occurrences

On March 21, 2024, C&D International Group released its 2023 performance report. It achieved annual revenue of 134.43 billion yuan, +35% year-on-year; net profit to mother was 5.03 billion yuan, +2% year-on-year. The dividend was HK$1.3 per share in exchange for shares, with a dividend rate of 52% and a dividend rate of about 10%.

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The decline in gross margin led to a lower growth rate of net profit than revenue: in 2023, the company delivered 8.52 million square meters of construction area, +83% year-on-year, and growth in development business (accounting for 96.8% of total revenue) led to an increase in overall revenue. However, net profit to the mother achieved a low growth rate mainly due to: ① the decline in the real estate market, the gross margin of delivered projects fell, and the company's gross margin fell from 15.3% in 2022 to 11.1% in 2023, and gross profit decreased by 300 million yuan year on year; ② the equity ratio of settlement projects declined, with minority shareholders' profit and loss of 1.44 billion yuan in 2023, an increase of 730 million yuan year on year; ③ asset impairment losses decreased, and inventory depreciated 1.64 billion yuan in 2023, a decrease of 2.15 billion yuan year on year.

Sales bucked the trend, and cash repaid efficiently: in 2023, the company's full-caliber sales were 188.9 billion yuan, +11.7% year over year; equity sales were 138 billion yuan, +13.5% year over year; the industry ranking rose to 8th. Continuing to cultivate core cities, 46 of the more than 70 cities entered the local sales TOP10, accounting for 85% of first-tier and second-tier sales. Among them, the sales volume of the single cities of Xiamen, Hangzhou, Shanghai, Suzhou, and Beijing exceeded 10 billion yuan. Adhere to cash as king and expediting inventory removal and return of funds. In 2023, the full-caliber repayment amount was 184.3 billion yuan, with a repayment ratio of 98%. The full-caliber repayment coverage ratio for interest-bearing liabilities reached 2.17 times, ensuring safe cash flow.

Core cities are actively expanding to maintain land storage mobility: in 2023, the company obtained 78 projects in 30 cities, with a total land acquisition amount of 116.9 billion yuan; land acquisition intensity (land acquisition amount/sales amount) of 0.62, which is the highest in the industry; supplementary saleable value of 218 billion yuan (equity ratio 73%); the focus is on land acquisition in high-quality, deep-cultivated cities such as Hangzhou, Shanghai, and Xiamen, with 76% of the investment in the top ten cities.

By the end of 2023, the company's saleable land storage area was 15.52 million square meters (equity ratio 76%), Tier 1 and 2 cities accounted for 84%, and new goods acquired in 2022 and beyond accounted for 70%.

Healthy asset structure, healthy financial security: As of the end of 2023, the company's assets were 427.3 billion yuan, of which total inventory and monetary capital accounted for 76%; the three red lines remained stable, with a balance ratio of 61.6% after deducting advance accounts, a net debt ratio of 33.6%, and a short-term cash debt ratio of 4.7; financing costs continued to decline, and the average interest rate on interest-bearing debt was 3.75%, down 58BP year-on-year.

Investment advice

The company has shown positive sales and investment performance, excellent asset quality, high liquidity, and steady operation and continuous development. Considering the industry situation and the company's carry-over cycle, we adjusted the company's 2024/2025 net profit to 78.5/8.26 billion yuan (originally 85.1/10.17 billion yuan), and added the 2026 net profit forecast of 8.72 billion yuan, with year-on-year growth rates of 56.0%, 5.3%, and 5.5%, respectively. The current price of the company's stock is 3.1/3.0/2.8 times the PE valuation, maintaining a “buy” rating.

Risk warning

The implementation of the policy fell short of expectations; sales in the real estate market continued to be sluggish; other housing enterprises defaulted on contracts.