The company's recent situation
The company recently attended the 2023 Investment Strategy Conference held by CICC and had in-depth exchanges with investors on the company's current business situation.
reviews
The margin of safety on the financial side is high. The company's pre-debt ratio and net debt ratio at the end of 1H23 fell 0.3 and 4.1ppt to 67.9% and 39.8%, respectively, from the end of 2022. The short-term cash loan ratio (excluding restricted funds) was 1.49 times. Considering the company's high repayment efficiency (1H23 cumulative repayment rate of 98%) and restraint in land acquisition, we believe that the level of leverage ratio at the end of the year is expected to decrease from the stability in the medium term. As an exemplary private enterprise, the company received support from regulators and exchanges on the financing side. This week, the company once again issued Chinese bonds to increase credit and win 1 billion yuan.
The company has issued a total of 4.62 billion yuan in votes since the beginning of the year, with a weighted average interest rate of 4.39%. We believe that the company's average financing cost at the end of the year is expected to decline marginally from 4.68% at the end of 1H23. In terms of debt maturity, the company has not issued US dollar bonds, domestic bonds did not expire during the year, only 900 million yuan actually matured in 2024, and the resale of 5.4 billion yuan expired. We believe that the maturity pressure on the company's open market debt is manageable.
Continuously optimize the soil storage structure. The company began optimizing the stock soil storage structure in the second half of 2021, speeding up the removal of assets in low-energy cities while also cutting equity in stock projects. Up to now, the company has acquired shares in 17 high-quality projects and also withdrawn shares in 23 low-energy city projects, resulting in a net increase of 6.5 billion yuan in equity value. Furthermore, since the beginning of the year, the company has acquired 4 high-quality plots in core cities such as Guangzhou, Foshan, and Changsha. Since this year, equity prices have increased by a total of 4.4 billion yuan through equity cuts and new land purchases. By the end of 1H23, the company's land storage equity ratio had increased by 3ppt to 72% compared to the beginning of the period. Nearly 70% of the unsold land storage area was located in Tier 1 and 2 cities, and over 50% in the Yangtze River Delta and Greater Bay Area. We estimate that the company's current unsold goods value is about 2300 to 240 billion yuan, which can support development over the next three years or so.
Annual sales are expected to reach 65-70 billion yuan. The company's sales volume for January-October decreased 15% year on year to 57.8 billion yuan. We estimate that the gross sales margin is about 13-15%, which is similar to the company's unsettled gross margin at the end of 1H23. Considering the company's abundant supply in the fourth quarter (we expect a total supply of about 90 billion yuan), we believe that the company's annual sales amount is expected to reach 65-70 billion yuan, a decrease of about 10% from the previous year (70 billion yuan implied an overall removal rate of about 14% in the fourth quarter, and the overall removal rate for the whole year was 47%, similar to the level of 50% in 2022).
Profit forecasting and valuation
Considering the pace of delivery adjustments, we lowered our 2023-24 profit forecast by 19%/12% to $16.0 billion or 1.73 billion. Maintaining an outperforming industry rating, we lowered our target price by 15% to HK$8.70 based on profit forecast adjustments, corresponding to 7.0/6.6 times the 2023-24 price-earnings ratio and 38% upside. The company is currently trading 5.1/4.7 times the 2023-24 price-earnings ratio.
risks
The recovery in industry sales sentiment fell short of expectations; settlement profit margins declined more than expected.