Core views

Taking advantage of the recovery of the Beijing market, Dongfeng's sales bucked the trend, and continued to rank 2nd in the sales rankings in Beijing since 2022. At the same time, the company has been focusing on land acquisition in Beijing for a long time, and the Beijing region is rich in reserves of high-quality projects, helping the company continue to increase sales in the future. The company has rich experience in first-level land opening and shantytown renovation. As high-quality shed reform projects gradually enter the carry-over stage, 2024 is expected to contribute rich profits to the company. Furthermore, with the appointment of a new chairman, resource integration within the group is expected to be implemented at an accelerated pace, and the scale of the company is expected to expand further in the future.

summary

Sales bucked the trend and soared, and Beijing had abundant development resources. The company is a regional real estate leader that has been deeply involved in Beijing for a long time. Thanks to the excellent market environment in the Beijing region, the company's sales have bucked the trend in recent years. In 2022, the company achieved sales of 30.34 billion yuan, an increase of 18.0% over the previous year; in the first half of 2023, it achieved sales volume of 23.07 billion yuan, an increase of 54.5 billion yuan over the previous year, and has continued to rank second in the sales ranking of Beijing since 2022. Furthermore, the company has been focusing on land acquisition in Beijing for a long time. The total construction area of project reserves in the Beijing region has reached 8.713 million square meters. High-quality land storage has helped the company's sales continue to increase.

The shed reform project is progressing at an accelerated pace, and 2024 is expected to enter the harvest period. The company has rich experience in first-level land development and shantytown renovation. In recent years, it has obtained a large number of high-quality projects based on the background and financial advantages of a municipal state-owned enterprise of the majority shareholder, Beijing Urban Construction Group. As projects such as Wangtan shed reform and Linhe Village shed reform gradually enter the carry-over stage, 2024 is expected to contribute rich profits to the company.

The new chairman has been appointed, and resource integration within the group is expected to be implemented at an accelerated pace. In addition to the company, Beijing Urban Construction Group also has two other real estate development platforms (Beijing Urban Construction Real Estate Development Co., Ltd. and Beijing Housing Group Co., Ltd.), and the company is rich in real estate resources. The new chairman, Mr. Chang Yongchun, has extensive experience in resource integration. After the appointment is completed, it is expected that the integration of real estate resources within the group will be accelerated, and the company will be further expanded while resolving competition issues in the industry.

The initial coverage gave a buying rating, with a target price of 9.96 yuan. Considering that the company's shed reform project will enter the harvest period and release a large amount of performance within the next three years, we predict that the company's EPS for 2023-2025 will be 0.42/0.74/0.86 yuan, respectively. According to the PB valuation of comparable companies in 2023 is 1.1X, we gave the company a valuation level of 1.1X, corresponding to the target price of 9.96 yuan.

Risk warning: The Beijing market region is deeply involved in risks; first-level development and shed reform projects have not progressed as expected; and the recovery of the real estate industry has fallen short of expectations.