2022H1 performance declined significantly in many ways, but the expense rate continued to decline: in the first half of 2022, the company's revenue recorded 162.4 billion yuan, down 31% from the same period last year, gross profit 10.6%, down 9.1% ppt from the same period last year, and the core net profit from the parent was about 4.9 billion yuan, down 67.8% from the same period last year. The sharp decline in performance is mainly due to: 1) market downward superimposed epidemic control, project progress slowed down, carry-over income decreased; 2) carry-over projects included low gross margin projects; 3) volume-price balance arrangements were made in some regions; and 4) exchange losses caused by increased impairment provision and foreign exchange fluctuations. The company's expense rate continued to decline during the period, with the share of revenue from marketing administrative expenses falling to 5.5% from 6.7% in the same period in 2021, and the share of contract sales to 3.1% from 3.4% in the same period in 2021.

Financial indicators remain sound, financing channels are diversified, and cash management is strengthened: the company's financial indicators remain sound, and the asset-liability ratio deducting accounts received in advance continued to improve to 72.1% in the first half of 2022, down 2.2 percentage points from the end of 2021. The net loan ratio is 48.1%, and the cash-to-debt ratio is 2.0 times. In the first half of the year, the market financing was still in a state of tightening, and the company still issued two credit bonds totaling 1.2 billion yuan, and was selected as one of the model housing enterprises, issuing 500 million public debt with credit protection tools. The company also actively manages debt by redeeming US dollar bonds in advance, repurchasing priority notes, buying corporate bonds, and replacing dividends with shares, so as to broaden financing channels. In the first half of the year, through measures such as accelerating the efficiency of sales recovery, risk isolation of partners, and comprehensively invigorating existing assets, the company maintained a positive operating cash flow of 5.25 billion yuan in the difficult period of the industry, and the cash available at the end of the period reached 148 billion yuan.

The region continues to plough, and the payback rate is high: the sales of equity contracts reached 185.1 billion yuan during the company period, down 39% from the same period last year, but it still ranks first in the industry sales list. The sales area of the equity contract is about 2348 million square meters, and the ASP is 7883 yuan per square meter. 69% of the sales come from third-and fourth-tier cities, with a removal rate of 50%. The amount of equity rebate is about 170.3 billion, and the equity rebate rate is 92%, which has been maintained at a level of more than 90% for seven consecutive years. The region continues to be ploughed, with 61 cities with a market share of more than 10%. In 2022, the company can sell resources of not less than 530 billion yuan, of which the target first-tier cities account for about 34%, and target second-tier cities account for about 66%.

The replenishment of geotechnical reserves is tilted to high-energy areas: during the period, the company carefully acquired opportunity land, and 78% of the equity value of the nine new projects were located in five metropolitan areas. The land price of new land rights and interests is about 6.1 billion yuan, with an average price of 6204 yuan per square meter, and the proportion of rights and interests is 91%. As of June 30, 2022, the company has obtained about 1.22 trillion yuan in marketable resources, 291.7 billion yuan in land reserves superimposed with potential rights and interests, about 1.51 trillion yuan in total rights and interests, and 50% each in first-and second-tier and third-and fourth-tier cities. The saleable value is always sufficient and mainly distributed in the Pearl River Delta, Yangtze River Delta, Bohai Rim and other regions, enough to support the company's quality development for 2-3 years.

Target price of HK $3.60, maintain the buy rating: although the real estate market is still at the bottom, recent policies to stimulate demand have also been introduced, and the industry will slowly recover. As an exemplary private leading housing enterprise, the company still maintains resilience at the operational level, financial level remains robust, financing channels are still unblocked, contract sales still lead the market and have the ability to pass through the cycle. We estimate that the company's homing net profit from 2022 to 2024 will be about 15.6 billion, 17.5 billion and 22.6 billion respectively, giving the company a target price of HK $3.60 for the next 12 months according to the price-to-earnings ratio of 4.5 times 2022, which is 65% higher than the current price and maintains its buy rating.