Falling performance in 2022: The company's revenue in 2022 recorded RMB 43.4 billion, a year-on-year decrease of 17.7%, gross profit margin of 7.6%, a year-on-year decrease of 10.1 ppt, and the net profit of the parent company was about 2.61 billion yuan, a year-on-year decrease of 90.3%. The sharp decline in performance was mainly due to: 1) market downturn combined with epidemic control, slowing project progress and reduced carry-over revenue; 2) carry-over projects including low gross margin items; 3) increased impairment charges and exchange losses due to foreign exchange fluctuations. The share of revenue from marketing administration expenses during the company period fell to 4.6% from 5.5% in the same period in 2021, and the share of sales increased slightly to 3.7%.

The balance and liability structure has been repaired: the company's financial indicators remain stable, and the balance ratio after deducting advance accounts in the first half of 2022 continued to improve to 69.4%, down 2.7 percentage points from the end of 2021, falling below 70% for the first time. The net borrowing ratio fell further to 40%, a new low in 10 years, and short-term cash debt was 1.57 times that of short-term debt. Market financing was still being tightened in 2022, and market sales were sluggish. The company still guaranteed rigid payment of debts due within the year. At the same time, it actively expanded financing channels, issued nearly 10 billion yuan of direct financing, and received comprehensive credit support of close to 300 billion yuan from more than ten banks. Through measures such as speeding up sales and repayment efficiency, risk isolation for partners, and fully revitalizing existing assets, the company maintained a positive cash flow of 3.56 billion yuan, and usable cash reached 148 billion yuan at the end of the period, the same as mid-2022. In Q1 2023, the company has already been granted a winning quota of 20 billion dollars, and more than 18 billion corporate bonds are being applied for.

Contract sales maintained some resilience: the company achieved equity contract sales of 357.5 billion yuan during the period, a year-on-year decrease of 36%, but it still ranked first in the industry sales rankings. The equity contract sales area is about 44.5 million square meters, and the ASP is 8033 yuan/square meter. Of these, 60% are located in third- and fourth-tier cities, with an overall removal rate of 65%. The equity repayment amount is about 332.5 billion dollars, and the equity repayment rate has remained above 90% for 7 consecutive years. The region continues to be cultivated, with 66 cities accounting for more than 10% of the market. By the end of 2022, the company's total equity and saleable resources were 1208.3 billion yuan, of which the acquired equity could be sold was 955.5 billion yuan, of which the target Tier 1 and 2 cities accounted for 52% of the land storage.

The land storage supplement is skewed towards high-energy regions: the company carefully acquired opportunistic land during the period, and 71% of the equity value of the nine new projects was distributed in Tier 1 and 2 cities. The proportion of land equity added was 91%, with an average price of 6,204 yuan/square meter. As of December 31, 2022, the company has obtained equity and saleable resources of about 955.5 billion yuan. Combined with potential equity, it can sell land storage of 252.8 billion yuan. The company's total equity can be sold in land storage of about 1.21 trillion yuan. The land storage target is Tier 1, 2, and Tier 3 and 4 cities, respectively. In the future, the company's investment will further focus on Tier 1 and 2 core cities, and has also set up product development teams for Tier 1 and 2 cities to enhance the product capabilities of the entire chain.

The target price is HK$2.8, maintaining the buying rating: Despite the decline in performance in 2022, the company withstood the test. The sales amount is still in the leading position in the industry, the financial structure is still stable, the land storage is rich and the structure has been optimized. The company has also deployed asset-light agency construction services and technology-smart construction businesses in recent years. The outlook is optimistic. As a result, we believe the company is capable of crossing the cycle. We expect the company's net profit from 2023 to 2025 to be around 9.6 billion, 8.6 billion, and 10.2 billion yuan respectively. Based on the price-earnings ratio of 2023, the company was given a target price of HK$2.80 for the next 12 months, with room for a 20% increase from the current price, maintaining the purchase rating.