The performance of 2021 and 22Q1 declined year-on-year, maintaining that the “increase in holdings” rating company released its annual report and quarterly report on April 29. The company achieved revenue of 544.8 billion yuan in 2021, +19% year on year, net profit of 6.2 billion yuan, -59% year on year, lower than the performance report (7.6 billion yuan); 22Q1 achieved revenue of 95.9 billion yuan, -28% year on year, and Guimo's net profit of 2.5 billion yuan, -35% year on year. Considering that the company's business may be adversely affected by the downturn in the industry, repeated epidemics, and pressure on the capital chain, we lowered our revenue and gross profit margin forecasts, raised asset impairment losses, and adjusted the company's 22-24 EPS to 0.55, 0.63, and 0.70 yuan (1.34 and 1.50 yuan before 22 and 23 years ago). Comparable, the company's average PE in 22 years was 9.2 times (Wind's consistent expectations). We think the company's reasonable PE in '22 was 9.2 times, and the target price was 5.06 yuan (previous value was 5.12 yuan), maintaining the “increase in holdings” rating.

The infrastructure business became an important pillar. Significant real estate impairment dragged down the performance of the company's infrastructure business in 2021. Driven by the merger of Guangxi Construction Engineering, revenue was +33% to 311.4 billion yuan, and the amount of new contracts signed was +17% compared to the same period last year. At the same time, gross margin was +0.3pct to 4.9% year on year, which became an important pillar of the company's development. The delivery scale of the real estate business is still high, driving +5% year-on-year revenue to 205 billion yuan, but affected by the decline in industry profit margins, gross margin was -5.5pct to 20.9% year-on-year. Guimu's net profit declined significantly. In addition to the impact of real estate gross margin, asset impairment and credit impairment losses reached 5.28 billion yuan respectively due to the downturn in the industry. Furthermore, minority shareholders' profit and loss accounted for +5.5pct to 34.6% year-on-year. Since 2022, the downward trend in real estate has not abated, and repeated outbreaks of the epidemic have adversely affected both infrastructure and real estate business, causing 22Q1 company performance to continue to decline year-on-year.

Sales have declined but repayment has improved, and land acquisition is becoming more cautious

Affected by the real estate market environment, especially the downturn in third- and fourth-tier cities, the company's sales performance has been poor since 21H2. Sales in 2021 were 19% year-on-year to 290.2 billion yuan, and 22Q1 continued to -56% year-on-year to 30.8 billion yuan. The importance of sales repayment has increased. In 2021 and 22Q1, repayment rates reached 96% and 130% respectively, which is at a high position in history. The company's land acquisition was further cautious under the combined influence of reduced debt and weakening sales. In 2021, the amount of land acquired was -56% year on year to 41.2 billion yuan, the equity ratio in monetary terms was -12pct to 78% year on year, the intensity of land acquisition was -12pct to 14% year on year, and no new land was added in 22Q1. By the end of 2021, the company had not started construction of 31 million square meters of land storage, and the area under construction was 152 million square meters. Land storage was still plentiful.

Interest-bearing debt has been drastically reduced, and the structure has been further optimized

With the help of capital recovery and land acquisition, the company's net cash flow from operating activities increased 39% year on year to 62.2 billion yuan in 2021, providing important support for reducing leverage. At the end of 2021, the company's interest-bearing debt was -25% year-on-year to $246.6 billion, driving the net debt ratio to meet the standard. At the same time, the structure of interest-bearing debt continued to be optimized. Bank loans and bonds accounted for 74% and 17% respectively, and the share of real estate interest-bearing debt fell to 65%. The company's average financing cost was 5.70%, +6bp compared to the previous year, which remained stable.

Risk warning: epidemic, capital chain, real estate policy, downside risks in the real estate market