The company's contract sales target for 2023 was +20% year-on-year: the company's contract sales target for 2023 was 23 billion yuan, an increase of 20% over 2022; the contract sales amount achieved in January-August was 17.6 billion yuan, an increase of 176.6% over the previous year, corresponding to the completion of the annual sales target of 76.7%. 2023H2 has an estimated sales value of 30 billion yuan and is mainly based on high-quality projects in cities such as Shenzhen, Zhongshan, Shanghai, and Chengdu. With the implementation of housing and non-loan policies in Shenzhen and Shanghai, it is beneficial for the company to achieve annual sales targets.
As an integrated urban development and operation service provider, the ROE and asset turnover rate are slightly lower than those of peers: as of 2023H1, the company's total land reserves were 6.59 million square meters, corresponding to a total goods value of about 150 billion yuan. Judging from the business format, residential and commercial land, mixed commercial land, industrial and logistics storage areas accounted for 53%, 39%, and 7% respectively. The company is committed to becoming a comprehensive urban development and operation service provider. There are many industrial parks and office buildings projects, so the company's ROE and asset turnover rate are slightly lower than those of peers.
The private market has strong land acquisition capacity, and the carry-over margin of property development is higher than the industry average and is sustainable:
The company acquires land in a variety of ways. It obtains high-quality land storage through tendering, industrial land acquisition, asset injection, and first-level linkage of urban renewal. Therefore, although the company's land acquisition focuses on high-energy cities such as Shenzhen, the average land acquisition cost is controlled within a reasonable range, and the carry-over gross margin for property development has remained at a high level in the industry for a long time. Judging from the carry-over property development revenue structure, the 2023H1 Guangshen project contributed 68% of property development revenue, and the gross margin of the Guangshen project reached 53%. We believe that as a real estate development platform under the Shenzhen State-owned Assets Administration Commission, the private market is rich in land acquisition resources, can maintain its advantages in low-cost land acquisition for a long time, and can continuously achieve a gross profit margin for development and sales that is higher than the industry average.
Urban renewal and benefit coordination projects are rich in resources: 2023H2 will focus on promoting 4 urban renewal projects and 3 benefit coordination projects. Although the turnover rate of such projects is lower than that of tendered projects, the gross margin is high and the geographical location is in an area where sales reduction is guaranteed. It is expected to bring new granary projects to the company's development in 2025 and beyond.
The first coverage gave a “buy” rating, with a target price of HK$1.60: the company is deeply involved in Shenzhen, has abundant resources for urban renewal and interest coordination, high land storage quality, and high project profit margins. We believe that the company will benefit from favorable real estate policies such as “no loan approval” in Shenzhen and Shanghai to achieve the 2023 sales target; however, on the carry-over revenue side, due to pressure from short-term office products, there is some pressure on the company's revenue growth in 2023. The company's revenue in 2023/2024 is expected to be 328.16/HK$35.37 billion, up 4.0%/7.8% year-on-year respectively; core net profit is HK$21224/2449 billion, or -31.5%/+15.3%, respectively. For the first time, coverage gave a “buy” rating. The target price was HK$1.60, corresponding to 6/5 times PE in 2023/2024.
Risk warning: The relaxation of industry regulation policies fell short of expectations, liquidity easing fell short of expectations, commercial housing sales fell short of expectations, accrued impairment losses exceeded expectations, and the RMB depreciated.