Description of the event
The company released financial reports: Revenue for the first three quarters of 2023 was about 6.24 billion yuan, up 5% year on year, imputed net profit was about 0.8 billion yuan, down 69% year on year, and net profit after deducting 96% year on year. 2023Q3 revenue was about 1.90 billion yuan, up 5% year on year, and imputed net profit was about 0.2 billion yuan, down 10% year on year.
Incident comments
Channel optimization, revenue increase. The company's revenue for the first three quarters increased 5% year on year. The distribution business is expected to grow positively year on year. The direct sales business continues the downward trend of the previous period due to pressure on total real estate. The company's revenue growth rates for the past three quarters were 8%, 3%, and 5% respectively. Against the backdrop of a month-on-month weakening of the economy, revenue growth remained resilient in the third quarter. The company has focused on engineering business. Over the past two years, it has actively laid out the retail market while reducing the share of real estate business in project revenue. This process requires the company to continuously optimize the supply chain, channel construction, and brand investment. The resilience of its revenue growth reflects the company's comprehensive adjustments in dealing with industry pressure. The sharp decline for two consecutive years means that the industry has shrunk very much. It is estimated that the newly started area this year will drop to about 900 million square meters, with a cumulative decline of about 55%. Against this background, the company's revenue bucked the trend and increased to a new high, and the logic of moving towards concentration is fully confirmed; looking ahead to 2024, we judge that as the newly started area is built, the company's growth will be more strongly reflected.
Profitability started to improve slightly. The company's gross margin for the first three quarters was about 21.0%, down 0.4 percentage points from the previous year, and the gross margin for the third quarter alone was about 21.4%, up 2.4 percentage points from the previous year and 0.6 percentage points over the previous year, mainly due to the company's adjustment of product structure and reduction of production costs to cope with the decline in product prices. The rate for the first three quarters was about 15.6%, a slight increase from the previous year. The rate for the third quarter was about 16.9%, down 0.6 percentage points from the previous year, but increased by 2.8% month-on-month, and the reduction in revenue scale reduced cost dilution. However, the imputed net interest rate did not improve, mainly due to the continued increase in credit impairment losses. The company lost about 290 million yuan in credit impairment in the first three quarters, of which about 130 million yuan was lost on credit impairment in the third quarter. If credit impairment losses were added, the net interest rate imputed in the first three quarters was about 5%, which rose slightly to 7% in the third quarter. In this round of risk of default by real estate developers, the scale of credit impairment calculated by the company was large, accumulating about 1 billion yuan. Credit impairment losses in 2020-2022 were 2.4 billion, 250 million yuan, and 220 million yuan respectively. Combined with other countermeasures taken by the company, we believe that the current scale of impairment is sufficient.
Cash flow continues the performance of the previous period, and the cash to income ratio has improved. The net cash flow from the company's operating activities in the first three quarters was -850 million yuan. Although the payout ratio increased from 0.83 in the same period last year to 0.9, the payout ratio also increased year-on-year. The net cash flow from operating activities in the third quarter alone was -0.9 billion yuan, and the cash-to ratio increased to 1.07. This is the highest level in recent years. The amount of accounts receivable and notes at the end of the period was about 5.4 billion yuan, which is a decrease from last year's three-quarter report and month-on-month interim report, reflecting a certain optimization in business quality; however, the payout ratio has also increased significantly, making the final cash flow performance relatively stable, with no significant improvement.
The proposed repurchase of shares demonstrates business confidence. Recently, the company announced that it plans to repurchase shares for equity incentive plans or convertible corporate bonds to shares. The repurchase amount is not less than RMB 50 million, the company's own capital of no more than RMB 10 million, and the repurchase price does not exceed RMB 11 per share, which shows management's confidence in future operations. The net profit attributable to the company in 2023-2024 is estimated to be 2.1, 6.6, and 900 million yuan, with corresponding valuations of 36, 12, and 9 times. The valuations are cost-effective.
Risk warning
1. The recovery of the real estate industry fell short of expectations;
2. The price of raw materials continues to rise.