Abstract: C&D International announced its 2023 annual report. In the first half of 2023, the company achieved operating income of 24.36 billion yuan, an increase of 43.7% over the previous year; net profit of 1.28 billion yuan, an increase of 52.5% over the previous year.

Revenue performance has grown rapidly, and carry-over gross margin and net profit margin have been restored. In the first half of the year, the company's revenue increased sharply by 43.7%. On the one hand, the company's delivery area was 1.8 million square meters, a sharp increase of 143.2% year on year, and real estate business settlement revenue (93%) increased sharply by 45.7% year on year; on the other hand, revenue from property management and other related services was 1.62 billion yuan, up 20.3% year on year, mainly due to an increase in the area managed by property management. As of the end of June 2023, the management area of C&D properties was 50.6 million square meters, up 9.5% from the beginning of the year. The company's profitability has improved. The company's gross profit margin for the first half of the year was 15.2%, an increase of 0.1 percentage points over the previous year. The company's net profit for the first half of the year was 1.42 billion yuan, up 11.2% year on year, and net interest rate was 5.8%, down 1.7 percentage points year on year, mainly due to loss of investment income of 0.9 billion yuan (260 million yuan in the same period last year). The company's net profit increased by 52.5% year on year, which is higher than the revenue growth rate. The main reason is that minority shareholders' profit and loss share declined. In the first half of the year, the company's minority shareholders' profit and loss was 140 million yuan, down 68.4% year on year. Minority shareholders accounted for 9.7% of profit and loss, down 24.5 percentage points from the previous year. As the company's net profit margin increased 0.3 percentage points to 5.3% year over year, annualized ROE increased 1.4 percentage points to 7.9% year over year. The company's future performance guarantee level is still high. As of the end of June 2023, the company's advance accounts received were 236.1 billion yuan, an increase of 28.1% over the previous year, and accounts received/previous year's operating income was still as high as 2.37X.

Cash on hand increased by double digits; balance and liabilities showed a marked improvement after two allotments. The company has abundant liquidity, and the total share of inventory and cash in the total asset structure is as high as 75%. As of the end of June 2023, the company held 60.7 billion yuan in cash, an increase of 20.8% over the previous year, of which restricted cash accounted for only 5.4%. The company's interest-bearing debt was 85.6 billion yuan, an increase of 3.4% over the previous year, and the size of interest-bearing debt was properly controlled. At the same time, short-term debt accounts for relatively small amounts. Short-term interest-bearing debt maturing within one year accounts for only 5.7%, down 4.0 percentage points from the previous year. As of the end of June 2023, the company's net debt ratio was 27.5%, down 18.6 percentage points from the previous year; the balance ratio after excluding advance accounts was 61.3%, down 5.4 percentage points from the previous year, and the short-term cash debt ratio was as high as 12.5X, up 6.2X from the previous year, and the company was in the “green zone”. After two allotments in the second half of 2022, the balance sheet was significantly optimized compared to the same period last year.

The company achieved significant growth in sales and repayment in the first half of the year. According to Kerui, the company's sales amount in January-July was 105.7 billion yuan, up 44.4% year on year, and ranked 9th in sales, up 1 place from 2022; sales area was 8.3 million square meters, up 55.0% year on year; and average sales price was 12,734 yuan/square meter, down 6.8% year on year. Looking at sales volume in specific cities, Shanghai, Suzhou, Xiamen, Beijing, and Chengdu contributed 123, 85, 74, 5.1 billion yuan in equity sales in the first half of the year, respectively. The above five cities contributed 51.4% to sales. The company achieved sales repayment of 97.9 billion yuan in the first half of the year, an increase of 45.9% over the previous year. The rapid increase in the company's sales scale in the past two years has also led to a steady increase in carry-over revenue. In the first half of the year, the company's real estate development business achieved revenue of 22.74 billion yuan, a sharp increase of 45.7% over the previous year.

Under the backing of state-owned assets, advantages in various aspects such as resources and financing have also given the company more initiative in choosing high-quality land plots, and both the intensity of land acquisition and equity ratio have increased. According to the China Index Institute, in the first half of the year, the company added 3.55 million square meters of land reserves, up 97% year on year; land acquisition amount was 42.9 billion yuan, up 5% year on year; land acquisition amount was 37.2 billion yuan; land acquisition intensity (land acquisition amount/sales amount) was 41%, up from 38% of land acquisition intensity in 2022; the land acquisition ratio increased by 3 percentage points to 87% year on year. As of the end of June 2023, the company had land reserves of 17.11 million square meters, of which the five cities above Wuxi, Changsha, Hangzhou, Shanghai and Suzhou had a saleable area of 109, 88, 87, 84, and 830,000 square meters, respectively, accounting for a total of 26%.

Investment recommendations and profit forecasts:

During the downturn in the real estate industry, the company's revenue performance in the first half of the year was still able to maintain rapid growth. Both sales and repayments bucked the trend and achieved significant growth. At the same time, the company has plenty of cash on hand and is actively acquiring land and expanding its reserves with the support of various financing instruments, laying a solid foundation for future sustainable development. We expect the company's operating income for 2023-2025 to be 1203/1498/189.4 billion yuan, respectively, with a year-on-year growth rate of 21%/24%/26%; net profit for return to the mother to be 62/83/112 billion yuan, with a year-on-year growth rate of 26%/32%/36%, respectively; and corresponding EPS of 3.38/ 4.47/ 6.07 yuan, respectively. The PE corresponding to the current stock price is 5.5X/ 4.1X/3.0X, respectively. Maintain buy ratings.

The main risks faced by ratings:

Sales and settlement fell short of expectations; real estate regulation was tightened beyond expectations; financing was tightened; diversified business development fell short of expectations.