Key points of investment
High-quality assets in the core area, location advantages cannot be replicated
The company is a leading developer and service provider of high-end commercial complexes in the country. The International Trade Center operated by the company is located in the core CBD area of the capital Beijing. The first phase was founded in September 1985 and completed as a whole in August 2017. After nearly 30 years of development and operation, the ITC has become one of Beijing's landmark buildings. The ITC covers an area of 17 hectares, with a total construction scale of 1.1 million square meters. It consists of commercial service facilities such as office buildings, shopping malls, hotels, apartments and exhibition centers. The company continues to invest in quality building and insists on boutique development. The assets it operates have a certain influence and benchmark effect in their respective fields. We believe that the assets operated by the company are well placed, that the location advantage cannot be replicated, that the product strength is compatible with the location advantage, and it is expected that it will remain competitive in the property ownership market for a long time.
Steady operations and strong anti-cyclical capacity were strong. In 2023, the company's revenue improved overall by 3.44 billion yuan in 2022, a year-on-year decrease of 4.01%; Guimu's net profit was 1.12 billion yuan, an increase of 8.99% over the previous year. The company's revenue CAGR in 2020-2022 was 5.4%, and the net profit CAGR of the mother was 16.3%. The company's revenue and profit bucked the trend during the pandemic, and the company's ability to withstand cycles was strong. The operation of office buildings and shopping malls is the company's main source of revenue, and the combined revenue of the two accounted for about 80% in 2022. The company's 2023Q1 office and shopping mall rents increased 1.9% and 10.5% respectively from the average rent in 2022; after the company's apartment renovation, the occupancy rate quickly climbed to 77.6% in 2023Q1, up 4.3% from the end of 2022; with the resumption of business travel and social activities, the company's hotel business is expected to gradually return to pre-pandemic levels. We believe that the company's operating assets all performed well in 2023Q1. The rise in office and hotel rent levels, the continuous rise in apartment rental rates, and the recovery of business travel and social networking to help the hotel business recover are all expected to drive the company's revenue to grow again in 2023.
High dividends+strong cash flow, dividend rates have advantages
The company's operating cash flow remained positive for a long time. In 2017-2022, net cash flow from the company's operating activities averaged 1,533 billion yuan per year, with a compound growth rate of 8.64% over 5 years. In 2022, the company paid 770 million yuan, or 0.7 yuan per share, the dividend ratio was 63%, and the ROIC was 10%. As of December 31, 2022, the company's dividend rate was 4.4%. After the company's main construction is completed, there are no new construction plans, depreciation and amortization expenses may be further reduced, and with the effective control of other expenses, China International Trade's gross margin continued to grow in 2018. The gross margin in 2022 rose 5 percentage points from 2018 to 58%. We expect the company's gross margin to rise further in 2023 as the hotel business operations improve in 2023. We believe that the company's future revenue is expected to maintain steady growth for a long time, gross margin will gradually increase, and cash flow will continue to strengthen in the future. Furthermore, based on the company's historical dividend ratio, we judge that the company's future dividend ratio will be above 50%. The dividend ratio is high and the cash flow attributes are strong, which is expected to contribute stable dividends to investors.
Profit forecasting and valuation
We expect the company's net profit to parent in 2023-2025 to be 1.29 billion, 1.35 billion yuan, and 1.41 billion yuan, corresponding to EPS of 1.28, 1.34, and 1.40 yuan/share, respectively. Taking into account the characteristics of the company's steady operation, asset quality, high dividend rate, etc., we believe that the company's competitive advantage is obvious. It should enjoy a valuation premium, give the company 17 times PE valuation in 2023, with a target price of 21.76 yuan. Furthermore, based on our estimation of China's DCF valuation, the company's closing price as of June 15, 2023 corresponds to a 40.95% discount on the DCF valuation, which is significantly underestimated.
For the first coverage, we gave the company a “buy” rating.
Risk warning
Macroeconomic growth is under pressure; competition for employment is intensifying; increasing supply of office buildings has led to increased rental pressure.