Key points of investment
Incident: Phoenix Co., Ltd. released its 2017 semi-annual report on August 30. During the reporting period, the company's operating income was 100 million yuan, down 44.65% from the previous year; operating loss was 52.1427 million yuan, down 732.34% year on year; net loss after deducting non-net loss of 753.429 million yuan, down 1292.84% from the previous year; basic earnings per share - 0.08 yuan.
Revenue and profit declined due to multiple factors. During the reporting period, the company's revenue fell 44.65% year-on-year. Operating costs were 369 million yuan, down 40.33% year on year; gross margin level was 16.85%, down 6.02% year on year. Although sales and management expenses declined by 5.12%/10.88%, the decrease was lower than the decline in revenue, and net profit declined. Overall, the main reasons for the decline in operating income during the reporting period were: 1. The Yancheng project housing was delivered on a large scale last year, and the revenue was confirmed; the Yancheng project office building inspection was not completed during the same period this year, and the revenue was not carried over; 2. The total confirmed revenue was low due to the low delivery area of the Taixing project this year; 3. Among the properties available for sale, the sales revenue of the Suzhou project declined sharply compared to the same period last year.
However, the main reason for the decline in profit was that sales revenue in the current period mainly came from projects in Nantong and Taixing. The overall sales situation in the Nantong region in the first half of 2017 was poor, and project inventories were mostly at the end of the restricted floor orientation. In order to remove inventory and return funds as soon as possible, the company adopted a discounted sales method in the current period, which led to a reduction in profits; at the same time, due to the influence of factors such as government price control, the opening price of the Taixing project was low and the cost was relatively high, causing project losses.
The company's main business is real estate development and sales, and has certain institutional advantages. The company is a state-owned listed company. The controlling shareholder is Jiangsu Phoenix Publishing and Media Group Co., Ltd., and the actual controller is the Jiangsu Provincial People's Government. The main business is real estate development and sales, and has national-level real estate development qualifications. The scope of business is mainly concentrated in Jiangsu and Anhui provinces.
The company's real estate development is mainly residential and commercial. There are 6 projects on sale, namely Phoenix Mountain Villa, Suzhou Phoenix Cultural Plaza, Nantong Phoenix Cultural Plaza, Yancheng Phoenix Cultural Plaza, Taixing Phoenix Cultural Plaza, and Zhenjiang Phoenix Cultural Plaza.
Policies are gradually being tightened, and the market situation is uncertain. The business began to transform and find new profit points. Currently, the pre-regulation policy of the real estate industry shows a “four-in-one” state of strict control of “purchase limit+loan limit+price limit+sale limit”, and tightening measures are being introduced one after another in various regions. Demand tends to be wait-and-see, and market transaction growth has declined sharply. In order to cope with this situation, the company will step up sales of existing real estate in the second half of the year, especially inventory removal work for office buildings. At the same time, the company will concentrate its efforts on building a quality pension community, sign consulting contracts with professional pension management companies, and form a “institution → community → family” rehabilitation and old-age care management model. In the second half of the year, the first Yixing real estate project built by the company will be launched on the market.
The Yixing Retirement Real Estate Project “Yiranju” will be the first project for the company's business transformation.
Profit prediction and risk rating: While developing the real estate business, the company is building a boutique pension community, hoping to create new profit growth points through the “institution-community-family” triad pension model. The company's first Phoenix Yiranju project in Yixing City will be officially sold publicly this year. The original main real estate development business will develop steadily, and it is expected that land reserves located in second-tier cities such as Nanjing and Hefei will be increased every year, laying the foundation for long-term development. The company's 2017-2019 EPS is expected to be 0.15/0.17/0.19 yuan respectively, and the corresponding PE is 34/30/26 times respectively, maintaining the “increase in holdings” rating.
Risk warning: policies are being further tightened; removal of inventory office buildings falls short of expectations; the effects of transforming pension real estate fall short of expectations