Revenue increased year on year, diversified business developed for the better, maintained a “buy” rating, Nanjing Hi-Tech released its 2023 three-quarter report. From January to September, it achieved a high year-on-year increase in operating income and a year-on-year decline in net profit. The overall settlement margin was 9.6%, down 17.1 percentage points from the previous year. Affected by the recovery in real estate sales falling short of expectations, we lowered the company's 2023-2024 and added 2025 profit forecasts. The company's net profit for 2023-2025 is estimated to be 21.3, 24.5, and 2.86 billion yuan (original value in 2023-2024, 27.6 billion yuan, 3.09 billion yuan), corresponding to EPS of 1.23, 1.42, and 1.65 yuan, and the current stock price corresponding to PE 5.0, 4.3, 3.7 times.

As an enterprise deeply involved in the Nanjing region, the company has unobstructed financing channels, diversified businesses are progressing hand in hand, sales performance has increased year-on-year, and rental property performance is strong. The investment income contribution is expected to continue to improve, maintaining the “buy” rating.

Sales performance improved markedly, and rental property performance was strong

The company achieved cumulative sales volume and area of 1.85 billion yuan and 254,000 square meters respectively in the first three quarters of 2023, up 273.8% and 1984.4% year-on-year from the low base for the same period in 2022. Currently, the company is mainly selling 3 commercial housing projects with sufficient surplus value. Among them, Ziyao Xingyuan and Zilin Jingyuan are newly opened projects in 2023, which can continue to contribute to the company's development business performance and ensure steady growth in future revenue. The company's rental property performance was strong. Commercial and industrial plants achieved rental income of 469.83 million yuan in the first three quarters, an increase of 2.6% over the previous year. Among them, factory rental income in Dongcheng Hui, Hi-Tech Center, and Development Zone was +52.1%, +17.6%, and -13.8% year-on-year, respectively.

Real estate carry-over boosts revenue, and equity investment creates profit barriers

The company achieved operating income and net profit of 42.4 billion yuan and 1.67 billion yuan respectively in the first three quarters, with a year-on-year difference of +117.0% and -11.7% respectively. The decline in net profit was mainly due to the centralized carry-over of affordable housing projects with lower profit margins. The equity investment business has become the company's main source of profit, achieving investment income of 1.68 billion yuan in the first three quarters, a year-on-year decrease of 15.8%. At the same time, the company disposed of its equity holdings in a timely manner and realized investment income in a timely manner. In September, through the transfer of 49% of the shares of Nanjing Chengong Pharmaceutical Co., Ltd., it achieved revenue and transaction price of 180 million yuan. Future investment returns are expected to be further strengthened, building a breakwater for the company's profitable water products.

Smooth financing channels and plenty of cash on hand

The company's financing channels were unobstructed. By the end of October, a total of 11 ultra-short-term financing notes and 2 medium-term notes had been issued, with a cumulative issuance scale of 5.90 billion yuan. The coupon interest rate is between 2.5% and 3.4%, and financing costs remain low. The company has abundant capital on hand. By the end of the third quarter, monetary capital reached 1.32 billion yuan, an increase of 31.8% over the end of 2022.

Risk warning: The recovery of sales in the Nanjing market fell short of expectations, and the development of the company's equity investment business fell short of expectations.