Introduction to this report:

Revenue for the first three quarters fell 5.9%, net operating cash flow was 90 million yuan less than the same period last year, and impairment increased 333% year over year. The number of new orders signed in the first three quarters increased by 7.5%, and the number of new orders signed in Q1-Q3 increased by -16/37/ 15% in the single quarter.

Key points of investment:

Maintain an increase in holdings. Affected by the company's receivables impairment preparations, the forecast for EPS 0.44/0.49/0.54 (previously 0.54/0.60/0.66) for 2023-2025 will increase -9%/12%/10%. Due to the downgrading of the valuation system for market-related sectors, the target price was lowered to 5.9 yuan, corresponding to 13.4 times PE in 2023.

Net profit for the first three quarters fell by 29.2% below expectations, and operating income fell 5.9%. (1) Revenue of 16.47 billion yuan in the first three quarters fell 5.9%, and Q1-Q3 increased -12.9/0.4/ -4.8% in the single quarter. Net profit of 850 million yuan fell 29.2%. Q1-Q3 increased by -45.2/-7.6/ -29.2% in the single quarter due to an increase in impairment preparations for the company's current accounts receivable and a decrease in total profit. Net profit of $600 million after deducting non-return to the mother fell 18.5%. (2) The gross profit margin for the first three quarters was 15.04% (-0.74pct), the expense ratio was 7.67% (-0.02pct), the net profit margin was 5.17% (-1.71pct), the weighted ROE 6.62% (-3.62pct), and the balance ratio was 64.03% (-1.93pct).

Operating cash flow improved year-on-year in the first three quarters, and impairment was increased by 333% year-on-year. (1) Net operating cash flow for the first three quarters - 490 million yuan (same period in '22 - 580 million yuan); Q1-Q3 alone was -13.2/9.9/-150 million yuan (-13.9/10/-2 billion yuan for the same period in '22). The payout ratio for the first three quarters was 98.2% (98.9% for the same period in '22) and the payout ratio was 96% (95.2% for the same period in '22). (2) Accounts receivable of $13.43 billion increased by 0.9%. The total impairment loss was -264 million yuan (same period in '22 - $61 million), due to increased accrual of the company's current receivables impairment preparations. The impairment value for Q1-Q3 alone was -0.23/-1.14/- 128 million yuan, while Q1-Q3 in '22 was 1.68/-0.79/-150 million yuan.

The number of new orders signed in the first three quarters increased by 7.5%, of which the number of new design signings increased by 29.9%. (1) New signings of RMB 18.45 billion in the first three quarters increased by 7.5% (down 31.5% from the same period in '22), of which 146.1/22.7/1.57 billion yuan for public/residential/design increased 5.6/7.1/ 29.9%. New orders placed in Q1-Q3 increased by -16/37/ 15% in a single quarter. (2) The company's Evergrande net receivables exposure is 1.94 billion yuan. Asset preservation at this stage can basically cover net receivables exposure.

Risk warning: macroeconomic policies have exceeded expectations and contraction, real estate demand has fallen short of expectations, etc.