Company news
The company's recent situation
The company recently announced unaudited operating data for September. September sales were 6.03 billion yuan, a year-on-year decrease of 24%, and January-September sales of 59.5 billion yuan, a year-on-year decrease of 45%.
reviews
The financial market is steady and steady. Let's look at it specifically:
Strictly abide by financial discipline, and the “three red lines” indicator is steady. As of the middle of this year, the company was in three red lines. Among them, the net debt ratio and the withholding debt ratio fell 1.4 and 1.8 percentage points from the end of 2021 to 44.9% and 70.3%, respectively, and the short-term cash debt ratio (excluding restricted cash) increased 1.73 times. Considering that the company continues to dynamically manage income and expenditure through a 24-month capital chain security warning mechanism, and that the repayment rate for January-September has increased compared to previous years (we estimate that the cumulative repayment rate has increased by 6-8 percentage points over the same period last year), we expect the three red line indicators to be generally stable over the medium term until the end of the year.
The financing channels are smoother than those of private enterprise peers. Thanks to credit endorsements from the majority shareholders, the company's financing channels are smoother than those in the private enterprise sector. Since the beginning of the year, it has issued a total of 4 bonds in the open market, with an amount of 4.5 billion yuan, including 1 billion yuan of corporate bonds (the founding institutions simultaneously issued 100 million yuan of CDS), as well as three medium-term notes: 1.5 billion yuan issued in March, with a coupon interest rate of 4.5%, 1 billion yuan in August, and a coupon interest rate of 4.8% (a full increase of 333% in the total amount of bonds issued by the founding institutions) guarantee). The company has no open market debt due during the year. As of the mid-term, the company's average financing cost was 4.6%, making it competitive.
The optimization of the soil storage structure forms a certain support for sales throughout the year. Since the end of last year, some of the company's projects have obtained high-energy cities (such as Chengdu, Foshan, etc.) through equity cuts and have withdrawn from low-energy cities (such as Liuzhou, Jiujiang, etc.) at a lower cost. While reducing partner risks and revitalizing project funding, it has also improved the quality of land storage. As of 1H22, the company's net equity value added through equity cuts was about 5.5 billion yuan. Overall equity increased by about 2 percentage points to 69 percent compared to the end of last year. We estimate that the value of unsold land reserves by the end of the third quarter was 300-350 billion yuan, which is still at a reasonable level. We estimate that the company will roll over about 65-70 billion yuan at the end of the third quarter. In the fourth quarter, it will still focus on price balance and promote products flexibly depending on the progress of market recovery. We estimate that the average monthly sales will be 6-10 billion yuan, and annual sales may drop by more than 30%.
Profit forecasting and valuation
We maintain profit forecasts and outperform industry ratings. Considering that industry sales are still at the bottom fluctuating stage recently, and that the fundamentals of third- and fourth-tier cities are weaker than those in Tier 1 and 2, we think this may have suppressed investor sentiment to a certain extent, lowering the target price by 17% to HK$9.93, corresponding to 3.8/3.8 times the price-earnings ratio for 2022/2023 and 47% upward space. The current stock price is 2.6/2.6 times the 2022/2023 price-earnings ratio, and the dividend yield for this year and next two years is 16.3/ 16.4%.
risks
Sales recovery progress in major layout cities was weaker than expected, and the quality of additional land storage fell short of expectations.