Our opinion: The company maintains supply strength throughout the year. Currently, it is cautious in its land acquisition strategy and has strict requirements on return. Currently, the company continues to absorb the burden of low gross profit from inventory, and it is expected that performance will still be under pressure in the short term. We expect the company's revenue for 2023/2024/2025 to be 818/829/86.4 billion yuan, a year-on-year decrease of 1.4% /increase of 1.4% /increase of 4.2%, and core net profit of 18/22/2.6 billion yuan, a year-on-year decrease of 37.2% /increase of 16.9% /increase of 22.3%. Given the “increase in holdings” rating, the target price is HK$1.50, corresponding to 2023/2024 PE of 9.9/7.7 times, and the 2023E dividend yield is 6%.
Gross margin continues to be under pressure: 2023H1 achieved revenue of RMB 26.84 billion (same below), a year-on-year decrease of 7%; among them, urban operations and property development, business leasing and retail operations, hotel operating income, and other business revenue were $22.18 billion, $890 million, 10.7 billion, and $2.7 billion, respectively, down 11% year on year, up 24%, 109%, and 5%. Net profit to parent was 4.3 billion yuan, down 83% year on year; core profit after deducting fair value income from invested property after tax was 40,000 million yuan, down 84% year on year. The sharp decline in core profit was mainly due to continued pressure on gross margin, a decline in other income, and an increase in the share of minority shares. The gross margin of 2023H1 was 17%, down 5 percentage points from the previous year; the gross margins of urban operations and property development, business leasing and retail operations, and hotel operations were 11%, 83%, and 50%, respectively, down 8 percentage points from the previous year, down 1 percentage point, and up 16 percentage points from the previous year.
The core net interest rate was 1.5%, down 7.4 percentage points from the previous year. The interim dividend was HK1.5 cents per share in cash, down 83% year on year. At the end of the period, the amount of contracts that had not been settled was $237.1 billion.
23H1 sales grew rapidly: 2023H1's contract sales volume was 86 billion yuan, an increase of 23% over the previous year. The cumulative repayment for half a year was 90.9 billion yuan, and the repayment rate increased to 106%. It is expected to sell 160 billion yuan in the second half of the year. If we follow the removal rate of 43%, annual sales can reach the same level as the previous year.
Maintain prudent investment: 23H1 added 5 new lots of land, with a GFA of 950,000 square meters, a total land price of 13.8 billion yuan, and a land equity price of 12.5 billion yuan. It is located in Qingdao, Tianjin, Qingdao, Quzhou and Shanghai. By the end of the period, the company's second-level land storage was 43.55 million square meters, with an equity area of 28.24 million square meters; first-level land storage was 44.22 million square meters, with an equity area of 36.18 million square meters. Total land reserves were 87.77 million square meters, down 11% from the end of 2022, and the equity ratio was 73%.
Short-term debt accounted for 14%: As of 23H1, the company's total book cash and current equivalent was 42.6 billion yuan, and interest-bearing debt was 127.7 billion yuan. Of these, short-term debt maturing within one year accounted for 14%, and foreign debt accounted for 30%. The company's net debt ratio was 75.0%, an increase of 5.8 percentage points over the previous year. The average cost of financing by the end of the period was 4.51%, up 61 bps from the end of 2022.
Risk warning: 1. Macroeconomic growth is slowing down; 2. Relaxation of industry regulation policies falls short of expectations; 3. Commercial housing sales fall short of expectations; 4. RMB depreciation; 5. Liquidity easing falls short of expectations.