Incident: On March 1, the company announced its 23-year performance forecast and the controlling shareholders' holdings increase plan. In '23, the company's net profit loss to mother is estimated to be about 6.7 billion yuan. The controlling shareholder of the Company, Sinochem Hong Kong (Group) Limited (“Sinochem Hong Kong”) intends to increase its stock holdings by no more than HK$200 million within about 3 months from the day following the date the Company issued its 23-year results announcement.
Comment: Performance declined in the short term due to pressure from multiple factors such as the market downturn, and the Group's resource support improved operating stability.
The first performance loss since listing, and the market downturn increased impairment and gross margin pressure: In 2023, the company expects to achieve a net profit loss of about 6.7 billion yuan, a year-on-year decrease of about 8.7 billion yuan. At the same time, net profit attributable to the mother without fair value income from investment properties is expected to be a loss of 6.6 billion yuan, a year-on-year decrease of about 7.5 billion yuan. The main reasons include: 1) Affected by the downturn in the domestic real estate industry, the company continues to account for inventory impairment; 2) The scale of revenue settlement for primary and secondary development projects continues to decline; 3) One-off revenue from mergers and acquisitions declined sharply year over year. This performance loss is the first time since the company went public in 2007. It is expected that short-term inventory impairment and gross margin pressure will be fully released. After entering the settlement period for new land acquisition projects since '22, it is expected to drive a steady recovery in performance.
Controlling shareholders are actively increasing their holdings, and the Group's resources support to improve operating soundness: Sinochem Hong Kong plans to increase the company's stock holdings by no more than HK$200 million within about 3 months from the day after the company issued its 23-year results announcement. The maximum amount is about 2.4% of the company's closing market value as of March 4, '24. In recent years, Sinochem Hong Kong has supported the company's operations through stock exchange and capital pool cooperation. From 2022/6/30 to 2024/3/1, Sinochem Hong Kong's shareholding ratio increased from 35.27% to 37.09%, providing strong support for the company's steady operation.
Sales stabilized year on year in '23, and sales declined with the industry in the beginning of '24: in '23, the company achieved sales of 141.2 billion yuan, down 8.9% year on year, narrowing from 2022 (-34.2%). According to Kerui data, in January-January '24, the company achieved sales of 10.55 billion yuan, a year-on-year decrease of 56.3%. During the same period, the trading sales of the top 100 real estate companies fell 48.8% year on year. The company's sales were clearly affected by weak market demand in the short term.
Huaxia Jinmao Commercial REIT is about to be listed, opening up a channel for revitalizing existing assets: In '23, the company launched Huaxia Jinmao Commercial REIT using its Changsha Jinmaolan Xiucheng project as the underlying asset. The total construction area of Changsha Jinmao Lanxiucheng was 103,000 square meters, and the leasable area was about 61,000 square meters. The asset valuation as of June 30, '23 was about 1,065 billion yuan. As of December 30, '23, Huaxia Jinmao Commercial REIT's public sale price was 2.67 yuan/share, with a total revenue of about 1,068 billion yuan. It is expected that the successful listing of Huaxia Jinmao Commercial REIT will help the company further open up financing channels for existing assets, enhance the company's financing capacity, and increase operating income.
Profit forecast, valuation and rating: Considering factors such as declining sales, inventory impairment, and declining gross margin, we lowered the company's basic net profit forecast for 23-25 to -66.8/14.6/2.17 billion yuan (the original forecast was 34.7/55.1/6.06 billion yuan). The current stock price corresponds to the 23-25 PE (basic) valuation to NA/5.2/3.5 times NA/5.2/3.5 times, respectively. As a state-owned enterprise, the company has significant credit advantages. The financial stability has maintained a “buy” rating.
Risk warning: Risks such as sales falling short of expectations, land acquisition and revenue settlement falling short of expectations, and market downturn exceeding expectations.