2023 pre-profit of $4.7-70 billion
Urban Construction Development disclosed the 2023 pre-profit announcement. It is expected to achieve net profit of 47,000-70 million yuan in 2023 (loss of 930 million yuan in 2022), achieve net profit without deduction of 41-62 million yuan (loss of 500 million yuan in 2022), and turn a loss into a profit.
Key points of interest
It successfully turned a loss into a profit, and the main business continued to operate steadily. The main reasons why the company turned losses into profits during the period were: 1) the main real estate business continued to operate steadily; 2) the share price changes of the company's transactional financial assets decreased compared to the same period last year, thus reducing the impact on the company's performance (loss of 1.5 billion yuan in 2022).
Looking back, the company has plenty of resources (35.5 billion yuan in contract debt at the end of 3Q23, equivalent to 1.3 times real estate development revenue in '22), and we think it is expected to support the 2024-2025 settlement; when combined with the settlement structure, the share of projects in Beijing will increase. We expect a decline in gross margin and less pressure on inventory depreciation, and subsequent performance growth is guaranteed.
Sales reached a new level in 2023, and Beijing Development Storage remained stable. According to Kerui data, the company achieved traffic volume sales of 39.8 billion yuan in Beijing in 2023, an increase of more than 50% over the previous year, and remains in second place in the sales list. Considering that the company also has sales contributions in Chongqing, Chengdu, etc., we expect the company's sales volume to be about 43 billion yuan in 2023, an increase of about 40% year over year (30.3 billion yuan in 2022). The company added 2 new parcels of land in Beijing in 2023, with a total land acquisition price of 11.4 billion yuan, which is basically the same as in 2022. Among them, the Haidian Sijiqing plot (Xiangshan Yue) was first opened at the end of November last year, and the milk west project (Wangjing Guoyufu) was also recently launched. We expect the total value of the goods to be about 5 billion yuan. Supported by sufficient capital, we believe that the company will maintain a steady pace of storage expansion in Beijing in 2024; based on the support of the current supply structure, we expect the company's sales to remain around 40 billion yuan in 2024.
Recently, urban reform policies have been expressed positively, and the company's related reserves are expected to be further expanded. Since the beginning of the year, central and local policy support and implementation on urban villages and the “three major projects” have continued to advance, such as a net increase of 350 billion yuan in PSL balance in December, Guangzhou issued the “Special Plan for Urban Village Renovation”, and Shenzhen issued “Implementation Opinions on Actively and Steadily Promoting Urban Village Renovation to Achieve High Quality Development”; in addition, forming the physical workload of the “Three Major Projects” as soon as possible is also a clear requirement put forward by the General Administration of Financial Supervision at the press conference of the State Information Office 1. In this context, we believe that the company is expected to rely on the Group's resources and the first-mover advantage of related businesses to expand its urban reform project reserves (the company was working on 5 key shed renovation projects, 2 first-level development projects, and 3 urban renewal projects at the end of 3Q23), and it is recommended to pay close attention to the implementation of Beijing's urban village rules.
Profit forecasting and valuation
Taking into account settlement restructuring and possible impairment effects, profit for 23/24 was lowered by 35%/35% to 6.9/1.04 billion yuan, and a new 25-year profit forecast of 1.24 billion yuan was introduced, corresponding to a 50%/20% year-on-year increase in 24/25. Maintain outperforming industry ratings. The company's stock price has retreated to the level at the beginning of '23. The latest transaction was 0.4/0.3 times the 24/25 P/B, and the valuation has also fallen back to about 1 times negative standard deviation since 2016, raising the safety cushion. Taking into account the urban reform theme's support for risk appetite and profit forecast adjustments, we lowered the target price by 25% to 6.6 yuan, corresponding 0.6/0.5 times the 24/25 P/B and 55% upward space.
risks
The scale of land acquisition fell short of expectations; settlement progress fell short of expectations.