Core views:

Revenue and profit are growing steadily, and rates for improving management efficiency have declined. According to the interim results announcement, 23H1 Yuexiu achieved revenue of RMB 32.1 billion (same below), +2.6% year on year, net profit of 2.18 billion yuan, +27.5% year on year, core net profit of 2.15 billion yuan, +0.8% year on year, mid-term dividend of 857 million yuan, with a dividend ratio of 40%, and stable high dividends for 7 consecutive years. 23H1's gross margin has declined, and the sales management expense ratio has improved as operating efficiency has improved. Overall profit and expenses, in the first half of '23, the company achieved net interest rates, and net core interest rates of 9.1%, 6.8%, and 6.7%, respectively, up 0.6 pct, 1.3 pct, and 0.8 pct from '22.

The sales scale is growing rapidly, and high-intensity investment is focused on core cities. In terms of sales, 23H1 has a sales amount of 83.6 billion yuan, an increase of 71.0% over the previous year. It ranks second among mainstream real estate companies. The target completion progress has reached 63%, and it is likely that it will exceed the sales target throughout the year. In terms of land acquisition, 23H1's land acquisition amount is 28.3 billion yuan, corresponding to 34% of the land acquisition effort. They are all located in Tier 1 and 2 core cities. As of 23H1, the total land storage area of 28.13 million square meters has not been settled, and the core reserves are sufficient.

The rapid expansion of the list continues, and the financing structure and costs have been further improved. As of mid-'23, the company's on-account interest-bearing debt was 99.8 billion yuan, a further increase of 13% over the end of '22. Short-term debt accounted for 12%, cash short-term debt was 4.2 times higher, and the debt structure was safe and healthy. Looking at financing costs, the company's weighted average financing cost at the end of '23 was 3.98%, a further decrease of 18 bps from '22.

Profit forecasts and investment recommendations. It is expected that the company's future sales, revenue, and performance will continue to grow steadily, with net profit of 4.61 billion yuan and 5.42 billion yuan in 23-24, all at a year-on-year growth rate of 17%. We maintained a reasonable PB valuation of 0.9 times the company's net assets at the end of '22. Considering the exchange rate of RMB 0.92 per HKD, corresponding to a reasonable value of HK$11.53 per share, we maintained our “buy” rating.

Risk warning. The impact of fluctuations in the single market; the recovery of the industry boom fell short of expectations and affected sales and profit margins; insufficient housing price expectations put pressure on gross sales margin; and the policy environment improved less rapidly than expected.