The first quarter results of 2022 are higher than we expected.
Financial Street announced 1Q22 results: operating income rose 210% year-on-year to 4.7 billion yuan, homed net profit increased 68% to 930 million yuan, deducting non-homed net profit increased 82% to 150 million yuan, exceeding our expectations, mainly because the settlement scale of the company during the period exceeded expectations.
The high increase of settlement scale superimposed low base effect led to the growth of performance. The settlement scale of the company's 1Q22 real estate business has increased, and the asset management business has remained stable. At the same time, considering that the operating income of 1Q21 is only 1.5 billion yuan, the absolute amount is the lowest in nearly 7 years, accounting for 6% of the annual income (an average of 14% in recent 7 years). The company's 1Q22 operating income has increased significantly. The company's settlement gross profit margin during the period was 18.9%, down 24.3ppt from the same period last year and 1.3 ppt higher than in 2021. The equity and asset transfer income generated from the disposal of the Ritz-Carlton Hotel in Beijing Financial Street led to an investment income of 760 million yuan (1Q21 of-20 million yuan) and asset disposal income of 230 million yuan (1Q21 of-1 million yuan), which jointly led to higher-than-expected growth.
The three red lines are still in the "orange file", and the financing channels are smooth. Due to the reduction in sales rebates and debt repayment during the period, the cash on hand shrank by 31% compared with the beginning of the year, the net debt ratio at the end of the period increased by 7ppt to 154% compared with the beginning of the year, the cash short debt ratio decreased from 1.40% to 0.98%, and the withholding asset liability ratio decreased by 1.9ppt to 69.9% from the beginning of the year, which is still in the "orange range". During the period, the company completed the issuance of a medium-term note and a corporate bond over a period of 3 to 2 years, raising a total of 2.24 billion yuan, with coupon rates of 3.37% and 3.48%, respectively.
Trend of development
Sales fell by 50% in the first quarter. The company's 1Q22 sales amount was 4.97 billion yuan, down 50% from the same period last year, including residential product sales of 4.24 billion yuan, commercial product sales of 730 million yuan, and sales area of 216000 square meters. The company actively removes the stock project by improving the price strategy and optimizing marketing methods. We estimate that the sales value of the company at the end of 2021 is about 180 billion yuan, which can cover the company's sales for more than 4 years. It is expected that the company's subsequent sales growth is expected to pick up.
We will continue to optimize the structure of held assets and pay attention to the impact of COVID-19 's epidemic on asset management business income. During the period, the company will sell the Ritz-Carlton Hotel in Beijing Financial Street to the parent company Financial Street Group at a price of 1.08 billion yuan, which will help the company to recover funds and divest loss-making assets. improve the profitability of self-owned property (net profit of the project company-34.77 million yuan in 2021). The company's high-end shopping malls and office properties held in the core first-and second-tier cities are relatively risk-resistant, but we remind investors to continue to pay attention to the potential impact of repeated local epidemics on the company's rental income and profit growth.
Profit forecast and valuation
Keep profit forecasts for 2022 and 2023 unchanged. The company's current share price trades at 9.7 times 2022 pound's 23-year price-earnings ratio, maintaining an outperform industry rating and target price of 6.42 yuan, corresponding to 11.6 times 2022 pound's 23-year price-to-earnings ratio, which has 17% upside compared to the current share price.
Risk
The duration of the epidemic exceeded expectations, and the recovery rate of industry prosperity was worse than expected.
