The company is a comprehensive real estate developer with a central enterprise background: the controlling shareholder is China Resources Group, a powerful central enterprise, holding 59.55% of shares for 5 consecutive years, and has a stable shareholding structure. The company pioneered commercial real estate layout in 2004, and spun off the property management and commercial management business in 2020. In 2022, the company achieved operating revenue of 207.1 billion yuan, of which development and sales business revenue accounted for 85%, which is the company's main source of unshakable revenue, while recurring business revenue accounts for 15%, enhancing the stability of the company's earnings and effectively smoothing fluctuations.
Develop properties to maintain sales scale and investment intensity: Under the new industry pattern, the competitive advantages of central government enterprises on the sales side, financing side, and land acquisition side are prominent. In 2023, the company's contracted sales volume was 307 billion yuan, +2% over the same period. The industry ranking remained 4th. The sales scale was only 3% lower than the highest point in 2021, and the market share rose sharply to 2.6%.
The company is deeply involved in East China and South China, and the share of sales in Tier 1 and 2 cities has remained above 80% over the years.
Maintain a reasonable and stable land acquisition intensity. In 2023, the company's total land storage purchase amount was 173 billion yuan, +20% over the same period, but land acquisition rights declined compared to previous years, mainly due to the high proportion of new land storage cooperation for investment properties. The company's equity land purchase amount was +2% compared to the same period, and the equity investment intensity of 52% was the same as in the past.
Investment property business performance was clearly superior to peers: as of the end of 2023H1, the fair value of the company's investment properties was 253.5 billion yuan, accounting for 21% of total assets, of which the fair value of shopping malls accounted for 79% of the invested properties.
2023H1's investment property revenue was 10.7 billion yuan, +41% year-on-year, which was quickly recovered; shopping center rental revenue was 8.6 billion yuan, which maintained 81%. By the end of 2023H1, the company had 67 shopping malls in operation, and over 85% of the projects ranked in the top three in local retail sales. It is expected that the number of active projects will increase to 114 in 2026. According to estimates, the return on investment of the company's investment in properties in 2022 reached 11%, far exceeding the level of about 7.5% of industry peers.
Steady operating performance is increasing, and financial health is worry-free: the company's 2022 revenue was -2.4% YoY, core net profit +1.5% YoY; 2023H1 revenue +0.1% YoY, core net profit to mother +11% YoY, GMU core net margin was 15.4%, and gross margin was 25.7%. The gross margin of the company's development properties decreased, but the profit from investment properties was steady. The gross margin of 2023H1 development properties fell 6.0 percentage points to 17.0%, while the gross margin of investment properties increased 5.7 percentage points to 71.3%. The company is financially healthy, and rental income can also cover dividends and interest. By the end of 2023H1, the short-term cash debt ratio was 1.87 times, and the net debt ratio was 28.5%, a five-year low. The weighted average financing cost for 2023H1 companies was 3.56%, down 19 bps from the end of 2022.
Profit forecast and valuation: Combined with absolute valuation and relative valuation, we believe that the company's reasonable share price range is $25.1-28.4, equivalent to HK$27.9-31.6, which has room for 20%-36% compared to the current stock price. Considering the risk of housing price fluctuations, the company's core net profit for 2023-2025 is expected to be 276/305/33.9 billion yuan (original value: 290/322/35.7 billion yuan), and corresponding earnings per share are 3.87/4.28/4.76 yuan, respectively. Corresponding to the current stock price PE, it is 5.4/4.9/4.4 times, respectively, to maintain a “buy” rating.
Risk warning: The decline in the real estate industry and consumer market exceeded expectations; sales settlement of the company's developed properties fell short of expectations; rental income from the company's invested properties fell short of expectations; and the profit level of the company's various businesses declined beyond expectations.