Incident: The company announced its 2023 results. In 2023, the company achieved operating income of 180,737 billion yuan, a year-on-year decrease of 27.87%; net profit to mother of 12.85 billion yuan, a year-on-year decrease of 47.25%; and achieved a basic profit of 2.07 yuan per share.
Decline in revenue performance: Revenue of 180,737 billion yuan was achieved in 2023, down 27.87% year on year. The carry-over turnover of the development business fell 31.35% year on year, which had a significant impact on revenue. Net profit to mother was 12.85 billion yuan in 2023, down 47.25% year on year. Net profit to mother declined significantly compared to revenue, which was mainly affected by the following 3 reasons. 1) Gross margin declined a lot. The company's gross profit margin was 16.92% in 2023, down 4.25pct from 2022. Among them, due to overall sales pressure in the industry and most carry-over projects were taken when the land market was hot, etc., the gross margin of development carry-over was 11%, down 6.9pct from 17% in 2022. 2) The change in the fair value of investment properties decreased. The value in 2023 was 1.99 billion yuan, down 30.77% from 2022, or due to the impact of the revaluation of investment properties due to the weakening of the overall property market in 2023. 3) Expense rates increased. The operating expenses rate and sales expense ratio in 2023 were 2.91% and 3.04% respectively, up 0.78pct and 0.33pct respectively from 2022.
Sales volume reduction and price increase: The company achieved sales of 173.488 billion yuan in 2023, down 13.94% year on year; sales area was 10.796 million square meters, down 17.25% year on year; corresponding average sales price was 16069.6 yuan/square meter, up 4% year on year, and sales volume decreased and increased price. From a regional perspective, the Yangtze River Delta, Bohai Rim, Western China, South China and Central China regions accounted for 28.9%, 21.8%, 28.4%, 11.8%, and 9.1% of sales, respectively. The Yangtze River Delta, Bohai Rim, and Western China are the company's main sales regions. Looking at city energy levels, Tier 1 and 2 cities account for 95% of sales. As of the end of 2023, the company's outstanding sales amount was 173.4 billion yuan, laying a solid foundation for the company's continued stable development in the future.
The investment focuses on the core: In 2023, the company added 31 plots of land, adding 3.68 million square meters of equity, 2.66 million square meters of equity, land price of 25.9 billion yuan, average equity floor price of 9730 yuan/square meter, average floor price/sales price ratio of 0.61, equity land price/sales amount ratio of 14.93%, and investment remained cautious. The company's land acquisition focuses on high-energy cities. By region, the Yangtze River Delta, Western China, South China, Bohai Rim, and Central China regions accounted for 26.3%, 41.8%, 9.5%, 11.4%, and 11% of the new area, respectively. The Yangtze River Delta and Western China are the company's main replenishment areas. By the end of 2023, the company had 45.39 million square meters of land storage, with an equity construction area of 32.36 million square meters, corresponding to an equity ratio of 71.29%. The average floor price of land storage was 4,705 yuan/square meter, which was 29.3% of the current sales unit price, and land storage maintained a high equity ratio.
In terms of regional distribution, the Bohai Rim, Western China, Yangtze River Delta, Central China, and South China regions accounted for 33.1%, 25.3%, 16.7%, 13.8%, and 11.1% of land reserves, respectively.
Operations demonstrate strong management capabilities: In 2023, the company achieved rental revenue of 12.94 billion yuan, an increase of 8.9% over the previous year, with shopping malls, rental housing and other revenue accounting for 77.4%, 19.7%, and 2.9% respectively. 1) The business achieved rental income of 10.28 billion yuan, an increase of 9% over the previous year. By the end of 2023, 88 shopping malls had been opened, with a total floor area of 7.97 million square meters and an overall occupancy rate of 96.2%. In 2023, 12 new shopping malls will be opened, including 7 seats that are asset-light and focus on promoting commercial development. It is expected that 14 new shopping malls will open in 2024. 2) Long-term rental apartments achieved rental income of 2.93 billion yuan, an increase of 13% over the previous year. The five-year CAGR has reached 25%. By the end of 2023, Guanyu had opened 123,000 units, with an overall occupancy rate of 95.5%, of which the occupancy rate for properties that have been in business for more than 6 months was 96.4%. Both shopping malls and long-term rental apartments maintain high occupancy rates, demonstrating strong operation and management capabilities.
Financial stability: The company strictly controls leverage. By the end of 2023, the company's net debt ratio was 55.9%, and the balance ratio excluding advance accounts; the size of interest-bearing debt had shrunk, with an interest-bearing debt balance of 192.6 billion yuan at the end of 2023, down 7.4% from the beginning of the year; healthy debt structure, short-term debt accounting for 13.9% and external debt accounting for 17.7%; maintaining sufficient cash. As of the end of 2023, the company's cash balance remained low, and the average annual interest rate of the company was 4.24%. The average loan term is 7.85 years. The company's financing channels are smooth. In 2023, the company added a net increase of 17.4 billion yuan in operating property loans, and 2.3 billion yuan in new three-year winning notes issued in 2023.
Investment advice: The company's finances are stable, leverage is strictly controlled, and financing channels are smooth. Affected by factors such as the overall decline in the industry and the decline in gross margin, the company's performance in 2023 fell 47.25% year on year; due to the company's continued focus on the core, sales volume decreased and prices increased in 2023; operating business achieved positive year-on-year growth, and the maintenance of high occupancy rates for commercial and long-term rental apartments reflected the company's strong management capabilities. We adjusted our 2024-2025 performance forecast based on our 2023 results. We expect net profit of 12.850 billion yuan, 13.871 billion yuan, and 14.704 billion yuan for 2024-2026, EPS of 1.90 yuan/share, 2.05 yuan/share, 2.17 yuan/share, corresponding PE of 5.20X, 4.82X, and 4.55X, maintaining the “recommended” rating.
Risk warning: the risk that the macroeconomy falls short of expectations, the risk of large fluctuations in housing prices, the risk that policy implementation falls short of expectations, the risk that the company's sales settlement falls short of expectations, and business development falls short of expectations.