Incident: On December 4, 2023, Tiandi Yuan issued an announcement to sign a “Supplementary Agreement to the Equity Custody Agreement” with the actual controller, Xi'an Ziwei Real Estate Development Co., Ltd., a subsidiary of Xi'an Hi-Tech Group. Prior to that, on November 27, 2023, Tiandi Yuan plans to sign an “Equity Custody Agreement” with Ziwei Real Estate to manage the shares of 13 wholly-owned subsidiaries and 4 joint ventures under its management to further eliminate the impact of interbank competition.
This trusteeship matter is conducive to promoting the resolution of competition among companies in the industry. In November 2020, Xi'an Hi-Tech Group, the actual controller of the company, issued a “Letter on Adjusting Commitments to Avoid Competition in the Industry and Extending the Implementation Period”, which intends to actively and steadily help Tiandi Yuan resolve the issue of peer competition through step-by-step steps: 1) Step 1:
Staged trusteeship for real estate development projects with competition in the industry; 2) Step 2: Implement real estate asset and business injection work. Therefore, this equity custody matter is a concrete measure for Hi-Tech Group, the actual controller of the company, to fulfill its commitment to avoid competition in the industry, which will help Tiandi Yuan to further eliminate the impact of peer competition.
Following entrustment management of shares in high-tech real estate subsidiaries in 2021 and signing an equity custody agreement with Ziwei Real Estate, the company is expected to open up space for long-term development. In May 2021, the company was entrusted with managing the shares of three project companies directly or indirectly engaged in real estate development business held by Hi-Tech Real Estate under Hi-Tech Group. This time, Tiandi Yuan signed an “Equity Custody Agreement” with Ziwei Real Estate, reflecting the positive actions of Xi'an Hi-Tech Group, the actual controller of the company, to promote the implementation of the promise. Ziwei Real Estate ranked 16 (3 billion) in the Xi'an market with cumulative sales volume from January to October 2023, forming a clear competitive relationship with Tiandi Yuan (ranked 10th, sales amount 4.7 billion). If the competition issue with Ziwei Real Estate is successfully resolved, Tiandi Yuan will further open up room for growth.
Many of the company's board members have backgrounds in Xi'an Hi-Tech Group to support the company in eliminating competition issues in the industry. On December 4, 2023, the company issued an announcement to nominate Mr. Zhang Muqiang and Ms. Wang Zifang as candidates for the 10th board of directors of the company. Among them, Zhang Muqiang is currently the director and deputy general manager of Xi'an Hi-Tech Group; Wang Zifang was the former director of Xi'an Ziwei Real Estate Product Research Center, and is currently the chairman of Xi'an Hi-Tech Real Estate Co., Ltd. In addition, the other directors of Tiandi Yuan all have backgrounds in Xi'an Hi-Tech Group and have held or are holding important positions in the Hi-Tech Group. Many of Tiandi Yuan's board members have the background of the Xi'an Hi-Tech Group as the actual controller, which helps Tiandi Yuan to speed up the elimination of competition issues in the industry.
The company's sales performance bucked the trend, and most of its 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.
Investment suggestion: This trusteeship matter is conducive to promoting solutions to the company's interindustry competition issues. The company is expected to further open up room for growth, and the company's sales performance is growing against the trend. It is expected that the company's fundamentals will continue to outperform Alpha, and the stock price will continue to outperform Alpha, and the stock price will generate excess profits. 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, with net profit of 5.1, 62, and 7.1 billion yuan, corresponding to PE of 6.8, 5.6, and 4.9 times, respectively, maintaining the “recommended” rating.
Risk warning: Addressing competition among peers is slow; policy transmission is not effective; downside risks in the Xi'an property market