Incident: Longhu Group announced its 2023 annual report. The company achieved annual revenue of 1807.4 billion yuan, -27.9% year on year; net profit to mother for the whole year was 12.85 billion yuan, or -47.3% year-on-year.
Performance reservoirs remain high, and the soil storage quality is excellent and sufficient. The company achieved contract sales of 173.49 billion yuan in 2023 and achieved a sales area of 10.796 million square meters. By the end of 2023, the company had sold outstanding resources of about 173.4 billion yuan, which can cover 0.96 times the revenue in 2023. The performance reservoir remains high, and future performance is guaranteed. In terms of land acquisition, the company added 3.68 million square meters of land storage in 2023, with an equity area of 2.66 million square meters; by the end of 2023, the company had a total land storage of 45.39 million square meters and equity soil reserves of 32.36 million square meters, concentrated in core cities such as Yantai, Hangzhou, Hefei, Wuhan, and Changsha. The fundamentals of land storage resources are stable, and future decontamination is guaranteed.
Diversified businesses performed well, and the second largest growth rate was remarkable. In 2023, the company achieved operating income of 1807.4 billion yuan (yoy -27.9%) and net profit to mother of 12.85 billion yuan (yoy -47.3%). Among them, the operation and service business achieved sustainable revenue of 24.9 billion yuan (yoy = 6%) for the full year of 2023, and the two major business segments contributed more than 60% of the profit after core equity. In 2023, the company added 12 new shopping malls, and the rental rate recovered to 96% at the end of the period, rental revenue increased 9%, shopping mall turnover and passenger traffic rebounded, and the same store increased by about 30% year-on-year. Long-term rental apartments have already been opened and operated in core Tier 1 and 2 cities. In the future, they will develop in collaboration with the company's business to improve service quality.
The debt structure is stable, and financing channels are relatively smooth. By the end of 2023, the company had a balance ratio of 60.4% and a net debt ratio of 55.9% of accounts received in advance. After excluding pre-sale supervision funds and restricted funds, the short-term cash debt ratio was 1.36 times, and the three red lines remained stable in the green zone. At the same time, the company's average borrowing cost is 4.24%, which remains low, and the average loan period is 7.85 years. Short-term debt maturing within one year accounts for only 13.9%, and the debt structure is stable. In 2023, the company successfully issued 2.3 billion yuan of medium-term notes in China, and the financing channel was relatively smooth.
Profit forecasting and valuation. The company's performance reservoir remains high, the soil storage quality is excellent and sufficient. At the same time, the diversified business performance is outstanding, and the debt structure is stable. We expect the company to achieve operating income of 1792.4, 1817.4, and 185.74 billion yuan respectively in 2024-2026; net profit to mother will be 130.5 billion, 133.8, and 13.79 billion yuan respectively, with year-on-year growth rates of +1.5%, +2.5%, and +3.1%, respectively. The corresponding PE is 4.8x, 4.7x, and 4.5x, respectively. It was covered for the first time, and a “recommended” rating was given.
Risk warning: The real estate market continues to be sluggish; policy implementation falls short of expectations; rate control is not effective.