Description of the event
The company announced interim results for 2022. In the first half of 2022, the company achieved revenue of 29.7 billion yuan (-18.3%), net profit of 730 million yuan (-79.7%), and net profit of 1.82 billion yuan (-45.6%).
Incident reviews
Performance is under phased pressure, and operations are still very resilient. The company's revenue for the first half of 2022 fell -18.3% year on year, mainly due to repeated epidemics and carry-over structure (carry-over area and average carry-over price, respectively), while the profit decline clearly exceeded the decline in revenue, mainly due to factors such as exchange losses, reduced investment income, and accrued impairment: 1) Due to the depreciation of the RMB, the company's exchange profit and loss in the first half of the year was -930 million yuan, compared to 140 million yuan in the same period last year; 2) Investment income decreased by 550 million yuan (-84%), mainly due to joint value joint stock inventory losses Loss and accrual impairment ; 3) The company accrued an inventory impairment of 380 million yuan, mainly reflecting the downward pressure on the real estate cycle. The company's performance was under pressure in stages, but it showed strong resilience in the face of industry bucking the trend. It maintained good delivery in the first half of the year, and its gross margin had stabilized, and it still had the ability to operate throughout the cycle.
The quality of sales has improved, and investment strategies have remained prudent. The company's sales amount for the first half of 2022 was 63.1 billion yuan (-54%), and the sales area and average sales price were -48% and -11% respectively. Sales performance basically reflected cyclical pressure; under the company's sales strategy of focusing on repayment, the repayment rate remained high, providing a stable guarantee for the safety of cash flow. In order to cope with industry adjustments, the company adopted a cash flow-first capital strategy at the right time, and stock land storage can also guarantee development for more than 2 years. Therefore, the investment strategy remained prudent. In the first half of 2022, only 6 parcels of land were acquired, and the amount of land acquisition/sales decreased by 29.2pct to 10.4% year on year. However, they are all located in Tier 1 and 2 cities with high liquidity, and profit margins are also guaranteed, and the overall quality of land acquisition is high.
Financial performance remains strong, and regulation continues to support financing. At the end of the first half of 2022, the company's three red lines maintained a “green file”
Level, debt maturing within one year accounts for only 17%, bank loans account for 64%, and rigid repayment bonds maturing in 2022 are cleared, so the margin of safety is relatively high; the average financing cost is down 0.1pct to 4.9% compared to the end of 2021. The company is one of the exemplary private housing enterprises provided financing support by the regulatory authorities, and financing costs and financing channels have outstanding advantages among private housing enterprises.
Organizational adjustments help development, and diversified businesses have performed brilliantly. The company initiated organizational restructuring in July 2022 and established four major platforms for real estate development, commerce, agency construction and functions to help implement the “concentric circle” strategy. The company has adhered to a combination of importance for a long time, and its diversified business performance in the first half of the year was impressive: Xuhui Commercial already had 14 active commercial projects, with an average rental rate of 92%, and property revenue of 660 million yuan (+69%) in the first half of the year; Xuhui Construction won 29 new projects in the first half of the year, with a cumulative total of 35 projects under management and a total of 7.13 million square meters; Xuhui Yongsheng Services managed an area of 210 million square meters (+60%). Revenue and net profit reached 3.2 billion yuan (+54%) and 380 million yuan (+33%), respectively, and Xu Hui maintained rapid growth under multiple pressures; Housen Yu Accumulation 32,000 rooms have been opened, and the average rental rate for stable term projects has reached 96%. A round of financing has recently begun.
Investment advice: Performance is under phased pressure, and management resilience bucked the trend. The company's performance is under pressure in stages, but at a time when the industry is being deeply adjusted, the company, as a private enterprise, has shown strong operating resilience in the face of bucking the trend. It maintained good delivery in the first half of the year, and gross margin has been established and stabilized. The diversified business performance is impressive. A long-term and steady business strategy will help the company through the cycle. Core net profit for 2022-2024 is expected to be 57/59/6.1 billion, with a year-on-year growth rate of -22%/3%/5%, respectively, and 2.8/2.7/2.6 times corresponding to PE, respectively. The current valuation implicates strong pessimistic expectations. The current valuation implicates strong pessimistic expectations. After fundamentals are repaired, there is high elasticity, and the “buy” rating is maintained.
Risk Alerts
1. There is uncertainty about repairing the fundamentals of the industry;
2. There is uncertainty about sales and carry-over progress;