2023 core net profit to parent was -49.6% YoY, in line with market expectations
Longhu's revenue in 2023 was -28% to 1807 billion yuan, gross margin declined to 16.9%, and core net profit to parent was -49.6% year-on-year to 11.35 billion yuan, in line with performance forecasts and market expectations; the dividend rate remained flat at 30%, with a full-year DPS of 0.55 yuan, corresponding to a full-year dividend rate of 6.0% (2.5% at the end of the year).
All-round protection for non-housing businesses. On the performance side, revenue from the non-housing business also increased, with revenue +5.7% year-on-year, and gross margin of operation/service business +0.3/+2.1ppt to 75.9%/31.0% year-on-year, supporting the company's performance achievement (the non-housing business contributed more than 60% of its core profit in 2023). On the cash flow side, the company is slowing down new asset-heavy projects, focusing on improving stock efficiency, and achieving OCF operating channels for the first time to contribute positively to the company. On the financing side, the operating scale and improvement of its shopping mall operation also helped the company fully enjoy timely financing facilities. In 2023, its operating property loans increased net by 17.4 billion yuan, and the year-end balance was 47.4 billion yuan. Since the optimization of the operating property loan policy on January 24, the company has achieved a stock loan replacement increase of more than 10 billion yuan.
Develop and sell “three suggestions, three drops by one,” and strive to maintain industry rankings. The company contracted sales of 173.5 billion last year (-14% YoY) and remained in the TOP9 ranking. It has selected new land acquisition projects and restrained intensity (the proportion of new projects added last year was 97%, gross margin of land acquisition companies estimated to be about 20%, investment intensity 21%), improving quality and filling positions while maintaining positive development channel OCF; the company adheres to “three drops” to optimize housing development business operations. Last year, the repayment rate of the new project was 100% +, and the gross sales margin of the new project was over 20%. As of the end of last year, the company's sales value was about 400 billion yuan.
Take more measures to stabilize the financial market. The company preempted and took the initiative to cut the peak and repaid overseas syndication groups (HK$15.3 billion) and CMBS ($4.6 billion) due this year. The results will be disclosed as of March 22, with only $6 billion of domestic public debt remaining to be paid during the year. By the end of last year, its net debt/withholding debt ratio had dropped to 55.9%/60.4%, and its short-term cash debt ratio was 1.36x, and it remained stable in the “three red lines” green position.
Development trends
The non-housing business is expected to grow steadily. The company expects that the operating business will continue to focus on inventory optimization, rent will increase by about 10% year-on-year in 2024, and single-channel cash flow will continue to be positive and even feed back the Group; the service business is expected to achieve a revenue and profit growth rate of about 20% in 2024; and the non-housing business is expected to continue to contribute more than half of the revenue, play a stabilizer role, and help the company through the cycle.
The main housing development business ensures rapid repayment, takes financial security as the bottom line, and takes advantage of opportunities to advance. The company expects the sales value of the stock project in 2024 to be about 240 billion yuan (newly introduced about 100 billion yuan). In addition, under the premise of prioritizing debt repayment cash flow, the company also expects to acquire land and promote additional goods depending on market conditions.
Profit forecasting and valuation
Due to the adjustment in the settlement pace, we lowered our 2024/25 profit forecast by 10%/11% to $115/117 billion, taking into account the company's clear debt repayment arrangement, which is expected to boost investors' risk appetite, and maintain the outperforming industry rating and target price of HK$12.73 unchanged, corresponding 6.7/6.2 times 2024/25 P/E, with 25% upward space.
risks
The increase in operating property loans fell short of expectations; the restoration of new home sales was worse than expected; offline consumption was worse than expected.