. However, since in the medium to long term, we judge that real estate companies may need to replace foreign debt (even if there is no large amount of repayment due during the year), and may need to gradually resolve the problem of housing enterprise cooperation projects, we think that in the long run, the company may need to shrink its table, that is, the company's development business market share may decline.

Investment advice: even if the company is faced with an unfavorable industry financing environment, it also has the ability to maintain a sustained and sound operation through prudent operation. In the long run, we think the company may be more likely to bear fruit in the areas of operations and services than in developing its business. According to the new house price and land price, we adjust the company's core EPS forecast for 2022-2023 to 0.83 yuan 0.84 yuan (the original forecast 0.91 yuan), add 0.88 yuan to the 2024 core EPS forecast, give the company 6 times PE valuation in 2022, and correspondingly adjust the company's target price to HK $4.80 (original target price HK $6.10) to maintain the company's "buy" investment rating.