Sales fell 14% in the first five months of 2013. Unlike other leading developers, Hengsheng recorded contract sales of 3.5 billion yuan in the first five months of 2013, down 13.6% from a year earlier. In the same period, the contracted sales area fell 39. 6% year-on-year to 287, 000 square meters. After strong sales of 1.5 billion yuan in January 2013, the company's contract sales have continuously recorded less than 1 billion yuan in the past four months. In the first five months of 2013, Hengsheng achieved its annual sales target of 11 billion yuan by 31.9%. We are cautious about whether the company can meet its 2013 sales task.
Slow sales led us to downgrade our forecast. Due to slower-than-expected sales, we lowered our 2013-15 GFA forecast by 14.6% to 1.04 million sq m, 19.4% to 1.24 million sq m and 26.1% to 1.48 million sq m respectively. In addition, we have reduced the assumption of the average selling price. As a result, we have lowered our turnover forecasts for 2013-15 by 16.8% to $10.6 billion, 21.8% to $12.2 billion and 23.0% to $16.3 billion. Profitability will be adversely affected by the fall in prices. We estimate that gross profit margin for 2013-15 will narrow to 32. 9%, 31. 5%. 9% and 34.4%. Therefore, we have lowered our net profit forecasts for 2013-15 by 24.3% to $1.57 billion, 27.0% to $1.73 billion and 30.1% to $2.4 billion respectively.
There has been no increase in land reserves since 2012. Since 2012, the company has not replenished its land reserve. At present, the land reserve is 16.18 million square metres, distributed in 12 mainland cities, and the average land cost is $1,302 per square metre, which is equivalent to 10.7% of the average contract sale price in the first five months of 2013. With the exception of Beijing and Shanghai, Hengsheng Real Estate's land reserves are located in leading second-and third-tier cities, accounting for 21.8% of the total land reserves in first-tier cities.
Low valuations and low earnings visibility. After reducing the average selling price and the assumption of delayed delivery, we have reduced our forecast net asset value per share from HK $5.24 to HK $3.85 at the end of 20. 13. 20 13 the net debt ratio at the end of the year is expected to be 67.4%. If sales continue to slow, the net debt ratio will rise. In view of the sluggish sales speed, we think its profit downside risk is higher. The current valuation is equivalent to 4.9 times 20113 price-to-earnings or 67.5% discount to net asset value. The company's current valuation is low, but it lacks catalysts. Our target price has been lowered from HK $1.31 to HK $1.15, a 70% discount to net asset value. The room for decline is 7.7%. Upgrade the rating to hold.