Interim results declined due to the pace of carry-over: 2023H1, the company achieved revenue of 15.639 billion yuan, down 16.4% year on year; gross profit of 3,940 billion yuan, down 25.5% year on year, corresponding gross margin of 25.2%, down 3.1 percentage points from the previous year, but still maintained a high level in the industry; net profit of 639 million yuan, down 49.6% year on year. The company's carry-over amount in the first half of the year was 14.589 billion yuan, a year-on-year decrease of 18.0%, mainly due to a large proportion of deliveries concentrated in the second half of the year.

Contract sales bucked the trend, with the Yangtze River Delta and the Greater Bay Area accounting for 70%: 2023H1. The company achieved contract sales amount of 37.4 billion yuan, an increase of 127% over the previous year, and ranked 24th in the Kerry list. Among them, contract sales in the Yangtze River Delta and the Greater Bay Area contributed 71%, driving an average contract sales price increase of 32% over the previous year. During the period, the company's return contract amount reached 35.9 billion yuan, the corresponding return rate reached 96%, and the capital turnover situation was good.

The new products are all located in Tier 1 and 2 cities, and the land storage structure continues to be optimized: as of 2023H1, the company's total land storage equity was 12.81 million square meters. Among them, the Yangtze River Delta and the Greater Bay Area increased by 5 percentage points to 48% compared to the end of 2022, while first-tier cities increased by 3 percentage points to 25% compared to the end of 2022, and the land storage structure was optimized. 2023H1, the company added about 1.05 million square meters of land storage; the corresponding value of goods was about 16.1 billion yuan, ranking 20th on the Kerri list. The company's new projects are all located in Tier 1 and 2 cities where safety is higher and removal is more secure, and some projects are expected to be launched in the second half of the year. As Tier 1 and 2 cities implement “no loan approval” one after another, which is conducive to releasing immediate and improved demand, the company is expected to benefit.

Continued debt reduction, financing costs declined: As of 2023H1, the company's net debt ratio fell 18.6 percentage points from the end of 2022 to 97.3%, and the total loan scale fell 3.7% from the end of 2022 to 77.1 billion yuan. At the same time, the company continued to improve its stock debt structure. In the first half of the year, it issued 4 billion yuan of corporate bonds and 1.5 billion yuan of winning securities. The average financing cost dropped 0.21 percentage points from the end of 2022 to 4.05%.

The company's net debt ratio and financing costs have been at a five-year low.

Maintaining the “buy” rating, the target price is HK$2.85: the company's contract sales are growing against the trend, the land storage structure is optimized, financing channels are open, and costs are low. We expect that with completion and delivery in the second half of the year, the annual results are still expected to remain steady. We expect the company's core net profit for 2023/2024/2025 to be 15.6/16.7/1.82 billion yuan, respectively, an increase of 2.6%/6.8%/9.5% year-on-year, respectively. Maintaining the “buy” rating, the target price is HK$2.85, corresponding to 2023/2024/2025 PE of 6.4/6.0/5.5 times.

Risk warning: Macroeconomic growth is slowing down, industry regulation policy relaxation falls short of expectations, liquidity easing falls short of expectations, commercial housing sales fall short of expectations, and RMB depreciation.