Performance review

Both 2022 and 1Q23 performance fell short of our expectations

In 2022, the company's operating income fell 15% to 20.5 billion yuan year on year, gross margin after tax fell 4.6ppt to 12.9% year on year, the combined joint venture investment income fell to 0.5 billion yuan (210 million yuan in 2021), and the final net profit fell 48% to 850 million yuan year on year, lower than our expectations (mainly due to falling settlement scale and profit margin exceeding expectations); the company plans to distribute 0.15 yuan per 10 shares, corresponding to 5.3% dividend ratio (5.5% in 2021). The company's operating income fell 40% to 2.8 billion yuan year-on-year in 1Q23, and the net profit of the mother turned into a loss of 200 million yuan, lower than our expectations. It was mainly due to the decline in settlement scale and profit margin but rigid expenses (1Q23 the three-item expense ratio increased 10.2ppt over the same period last year).

Strengthen capital control and smooth financing channels. The company's total interest-bearing debt at the end of 2022 shrank by 1.7 billion yuan to 78.5 billion yuan compared to the end of 21. The net debt ratio, withholding debt ratio, and short-term cash debt ratio were 145%, 70.2%, and 1.2 times respectively; the increase in long-term debt in 1Q23 led to an increase of 3.7 billion yuan to 82.2 billion yuan at the end of the quarter, and the “three red lines” remained in the orange range. The company strengthened repayment management and achieved a net operating cash inflow of 5.6 billion yuan in 2022 (44% increase over the previous year). At the same time, as a financing channel for local state-owned enterprises, the company remained unobstructed. We count that since the beginning of 2023, the company has issued 4 corporate bonds, 2 winning notes and 1 ABS. The total amount of financing has exceeded 14 billion yuan, and the weighted average coupon interest rate is only 3.58%.

Development trends

Sales outperformed the industry in 2022 and 1Q23, and are expected to increase steadily throughout the year. In 2022, the company's sales volume fell 7% year on year to 31.5 billion yuan, of which residential products fell 3% year on year to 28.9 billion yuan, superior to the overall level of the industry (the overall decline of Top 50 real estate companies was 42%); the average sales price increased 17% year over year to 22,693 yuan/square meter. 1Q23 The company's sales increased 92% year-on-year to 9.5 billion yuan, and the average sales price continued to rise to 23,473 yuan/square meter (mainly benefiting from centralized marketing and renewal in high-energy cities such as Tianjin, Shanghai, Foshan, and Chongqing). During the year, the company added 1 new parcel of land in Tianjin, with a total land price of 3.5 billion yuan, corresponding to a land acquisition intensity of 11%; we estimate that the company's inventory value at the end of 2022 was about 150 billion yuan, and it is expected that the company will achieve a steady increase in sales throughout this year.

The holding business is expected to achieve steady growth. In 2022, the company's asset management business (property leasing and property operation) achieved operating income/profit before interest and tax of 1,905 to 93 billion yuan, down 15% from the previous year. The overall performance was stable in the context of epidemic prevention and control. During the period, the company completed the signing and renewal of contracts for key office customers by integrating self-owned resources and strengthening investment management. Commercial projects also maintained a high occupancy rate through active deployment. Looking ahead, considering the gradual elimination of the impact of epidemic prevention and control factors on owned businesses, we expect the company's asset management business revenue to return to the growth channel this year.

Profit forecasting and valuation

Considering that the company's subsequent settlement scale and profit margin may be under pressure, the net profit returned to the mother in 2023/2024 was reduced by 47%/47% to 89/94 million yuan. The corresponding year-on-year growth rate was 5.1%/6.0%, respectively. The current stock price corresponds to 16.9/16.0 times the price-earnings ratio of 2023/2024. Maintaining an outperforming industry rating, considering that the company's outstanding sales performance may be improved, maintaining the target price of 6.42 yuan, corresponding to 22/20 times the 2023/2024 price-earnings ratio and 27% upward space.

risks

Development sales are progressing more slowly than expected; holding businesses are recovering slower than expected.