Relying on the state's veteran farming and development business, the investment has refocused on the Xi'an High-tech Zone. Tiandi Yuan belongs to the Xi'an High-tech Zone Management Committee. Since it has been deeply involved in real estate development for more than 30 years, the company's brand influence has been demonstrated through its excellent product strength. The company's strategy is “based in Xi'an, expanding the whole country”, and has settled in more than 15 cities, but as the industry has faced structural adjustments in recent years, the company's investment scope has actively contracted, and land acquisition has refocused its base in the Xi'an High-tech Zone. Since 2022, it has acquired 3 new projects, all located in the Xi'an High-tech Zone, with a total planned construction area of 473,200 square meters. The initial development situation is hot, and investment certainty has increased. The company's deep cultivation in Xi'an has achieved remarkable results. In recent years, the sales scale in the Xi'an market has stabilized in the first tier.
Sales performance bucked the trend, and most of the land reserves were located in the Xi'an High-tech Zone. In 2020, the company's contract sales amount exceeded 10 billion yuan for the first time, and maintained a scale of 10 billion dollars for three consecutive years during the industry's downturn. As of Q3 of 2023, the company achieved cumulative sales of 8.29 billion yuan, +1.1% year-on-year (-4.6% year-on-year), and sales performance bucked the trend. As of Q3 in 2023, the company has a remaining saleable area of 1,555,000 square meters, corresponding saleable value of about 32.26 billion yuan, which can cover 3.0 times the sales amount in 2022. It has abundant marketable resources, and is concentrated in the Xi'an High-tech Zone, so the decontamination flow rate is guaranteed.
The fundamentals of the Xi'an High-tech Zone are stable, and the property market is performing well. The Xi'an High-tech Zone dominates the high-tech industry and has successfully attracted high-tech industry leaders such as Huawei and Samsung to settle in. The industrial highland has remarkable advantages. The high-tech zone's share of the city's GDP increased steadily from 16.4% in 2017 to 27.0% in 2022. The regional fundamentals are stable, the economy is full of vitality, the number of enterprises and employees in the high-tech zone is constantly increasing, and the demand for housing purchases in the region is guaranteed. As of November 2023, the average price of new housing in the High-tech Zone was 22,306 yuan/㎡, second only to Qujiang in all districts of Xi'an. Housing prices were relatively strong, and the year-on-year growth rate of sales in the High-tech Zone continued to be superior to that of Xi'an City and the whole country after 2019, and the property market was resilient.
The revenue reservoir remains high, and a return in profitability can be expected. In 2022, the company's revenue was 10.55 billion yuan, surpassing 10 billion for the first time. By Q3 of 2023, the company had achieved revenue of 5.21 billion yuan, +32.8% year-on-year. Annual revenue is expected to break through a new high, and the company's contract liabilities and advance accounts totaled 13.74 billion yuan, covering 1.3 times the revenue in 2022, and the performance reservoir maintained a high level. In 2022, the company's gross margin remained at a high level of more than 20%, leading the industry, but in 2023, the company entered a high-land price project carry-over cycle, and profitability was under pressure in the short term. The company's gross margin and net profit margin fell 13.2pct/6.4pct to 11.6%/0.2%, respectively, from the beginning of the year, achieving net profit of 3.7106 million, -94.53% year-on-year. Profitability is expected to recover rapidly as the company's investment refocuses on the Xi'an High-tech Zone, combined with impressive rate control results.
A fixed increase in implementation will help optimize the debt structure. As of 2023Q3, the company's short-term cash to debt ratio is 1.36, the pre-balance ratio is 81.5%, and the net debt ratio is 170.3%. Except that the short-term cash debt ratio meets the requirements of the three red lines, there is plenty of room for optimization of other indicators, and the company's debt structure is in the “orange level”. The company's financing channels are unobstructed, credit bonds have been successfully issued for many years, and the capital received has continued to grow. However, after gradually optimizing from double digits to 7.49% at the end of 2022, the average financing cost is still high compared to mainstream housing enterprises in the industry. On October 21, 2023, the company's fixed increase application was approved by the shareholders' meeting. It is proposed to raise no more than 1.25 billion yuan in fixed capital from no more than 35 institutional investors and domestic natural persons, with an issuance volume of 259 million shares. The company's debt structure may improve after the implementation of the fixed increase.
Profit forecast and investment advice: The fundamentals of the region that the company is deeply involved in are good, profitability is expected to recover, sales performance is growing against the trend, and the debt structure may be optimized after fixed increases are implemented. We expect the company's revenue for the year 23-25 to be 113.9 billion yuan, 119.0 billion yuan, and 12.39 billion yuan, respectively, and net profit of 5.1, 62, and 7.1 billion yuan. The corresponding PE is 6.9, 5.6, and 4.9 times, respectively, covering the “recommended” rating for the first time.
Risk warning: poor policy transmission effect; downside risk in Xi'an property market; debt ratio optimization falls short of expectations.