23FY: High-quality sales growth, focusing on shareholder value returns; maintaining the “buying” company's 23-year results: revenue of 134.4 billion (yoy +35%); net profit of 4.3 billion yuan (yoy +3%) after excluding dividends from perpetual bonds; and a dividend rate of 52%, highlighting the importance attached to shareholder returns in the context of the downturn in the industry. Considering the impact of the downturn in the sales market on the development business, we adjusted the 24-26E EPS forecast to 2.66/3.13/3.56 (24-25E previous value: 3.60/4.33). Referring to the comparable company's 24E PE valuation 6.0 (Wind's unanimous expectation), considering the improved management efficiency brought about by the company's market-based management mechanism and the deep bundling of management and shareholder interests, we believe that the company's 24E reasonable PE valuation was 6.6 times, adjusted the target price to HK$19.03 (previous value: HK$25.62), and maintained a “buy” rating.
Driven by the downturn in the real estate sector, 23FY profit growth slows
In 2023, the company's delivery area was +83% YoY, driving the carry-over revenue of the development business +35%, and the net profit growth rate was reduced by 38 pcts compared to 22 years. The main reasons were: 1) Driven by the downturn in the real estate industry, the carry-over gross margin was -4.2pct to 11.1% year over year; 2) the equity ratio declined, and the ratio of minority shareholders' profit and loss to net profit was +9.2pct to 20.5% year over year; 3) Joint venture profits contributed -62% to 381 million year-on-year. The company's administrative expenses decreased by 1.59 billion to 2.85 billion yuan over the same period last year, mainly due to a reduction in the inventory provision for calculated properties, reflecting a reduction in historical burdens. As of the end of 23H2, the company's contract debt was 208.7 billion, and the coverage ratio corresponding to 23FY revenue was 1.32x. The company's stock carry-over resources are still relatively abundant, supporting a steady increase in the company's future performance.
High-quality sales growth, and high-quality soil storage structures support high removal rates
In 2023, the company's full-caliber contract sales volume was 188.9 billion yuan, outperforming the average sales growth rate of the top 100 real estate companies by -18%. The average sales price/equity/repayment rate and land storage removal rate all increased year-on-year, achieving high-quality growth. In terms of land acquisition, the company added 218 billion yuan in land storage value during the year, corresponding to 116.9 billion yuan in land payments, +42% year over year; land acquisition intensity was 62%, +13pct year on year, maintaining a high level of the industry. The company's current inventory accounts for more than 70% of the projects acquired over the past 22 years, with a high proportion of new products, and 84% are located in Tier 1 and 2 cities. We believe that the company is expected to maintain a high soil storage removal rate in 24 years.
The debt structure is reasonable and healthy, and emphasis is placed on the efficiency of capital use
As of the end of 23H2, the balance of interest-bearing debt was 84.8 billion, bank loans and controlling shareholders' loans accounted for 94%, no forward financing liabilities, and short-term debt accounted for only 12.7%. The debt structure was healthy and reasonable. The three red line indicators remained at the green level. The net debt ratio/pre-deducted balance ratio was 33.6%/61.6%, respectively, 19pct/-1.6pct year over year, 4.7x to short cash debt, and -0.8x year over year. The company placed emphasis on capital operation efficiency internally, and the sales payback/interest-bearing debt coverage ratio was 2.17x, +23% compared to the same period last year. Furthermore, the company actively repaid 2.5 billion yuan of perpetual debt to shareholders during the year, reducing the dilution impact of perpetual bonds on the profits of ordinary shareholders. Funding costs in 2023 were 3.75%, -0.58pct year over year.
Risk warning: 1) Risk reduction caused by parent company C&D real estate support. 2) Downside sales risk in the Haixi region. 3) Downside risk in industry sales.