It has been deeply involved in Zhejiang for 30 years and has become a regional leader. Since its establishment in 1992, the company has been deeply involved in Hangzhou and the greater Zhejiang region, and is mainly engaged in real estate development and extended business operations. Sales in 2010 exceeded 10 billion dollars, 2019 exceeded 100 billion yuan, and achieved sales of 153.9 billion yuan in 2022, ranking 13/16 in the full caliber/equity scale sales list of Kerry's top 100 housing enterprises. In 2023Q1-3, the company achieved revenue of 46.4 billion yuan, an increase of 133.5% over the previous year.
Sales growth is resilient, and positive feedback on strategic focus continues to accumulate. The company's sales have grown rapidly in recent years. In particular, during the downturn in the industry, the company's sales performance is superior to the industry average, showing strong growth resilience. We believe that the main reasons are: 1) the Hangzhou market has great potential for growth, and the company's land acquisition focuses on Hangzhou and advantageous regions within the province; 2) strong product and brand recognition has made the company's sales performance in the Hangzhou market better; 3) good repayment and healthy cash flow have brought relatively low financing costs, so that the company can expand further to achieve positive feedback from land acquisition to sales and land acquisition.
Benefiting from the release of demand in Hangzhou, efficient management creates barriers to competition. We estimate that the average annual demand center of the market in Hangzhou under accelerated non-commercial housing renewal is about 13.55 million square meters (up from 11.68 million square meters of commercial housing sales in 2022). Currently, there is still room for growth on the demand side; as of 2023H1, Hangzhou accounts for 70.3% of the company's cumulative land storage, which is expected to benefit from the release of housing demand in Hangzhou. Product and management standardization enable the company to have a high level of human efficiency. At the same time, the project promotion efficiency is high, and the level of cost control is leading in the industry.
Financially sound, green private enterprises received an “AAA” rating. As of 2023H1, the company's balance ratio after deducting advance payments is 55.7%, the net debt ratio is 21.5%, and the short-term cash debt ratio is 2.07 times. The three red line test indicators have remained stable at the green level. The steady financial level and healthy debt structure have also made the company one of the few private housing enterprises that have received an “AAA” rating.
Investment suggestions: The company has been deeply involved in the Hangzhou market with good fundamentals for a long time, actively expanding high-quality land storage, and strong product removal capacity. At the same time, the debt structure is relatively healthy, financing channels are smooth and costs are declining, and positive feedback from land acquisition to sales to land acquisition continues to be verified. We expect the 2023-25 EPS to be 1.32 yuan/1.55 yuan/1.76 yuan respectively, giving the company 6.5 times PE in 2024, corresponding to the target price of 10.0 yuan, covering the “buy” rating for the first time.
Risk warning: risk of company sales falling short of expectations; risk of company land acquisition falling short of expectations; risk of market fluctuations in Hangzhou; risk of policy regulation exceeding expectations.