Core net profit declined in '22. Pay attention to the company's subsequent land acquisition changes; maintain “buying”
The company announced its 2022 results: revenue for 2022 was 73.6 billion yuan, the same as the previous year; core net profit was -29% to 3.9 billion yuan year on year, and gross margin was -2.9pct to 15.4% year on year. Affected by the downturn in the industry and the epidemic, core net profit declined. Considering the company's carry-over resources, we adjusted the company's revenue and gross margin forecasts and adjusted the company's 23-25E EPS to 1.29/1.35/1.48 yuan (previous value: 1.76/1.81 yuan).
Comparable to the company's average PE in 2023 (Wind's consistent forecast), the company's land storage is mainly located in third- and fourth-tier cities. We think the company's 2023E PE is 7.7 times and adjusted the target price to HK$11.46 (previous value: HK$10.85) to maintain the “buy” rating.
Sales adhere to the balance between volume and price, and the stock soil storage structure has been optimized
Due to market adjustments and other factors, the company's sales amount in '22 was 79.2 billion yuan, -42% year on year. The decline was close to the average decline in sales of the top 100 housing enterprises in '22 (-41% year on year). However, the company adheres to the strategy of balancing volume and price, and the average sales price remained resilient, reaching +8% to 12,546 yuan/square meter over the same period last year, which also proves that the company's urban energy level is being optimized. The value of the company's supplementary equity in '22 was 6.75 billion yuan. The company withdrew from projects in third- and fourth-tier cities such as Liuzhou, added plots in core cities such as Shanghai, and added 94% of the equity value in second-tier cities and above. By the end of '22, the company had a stock of 3.06 million square meters of land storage, of which equity accounted for 70%, second-tier cities and above accounted for 66%, and the value of goods in 2023 was 150 billion yuan. This helped the company's sales steadily rise. At the same time, it is necessary to keep an eye on the company's inventory replenishment progress.
Entering the “three red lines” green camp, financing costs continued to decline until the end of '22, and the company's “three red lines” index entered the green range. The company has interest-bearing debt of 48.5 billion yuan, -14% over the same period last year, of which short-term debt accounts for 28%, and has no exposure to US dollar bonds. The debt structure is reasonable. As the first batch of housing enterprises supported by the company as the “second arrow”, they were approved with a winning quota of 15 billion yuan in December last year. We expect the company to take the opportunity to issue it within this year. The company has 6 corporate bonds maturing during the year, totaling 5.1 billion yuan. 2 billion yuan has been settled, and 3.1 billion yuan is awaiting payment. The company's weighted average financing cost in '22 was -20 bps to 4.62% year-on-year, falling for 5 consecutive years. We expect the company's financing costs to decline steadily in '23.
Signs of undeveloped business development are gradually being revealed, and the future is worth looking forward to
In '22, signs of the company's non-development business gradually became apparent: 1) Ruizu Intelligent's confirmed revenue exceeded 1.1 billion yuan, +33% compared with the previous year, and the amount of new contracts during the period exceeded 1.2 billion yuan; 2) Ruizu Construction's confirmed revenue exceeded 700 million yuan, and the amount of new contracts added during the period exceeded 1.2 billion yuan. Third-party business accounted for 89%, and Ruizu component products entered the Hong Kong market for the first time; 3) the property management sector covered an area of 53.43 million square meters, of which third parties accounted for 20% and non-residential housing accounted for 13%. The quality of outbound projects has improved, with industrial parks/schools and commercial writing accounting for 43%/22% of the contracted area respectively; 4) The management area of the commercial operation section exceeded 700,000 square meters, achieving 38.63 million visitors in '22, +19% compared to the previous year, and its businesses achieved sales of 1.4 billion yuan, +27% over the same period last year.
Risk warning: The pandemic affects business development; the downturn in the industry weakens the company's ability to finance; profitability and sales growth fall short of expectations.