The company holds the core real estate assets in the CBD area of Beijing, focuses on the high-quality assets on hand, has never expanded blindly in history, and is a scarce A-share "cash cow" enterprise. However, the company is also facing the pressure of mismatch between supply and demand in the office market as a whole, especially the risk that the demand for office space lags behind the economic cycle. We maintain the company's EPS forecast of 1.26 shock 1.39pm 1.45 yuan in 2023-24-25. We assume that according to the 90% dividend intensity of the REITs market, we expect the company's annual dividend per share in 2023-24-25 to be 1.14 yuan 1.25pm 1.30 yuan respectively. With reference to the current cash distribution rate of 4.2% of REITs, and considering the relevant risk factors, we will give the company a reasonable value of 21.9 billion yuan. Lower the target price to 22 yuan per share, corresponding to 17.2 times PE in 2023, still maintaining the company's "buy" rating.

Operating income and homing profits increased steadily. In the first three quarters of 2023, the company achieved an operating income of 2.95 billion yuan, an increase of 13.6% over the same period last year, a gross profit of 1.78 billion yuan, an increase of 19.3% over the same period last year, and a net profit of 1 billion yuan, up 15.3% over the same period last year. During the reporting period, the company's various assets operated steadily and its income grew steadily. In the first three quarters of 2023, the company got rid of the impact of rent reduction and pushed the gross profit margin by 2.9 percentage points to 60.3% compared with the same period last year; the net interest rate increased by 0.5 percentage points to 34.0% compared with the same period last year, and the growth rate of the company's net interest rate was slower than that of the gross profit margin. This is mainly because the income from insurance claims last year was about 100 million yuan, which pushed up the net interest rate for the current period.

Stable operation of office buildings and stable contribution of rental income. In the first three quarters of 2023, the company announced that office space achieved real estate rental income of 1.15 billion yuan, an increase of 2.3% over the same period last year. According to Gaoli international statistics, in the third quarter of 2023, the average rent of grade An office space in Beijing fell 2.3% from the previous quarter to 310 yuan per month, while the vacancy rate increased by 1.9 percentage points to 19.5%. Grade An office market has not yet improved, although the quarterly net absorption reached 168,000 flat, but mainly from the pre-rental removal of new projects, the new supply of 440,000 square meters, the vacancy rate continues to maintain a high level. However, the office buildings held by the company in the core of Beijing have shown strong resilience. According to the company announcement, in the first three quarters of 2023, the average rent of the company's office space reached 637 yuan / flat / month, with a rental rate of 96.2%. The average remained stable compared with the first half of the year. However, if the office demand in Beijing goes down further, and considering that the supply of office space in the CBD area still has a medium-and long-term increasing trend, the average rent and vacancy rate may also face pressure when the company lease expires in the future.

Scarce assets in the core area, stable operation of shopping malls. In the first three quarters of 2023, the company announced that the real estate rental income of the shopping mall reached 900 million yuan, an increase of 10.5% over the same period last year, mainly due to the rent reduction for some tenants last year and the reduction of rental income based on tenants' turnover. According to the company announcement, the average rent of the company's shopping center in the first three quarters of 2023 was 1271 yuan / flat / month, an increase of 1.1% month-on-month; the occupancy rate was 98.7%, a decrease of 0.1% from the previous quarter, which was in the normal fluctuation range of the rental rate. According to the Beijing Bureau of Commerce, in the first three quarters of 2023, a total of 718 brand first stores were established in Beijing, an increase of 16.6% over the same period last year.

We believe that the International Trade Mall held by the company is the target of the scarce shopping center in CBD area of Beijing, with a dense flow of office buildings and residential buildings around, and the company benefits from the continuous recovery of consumer demand in Beijing with its extravagance and mid-to-high-end product positioning.

Apartments and hotels continue to recover. In the first half of 2023, the company announced that the real estate rental income of the apartment was 1.3 yuan, an increase of 16.5% over the same period last year. Since the completion of renovation and upgrading in 2020, ITC apartment has maintained the trend of recovery. According to the company announcement, in the first three quarters of 2023, the average rent of ITC apartments was 370 yuan per month, down slightly from 371 yuan per month in the first half of the year; the rental rate was 84.4 percent, an increase of 2.3 percentage points. According to the Beijing Municipal Bureau of Culture and Tourism, in the first three quarters of 2023, Beijing travel agencies received 3.44 million tourists, an increase of 959.2% over the same period last year.

Looking forward to the whole year, with the acceleration of personnel flow in Beijing and the increase in business and tourism travel demand, we expect the company's apartment and hotel business to continue to recover.

The repayment of loans increases the returns of investors, and the stability of core assets creates cash inflows. According to the company announcement, by the end of the third quarter of 2023, the company had 3.79 billion yuan in cash on hand, an increase of 17.7 percent over the same period last year, and interest-bearing liabilities of 1.6 billion yuan. According to the company announcement, the company repaid 500 million yuan in long-term loans in July 2023. Based on the closing price as of October 30, 2023, the company's dividend yield in 2022 was 3.7%, lower than the 4.0% interest rate on the loan. Early repayment is conducive to improving the company's ROE and shareholders' returns. The company announced that in the first three quarters of 2023, the cash inflow from selling goods and providing services was 3.18 billion yuan, an increase of 17.3 percent over the same period last year, while the net operating cash flow was 1.61 billion yuan, an increase of 2.2 percent over the same period last year.

Risk factors: the supply of office space in Beijing market is abundant, but the decline of office demand often lags behind the downward trend of the economic cycle, the new demand in the market is low, and it is mainly based on contract renewal and cost reduction to increase efficiency, and corporate office rents may go downward. the risk that the vacancy rate may increase. Although the company's various core properties are one of the most risk-resistant, they are still likely to be plagued by falling rents and rising vacancy rates.

Earnings forecast, valuation and rating: the company holds the core real estate assets in CBD area of Beijing, focuses on the high-quality assets on hand, has never expanded blindly in history, and is a "cash cow" enterprise with scarce A shares. However, the company is also facing the pressure of mismatch between supply and demand in the office market as a whole, especially the risk that the demand for office space lags behind the economic cycle. We maintain the company's EPS forecast of 1.26 shock 1.39 shock 1.45 yuan in 2023-24-25. We assume that according to the 90% dividend intensity of the REITs market, the company's annual dividend per share on 2023-24-25 is expected to be 1.14 pound 1.25 pound 1.30 yuan respectively. With reference to the current cash distribution rate of equity REITs4.2%, and then considering the relevant risk factors, we will give the company a reasonable value of 21.9 billion yuan. Lower the target price to 22 yuan per share, corresponding to 17.2 times PE in 2023, still maintaining the company's "buy" rating.