Main points of investment

Event: the company released its Triple report for 2023. From January to September 2023, revenue reached 16.05 billion yuan, an increase of 64.7% over the same period last year. The net profit of the parent was 600 million yuan, an increase of 1.39 billion yuan over the loss of 790 million yuan in the same period last year. The performance was in line with expectations.

With the rapid growth of revenue, the performance has turned from deficit to profit. In terms of revenue: the company's 2023Q3 achieved revenue of 6.3 billion yuan, an increase of 366.9% over the same period last year, mainly due to fewer settlement projects in the same period last year. In terms of profit: the company's net profit from January to September 2023 turned from loss to profit. The reason for the pressure on corporate performance in 2022 is the sharp decline in financial asset prices. In 2023, the company strengthened the management of equity investment, the investment income decreased from-640 million in 2022 to-60 million in January-September 2023, and the fair value change income reversed the loss from-740 million in 2022 to 100 million in January-September 2023. At the same time, the company's gross profit margin stabilized and rebounded to 20.1% from January to September 2023 (13.7% for the whole of 2022). As of September 30, 2023, the company had a contract liability of 30.54 billion yuan, laying the foundation for subsequent performance release.

The amount of sales is growing rapidly, and the investment is focused on the Beijing market. The company's sales business grew rapidly. The company's sales area from January to September in 2023 was 678,000 square meters, a substantial increase of 67.2% over the same period last year, and the sales amount was 31.63 billion yuan, an increase of 29.7% over the same period last year. In the first half of the year, the company ranks second in the list of rights and interests of real estate enterprises in Beijing, and the reserve sales potential is relatively sufficient. The company actively participated in the bidding development and obtained two cases of land in Beijing from January to September 2023 (the reconstruction land of Shuangxin Village, Haidian District, Beijing, and the land of Nixi Village, Chaoyang District, Beijing), followed by one land in Huangshan City and one in Sanya City, with a total land amount of 14.82 billion and an equity ratio of 57.6%. The investment intensity reached 46.8% from January to September.

A breakthrough has been made in the shed reform project, and a special class has been set up to follow up the business of the village in the city. The company has long focused on asset shed reform projects and first-class land development business. Major breakthroughs have been made in various shed reform projects since 2023. Linhe relocation houses have all moved in smoothly, the first batch of 10 relocation buildings of the Wangtan project have overcome multiple difficulties and completed the inspection, and 2300 residents have realized their dreams of new homes. According to the exchange of the company's performance meeting, the company has set up a special class to follow the transformation business of the village in the city.

The finance is sound and the financing channel is smooth. The net operating cash flow of the company from January to September in 2023 is 10.17 billion yuan. As of September 30, 2023, the company has ample cash on hand of 16.29 billion yuan. The company's net debt ratio is 87.2%, and the cash-to-short debt ratio is 2.7, all of which have met the regulatory requirements of the "three red lines". The company issued 1 billion yuan of corporate bonds in June 2023 with an interest rate of only 3.4% and smooth financing channels.

Profit forecast: the company has ploughed the Beijing shed reform market for many years. With the gradual delivery of two major shed reform projects, Wantan and Linhe, the company's settlement performance in the next 3 years has a strong certainty. We maintain the company's homing net profit forecast of $1.05 billion, $1.52 billion, corresponding to an EPS of $0.47, 0.67, and a price-to-earnings ratio of 12.5, 8.7 and 7.1 times 2025, maintaining a "buy" rating.

Risk hint: the transformation policy of the village in the city is lower than expected; the prosperity of the real estate market is lower than expected; and the settlement progress is not as expected.