On October 31, Fuxing Co., Ltd. released its 2023 three-quarter report. The company achieved operating income of 1,031 million dollars, -2.02% year-on-year; net profit of 0.06 billion yuan, +144.18%; total revenue for the first three quarters was 4.437 billion, -51.71%; and net profit of 807.735 million, +33.44% year-on-year.

Revenue declined due to reduced carry-over, and gross settlement margin increased

The company achieved revenue of 4.437 billion dollars in the first three quarters of 2023, a year-on-year decrease of 51.71%. As of the end of the reporting period, the company's book contract debt was 7.879 billion, and the end of 2020 to the end of 2022 were 15.273 billion, 13.909 billion, and 7.787 billion respectively. The decline in carry-over resources corresponds to the decline on the revenue side. On the other hand, the company's comprehensive gross profit margin for the first three quarters was 24.83%, up 9.55 percentage points from 15.28% in the same period last year. At the same time, the total sales management and financial expenses ratio up to the end of the reporting period was 14.13%, up 6.36 percentage points from the end of last year, so the improvement in profit from the increase in gross margin was not obvious.

Considering that the company continues to reduce the scale of interest-bearing debt, and at the same time, the company's project development and case-field sales are also coming to an end, we believe that the future trend of sales management expenses and financial expense ratios will decline.

The debt ratio fell to a healthy level, and the cash flow remained positive

The capital structure continues to be optimized, and leverage is decreasing year by year. The company's balance ratio after excluding accounts collected in advance fell from 66.94% at the end of 2020 to 57.55% at the end of the reporting period; the net debt ratio fell from 70.44% at the end of 2020 to 31.01% at the end of the reporting period; at the end of the reporting period, the company had a book capital of 2,371 billion dollars, plus sales payback, which could cover interest-bearing debt maturing within one year; in addition, the company's net operating cash flow for the first three quarters was $1,320 million, financing cash flow- $1,599 billion, combined with the reduction in the company's debt ratio and inventory (book inventory at the end of 2021, the end of 2022, and the end of the reporting period were 27.818 billion, 21,456 billion, and 20.574 billion, respectively), it can be seen that the company is speeding up project turnover while ensuring its own safety and reducing the debt ratio to adapt to the current real estate development situation.

Investment suggestions: The decline in the company's revenue in the first three quarters was mainly due to a decrease in carry-over projects and an improvement in settlement profit margins. At the same time, the balance ratio and net debt ratio continued to decline, and the total amount of interest-bearing debt decreased year by year, showing that the company took into account the current real estate industry situation. We expect the company's net profit in 2023-2025 to be 69 million, 95 million, and 126 million, respectively. The current stock price is 0.4 times the PB of 2023, maintaining the company's “buy” rating.

Risk warning: Sales fell short of expectations, profit margins declined, and progress in implementing fixed growth fell short of expectations.