Main points of investment
Maintain a "buy" rating with a target price of HK $4.00: the company maintains cautious land acquisition, actively manages existing debt, launches equity incentives for the third five-year plan to bind core team interests, while major shareholders continue to increase their holdings in the open market. We estimate that the company's operating income in 2023 is 1176126.5 billion yuan, an increase of 9.0% and 7.6% over the same period last year. The core net profit is 7.3 billion yuan, an increase of 0.5% and 4.3% over the same period last year. We maintain our "buy" rating and lower our target price from HK $5.70 to HK $4.00, corresponding to 4x PE in 2022amp 2023.
The monthly sales decline in July narrowed compared with the same period last year: the contract sales amount and area of the company in July were 16.1 billion yuan and 1.14 million square meters, down 23% from the same period last year, an increase of 13%, and the average monthly sales price was 15100 yuan per square meter. As of July, the company's cumulative contract sales amount and area were 79.2 billion yuan and 5.28 million square meters, down 50 percent or 41 percent from the same period last year, and the cumulative average sales price was 15800 yuan per square meter, down 11 percent from the same period last year.
7 prudently replenish the land reserve: in July, the company added a new land project, which was obtained for a small-share trading cooperation model. The partner was Suzhou Xiangcheng Hi-Tech holding Group, a local state-owned enterprise in Suzhou. Xuhui held 10% of the shares, the project capacity GFA was 63, 000 square meters, the total land was 1.17 billion yuan, and the floor price was 18471 yuan per square meter. As of July, the company has added a total of 7 projects, distributed in Beijing, Yiwu, Shanghai, Changsha, Ningbo, Qingdao, Suzhou and other first-and second-tier cities, with a total GFA of 690,000 square meters, equity GFA of 440,000 square meters, equity ratio of 64%, and total land of 7.7 billion yuan, accounting for 10% of the sales amount.
There is little pressure on the maturity of public debt in the second half of the year: on June 27, the company successfully issued 500 million corporate bonds with a coupon of 5.5% and created a credit protection tool for the first time with a maturity of 2 to 2 years. At present, by the end of the year, there is little pressure on the company to repay its public debt, with only a small amount of ABS/ABN remaining and no large-scale debt maturing. The next large debt due is $5.5 per cent in January 2023, with a balance of $295 million. Judging from the time distribution of public debt maturing next year, Q3 accounts for a relatively high proportion.
Major shareholders and senior executives continue to increase their holdings; launch equity incentive plans; adjust the organizational structure: major shareholders and major management of the company continue to increase their holdings of the company's shares in July, and major shareholders have increased their holdings by 12.03 million shares since the beginning of the year. On July 26, the company launched a three-to-five equity incentive plan to grant 300 million shares to 300 core personnel, bound to core team interests, with an exercise price of HK $2.51, including a share price of HK $6. At the same time, in the face of changes in the external environment, the company adjusts its organizational structure, sets up four major platforms for real estate development, commerce, agency construction and functions, strengthens the cultivation of diversified business, streamlines management structure and improves efficiency.
Risk hints: macroeconomic growth slows, industry regulation and control policies are loosened less than expected, liquidity easing is less than expected, commercial housing sales are less than expected, and RMB depreciation.