The company's recent situation
The company's stock price declined by a cumulative total of 14% from January 3 to 4 (we cover domestic housing developers -0.9%, Hang Seng China Enterprise Index -0.4%). We believe that in addition to weak fundamental performance in the industry, technical factors may also exacerbate stock price fluctuations. The company announced sales and land acquisition data for 2023 on January 4.
reviews
Contract sales recorded single-digit growth in 2023. The company's sales volume in 2023 increased 6% year on year to 42.8 billion yuan (compared to only 6 of the top 20 real estate companies with a positive year-on-year increase, and the top 20 average decline was 12%). The sales growth rate was superior to the overall level of the layout city, and similar to that of central state-owned enterprises with land storage mainly in the first and second tier. Thanks to strong product strength and urban cultivation strategies, the company's market share in the cities where it is located has steadily increased (the number of cities with the highest 1H23 sales volume increased by 3 to 9 cities compared to 2022). In terms of sales quality, with the support of strong product strength, the company was able to gradually recover the previous discount while taking into account the project flow rate (the average sales price in 2023 increased 12% year on year). We estimate that gross sales margin in 2023 may have rebounded from 13-14% in 2022; in addition, the company estimates that the cumulative repayment rate in 2023 will exceed 100%.
Measurement is used to supplement high-quality soil storage. In view of the company's abundant unsold value (we estimate that the current unsold value is about 170 billion yuan), the strategic contraction of the industry due to the supply side, and the degree of competition in the urban local auction market where the company is located has declined, the company's pace of land development in 2023 was relatively calm. In 2023, the company continued to adhere to the principle of “mainstream cities, mainstream locations, and mainstream products”. A total of 13 plots of land were acquired throughout the year, with an additional value of about 235 billion yuan, corresponding to a total land payment of 9.8 billion yuan, a land acquisition intensity of 23%, and the overall equity ratio remained around 80%. We estimate the average gross margin of the newly purchased land mentioned above is about 21% and the IRR is about 26%.
Finances are sound, and valuation safety pads are abundant. The company is a joint venture developed overseas in China. Thanks to the majority shareholder background and its own steady financial management, the company issued 4 corporate bonds totaling 4 billion yuan in 2023, with a weighted average coupon interest rate of only 3.68%. At the end of 1H23, the company's cash on hand reached a record high of 32.8 billion yuan. The deducted debt ratio and net debt ratio decreased by 1.6 and 8.3 ppt to 67.2% and 40.5%, respectively, from the end of 2022, and the short-term cash loan ratio (excluding restricted funds) increased 1.8 times. The company's current 2023-24 P/E is 2.2/2.2 times (the average of the central state-owned enterprises is 5.3/4.4 times), the dividend yield is 8.7/ 9.1%, and the stock price retracement further strengthens the valuation safety cushion.
Profit forecasting and valuation
Maintain profit forecasts and outperform industry ratings, and adjust the target price to HK$3.37, corresponding 3.6/3.5 times the 2023-24 price-earnings ratio and 57% upward space. The company is currently trading 2.2/2.2 times the 2023-24 P/E.
risks
Sales recovery in the industry fell short of expectations; settlement margins were worse than expected.