Key points of investment
Event: On November 7, 2023, the company issued the “2023 Plan for Issuance of A-Shares to Specific Targets” and the “Notice on Loans to Controlling Shareholders and Related Transactions”.
It is proposed to increase the number of shares by 260 million shares to the controlling shareholders and transfer commercial and parking space assets by 130 million yuan: The company plans to issue A shares to Guangzhou Pearl River Industrial Group Co., Ltd. (hereinafter referred to as “Zhushi Group”), the majority shareholder of the company. The final issuance amount will not exceed 260 million shares. The issue price is RMB 2.92 yuan/share. The total capital to be raised shall not exceed 750 million yuan. The total amount of capital to be raised shall not exceed 750 million yuan. The sales limit period is 36 months from the end of the issuance. Assuming that the maximum number of issues issued is calculated, after the issuance is completed, the shareholding ratio of Zhushi Group in Pearl River shares will increase from the previous 31.0% to 47.0%. At the same time, the company transferred real estate assets such as commercial and parking spaces to Zhuji Real Estate, a wholly-owned subsidiary of Zhushi Group, through a private agreement. The transfer price was 130 million yuan (excluding VAT). It helps the company to further revitalize its existing assets and optimize its asset structure.
Taking multiple measures together to show the majority shareholders' confidence in the company's development prospects is conducive to optimizing the capital structure and improving profitability: according to the company's announcement, all capital raised during this fixed increase will be used to supplement working capital and repay debts. The company's net profit for the first three quarters of 2023 was -76 million yuan. The main reason for the loss of performance was that the company's financial rate for the first three quarters was 4.1%, and interest expenses for the first three quarters were 116 million yuan. We believe this fixed increase will help repay 2.02 billion of non-current liabilities maturing within one year. The company's interest expenses are expected to be gradually reduced next year, driving performance to turn losses into profits. At the same time, the transfer of real estate assets to Zhushi Group is also conducive to further advancing the company's strategic transformation from “real estate” to “urban service+cultural and sports operation”, further optimizing the asset structure, and enhancing the company's overall competitiveness. Both measures showed the controlling shareholder Zhushi Group's strong support for the company's development and confidence in the company's future prospects.
The scale of management is growing steadily. Stadium projects such as the Xuchang Sports Convention Center and the Xinchang Small Ball Center were added in Q3: as of September 30, 2023, the company was managing 359 projects (143 residential projects, 193 public construction projects, 23 stadium projects), an increase of 16 over the end of the second quarter. Among them, the main new stadium projects include the Xuchang Sports Convention and Exhibition Center and the Xinchang Small Ball Center.
The company has a clear first-mover advantage in stadiums. At the same time, after the restructuring of the company, by strengthening collaboration with Zhushi Group, in this round of urban village renovation in megacities, there is an opportunity to undertake property services for projects of parent companies and sister companies, helping to further expand the scale of management.
Profit forecast: We believe that this fixed increase and asset transfer will help the company to further promote asset-light transformation. Maintain the company's net profit forecast for 2023/2024/2025 at -0.64/0.82/0.95 billion yuan, corresponding to EPS of -0.07/0.10/0.11 yuan, and a price-earnings ratio of 38.5/33.4 times corresponding to 2024/2025, maintaining the “buy” rating.
Risk warning: Urban village renovation policies have fallen short of expectations; real estate market prosperity has exceeded expectations and declined; market-based expansion has fallen short of expectations.