The current situation of the company
Considering that Xuhui has relatively solid reserves and has accumulated a certain scale of commercial assets, controllable level of comprehensive leverage on and off-balance sheet, and the debt-transforming posture of enterprises and real controllers, we believe that the company is expected to benefit from the 16 financial articles, "three arrows" and other corporate credit policies, and suggest that investors continue to pay attention to the transaction opportunities brought about by its potential debt rescue (such as public debt financing, progress of cooperation with banks, etc.).
Comment
The land reserve is solid and high-quality investment properties provide additional help. As of 1H22, ultra-high and high-energy cities account for 75% of the company's land storage (by value). We estimate that the unsold value is 4500-500 billion yuan, covering about 2.5 years of sales, of which Changsha, Beijing, Wuhan and other nine core cities account for about 60%.
In addition, Xuhui established a commercial group in 2019 and gradually formed a systematic business model. As of 1H22, the company has a total of 30 commercial complexes, of which more than 80% are located in ultra-high and high-energy cities. It has opened 14 projects with an average rental rate of 92%. 1H22 rental income increased 69% to 660 million yuan compared with the same period last year. We expect that the company's high-quality holding properties are expected to be used as collateral to help it carry out debt financing.
Financial discipline has been observed over the past few years, and the overall level of leverage is relatively manageable. After Xuhui achieved "bend overtaking" in 2015-18 and entered the queue of medium and large real estate enterprises, it began to moderately reduce the intensity of land acquisition and repair its financial situation in 2019, and the "three red lines" index turned green by the end of 2021. among them, the pre-debt ratio is 69.7%, the net debt ratio is 63%, and the cash-to-short debt ratio is 2.6 times. In addition, if the "value of equity / return rights" is used to measure the comprehensive leverage level inside and outside the balance sheet of real estate enterprises, Xuhui is also more controllable and lower than the industry average. we believe that this is the main reason why the company's risk order is relatively low in the current wave of real estate defaults.
Enterprises and real controllers take a multi-pronged approach to resolve debts. Since the beginning of overseas debt restructuring at the end of last year, the real controller has taken a variety of ways to withdraw funds and promote progress, for example: 1) share placement, following the placement of 305 million shares (3.23% of the enlarged total share capital) and net financing of HK $623 million at the beginning of September last year, the company placed another 840 million shares (8.07% of the enlarged total share capital) at the end of December last year, with a net capital raised of HK $946 million 2) to realize the shares held by Xuhui Yongsheng, Xuhui Holdings plans to sell all the shares held by Yongsheng (accounting for 23.26%). We believe that these measures are expected to moderately boost creditor sentiment and ease the deterioration of the financial situation.
Profit forecast and valuation
Considering that there is still uncertainty in the path of corporate debt rescue, we maintain earnings forecasts and neutral ratings. However, in view of the recent improvement in investor risk appetite as a result of the recent launch of corporate credit-side policies, we raised our target price to HK $1.65 (0.3 max, 0.3 times 2023, 2024 net market ratio, 27% upside). The company is currently trading at 0.2 times the price-to-net ratio in 2024.
Risk
The company's sales recovery and public debt financing are not as good as expected.