The Zhitong Finance App learned that CICC released a research report stating that it maintained the ESR (01821) “outperforming the industry” rating, but considering the increase in the company's financing costs and the decline in fair value earnings, it lowered the 2023-24 net profit by 25%/27% to US$4.2/46 billion, introduced a net profit forecast of US$50 billion to the mother in 2025 (10% increase over the previous year), and lowered the target price by 7.6% to HK$14.6. The bank expects ESR net profit (PATMI) to fall 25% year-on-year to US$420 million in 2023, lower than the bank's previous forecast of US$560 million, mainly due to a decrease in fair value income from investment and development in an overseas high interest rate environment. Without considering fair value profit and loss, the bank believes that the company's business situation in 2023 will be generally stable, and the core performance indicators are basically in line with expectations.

The main views of CICC are as follows:

The core business of fund management maintained steady growth.

The bank expects the company's fund management division revenue and EBITDA to achieve high single-digit year-on-year growth in 2023 (mainly due to the increase in 1H23 company's fund management scale). Construction commencement and completion in the second half of the year slowed down due to fluctuations in the macro environment. The annual level may have recorded a slight year-on-year decline, but the total volume is still relatively impressive. Furthermore, due to the company's sale of some of its listed assets, the revenue of the investment segment may decline year over year in 2023.

Increased financing costs and changes in fair value may be the main factors putting pressure on performance.

Affected by the high overseas interest rate environment, the bank expects the company's weighted average financing cost to rise further compared to 1H23 (5.6%) in the second half of 2023, and interest expenses for the whole year will increase year-on-year. Furthermore, there was a marginal rise in the capitalization rate of commercial real estate around the world, leading to adjustments in asset valuations. Although some regions (such as Australia and South Korea) can hedge some of the pressure on asset prices through rising rents, the valuation of the overall asset portfolio is still under pressure.

Buybacks will provide some support for stock price performance in 2023.

According to the bank's statistics, the company's total repurchase amount in 2023 reached HK$1.7 billion (the number of repurchases reached 150 million copies). In 2024, the bank expects the company to continue to carry out repurchase activities depending on the situation.

Potential interest rate cuts in overseas markets may benefit the development of the company's business activities.

The rapid rise in interest rates in overseas markets since the second half of 2022 has caused a certain blockage to the real estate industry's business activities, and asset trading activity has declined significantly. In the future, the bank suggests focusing on potential interest rate cuts in overseas markets in 2024. In principle, the normalization and adjustment of interest rates may also be beneficial to ESR's operating activities and profit recovery statements.

risks

Real asset prices declined more than expected; financing costs continued to rise; exchange rate fluctuations exceeded expectations.