The first half of 2022 results are in line with expectations.

Overseas Chinese City An announced its results for the first half of 2022: operating income fell 28.8 per cent year-on-year to 16.4 billion yuan, and net profit fell 93.3 per cent to 110 million yuan, in line with previous forecasts (down 91.6 per cent by 94.4 per cent) and in line with expectations.

Multiple negative factors led to a sharp decline in the first half of the year: the ① epidemic dragged down the real estate settlement period and the operating income of the literature and travel project. The company's comprehensive tourism business income fell 44.3% to 10.5 billion yuan in the first half of 2022 compared with the same period last year. The gross profit margin of ② settlement dropped sharply to 24.4% in the first half of the year, down from 73.1% in the same period last year. The ③ expense rate increased, and the company's four-item expense rate increased by 4.5 percentage points to 15.5% in the first half of the year compared with the same period last year. The proportion of ④ settlement rights and interests decreased, due to the low proportion of settlement project rights and interests in the first half of the year, the company's minority shareholders' profit and loss accounted for 86% of net profit, up from 33% in the same period last year (47% for the whole of 2021).

The financial side is "making progress steadily". At the end of the first half of 2022, the company's net debt ratio was 70.5%, the asset-liability ratio excluding advance collection was 67.4%, and the cash short-term debt ratio was 1.64 times. The "three red lines" index remained "green". At the end of the first half of the year, the company's total interest-bearing liabilities and short-term debt decreased by 43 and 7.2 billion yuan respectively compared with the beginning of the year, and the short-term debt ratio decreased from 20% at the beginning of the year to 16%. The debt structure has been optimized. In addition, the comprehensive financing cost of the company at the end of the period fell by 10BP to 4.36% compared with the beginning of the year, keeping the industry low.

Trend of development

Sales pressure, take the land end within the limits of income, careful investment. From January to July in 2022, the company's sales fell 37% year-on-year to 31.4 billion yuan. During the period, the company obtained a total of 4 projects, with a total land price of 2.4 billion yuan (only equivalent to 8% of the sales in the same period). Looking forward, we expect the company to vigorously promote the elimination of key projects such as Shenzhen, Suzhou, Chengdu and Dongguan, and at the same time adhere to a safe and prudent investment strategy to ensure the safety and stability of operating cash flow within the limits of revenues.

Under the epidemic, focus on the supply-side reform of literature and tourism business. In the first half of 2022, the company's scenic spots, hotels, travel agencies, open tourism areas and tourism performing arts received a total of 26.777 million tourists, returning to the level of 94% in the same period last year. Under the background of frequent domestic epidemics, the company plans to enhance the operation capability of literature and travel business by innovating the supply of literature and travel products, promoting the entry of new and mature projects with high quality, and continuously carrying out theme festival activities. to build the company's core competitiveness.

Profit forecast and valuation

Taking into account the low lock-up of the company's full-year performance (1H22's final pre-acquisition is equivalent to only 93% of 2021 revenue), we cut 2022 Universe's 2023 profit forecast by 25% to 51. 4 billion.

The current share price corresponds to a price-to-earnings ratio of 8.6 times 2023 / 5.9 times 2023. Maintain the outperform industry rating and lower the target price by 14% to 6.52 yuan (taking into account the earnings adjustment and the consolidation of the company's financial edge), corresponding to 10.5xb 7.3 times 2022x2023 P / E ratio, which has 22% upside compared to the current share price.

Risk.

The real estate market continued to decline; the epidemic repeatedly had a negative impact on the company's literature and travel business.