Wait for improvements and maintain the “increase in holdings” rating
The company released its annual report on March 30, achieving revenue of 768 billion yuan in '22, -25% year on year; Guimu's net loss was 10.9 billion yuan, which is at the bottom of the performance forecast. We reduced revenue and increased the 23-year impairment loss by combining factors such as sold unsettled resources and impairment pressure. We expect EPS for 23-25 to be 0.06/0.39/0.48 yuan (0.40/0.43 yuan before 23/24). The company's 23-year performance may still be greatly disrupted by impairment. We think the valuation benchmark should be 24 years. The average 2024PE of the comparable company is 11 times. Considering the company's leading position in cultural tourism real estate, we think it is reasonable that 2024PE is 14 times, with a target price of 5.46 yuan (previous value of 4.80 yuan, based on 12 times 2023PE) to maintain the “increase in holdings” rating.
Release the pressure on performance and highlight the advantages of financing
Due to the decline in real estate and the impact of the external environment, the company's comprehensive travel/real estate business revenue fell 37%/16% year on year. There was a sharp loss in Guimu's net profit, mainly because: 1. Although the gross margin of the real estate business was stable at 21.9%, the gross margin of the comprehensive tourism business was -7.9pct to 24.5% year-on-year, dragging down the company's overall gross margin of -3.4 pct to 22.8% year on year; 2. The impairment of some real estate and tourist attraction projects affected Guimu's net profit of 9.9 billion yuan; 3. Affected by the decline in real estate, the company's equity transfer revenue declined, and joint venture company performance declined, which together led to investment losses of 2.4 billion yuan. Despite the pressure on performance, the company showed the advantages of a central enterprise on the financing side. The average financing cost was -23 bps to 4.23% compared to the previous year. On March 30, it was announced that it would issue no more than 8.8 billion yuan of convertible bonds to investors including OCT Group.
The two main businesses of real estate and cultural tourism are under pressure. Operating performance in '23 is expected to lead to restoration of the real estate business. Affected by the decline in real estate, the company's sales amount in '22 reached 33% year-on-year to 55.3 billion yuan. Under the “collect and pay” strategy, the amount of land acquired was -61% to 2.7 billion yuan over the same period last year, and the land acquisition intensity was 5%.
However, the company's land reserves are still abundant. At the end of '22, there were still 1,152 million square meters of developable land, which is estimated to be enough to support 3-4 years of sales removal based on sales volume in '22. The company's sales were -13% year-on-year in January-January '23. As the market recovers, we expect sales to return to positive growth throughout the year. In terms of cultural tourism business, the company's travel projects received 61.85 million visitors in '22, down 31% from '21, but up 55% from '19. Judging from a comparable perspective that excludes incremental items, it is 47% lower than in '19. As the external environment improves, we expect the number of visitors received to increase by more than 50% in '23.
The new chairman began organizational transformation, strengthening the competitiveness of the dual main business market. In '22, the company began organizational transformation after a new chairman took office. In terms of real estate business, the company divested the operating functions of the four major divisions, promoted its focus on development business, and integrated 71 project companies into 22 city companies to form a “headquarters-division-city company” management system. In terms of cultural tourism business, a new tourism development group and commercial management company were established, and the operating functions divested by the business division were integrated with Happy Valley Group and Hotel Group to take full responsibility for the operation of the company's own business format.
Risk warning: operating risks brought about by the epidemic, downside risks in the real estate industry, downside risks in profitability, and operating risks of cultural tourism projects.