2023 profit increased 3% year over year, in line with market expectations

C&D International announced its 2023 results: revenue +35% YoY to 134.4 billion yuan, reported gross margin decreased 4.2ppt to 11.1% year over year, and net profit attributable to mother +2%/+3% YoY after excluding the allocation of perpetual bonds was +2%/+3% YoY to 50.3/4.34 billion yuan. The company declared a dividend of HK$1.3 per share for the year, with a dividend ratio of 52% (we calculated an average of 47% for 2020-22), corresponding to the current dividend yield of 9.3%.

Focus on deepening core cities and adding excellent soil storage liquidity and profitability. The company acquired a total of 78 plots of land in 2023, with an average equity ratio of 73% and a land acquisition intensity of 62%. The company added a total saleable value of 218 billion yuan, with ultra-high and high-energy cities accounting for about 80% (the five cities of Hangzhou/Shanghai/Xiamen/Suzhou/Beijing account for about 60%). In addition, it is also actively engaged in traditional market opportunities such as Taizhou, Quanzhou, and Zhangzhou. We estimate the company's average net profit margin at the project level for newly purchased land in 2023 is about 7%. The company's unsold value at the end of 2023 was 266.8 billion yuan, and the equity ratio was stable at 76%. The share of Tier 1 and 2 cities increased 12ppt to 84% compared to the end of 2022, and the share of land acquired in 2022/2023 was 10%/60%.

The leverage ratio continues to improve, and the financing side has a stable advantage. The company's sales performance was superior to that of peers and repayment efficiency (cumulative repayment rate of 98% in 2023). Financial indicators continued to improve year-on-year at the end of 2023: the deducted debt ratio/net debt ratio fell 1.6/19ppt to 61.6%/33.6%, and the short-term cash loan ratio was nearly 5 times higher. Thanks to the state-owned asset background and prudent financial management (bank loans accounted for 38% of interest-bearing liabilities at the end of 2023, majority shareholders' loans accounted for 56%, and short-term bonds only 13%), the average interest rate for new bank loans in 2023 was only 2.2%, and the average financing cost at the end of the year fell 22ppt to 3.75% from the end of 1H23, reaching a record low.

Development trends

It is expected that the 2024 sales ranking will continue to be maintained. The company's current land storage has locked in sellable resources of 2300 to 240 billion yuan (assuming a removal rate of 70%, corresponding sales of about 164.5 billion yuan), and this year it will continue to use financial advantages to further support the total sellable value throughout the year (about 50 billion yuan of sales of 188.9 billion yuan in 2023 comes from the contribution of land acquisition in the same year); combined incentives (completing the third phase of the restricted share incentive plan by the end of 2023. A total of 50 million shares will be awarded in the three phases). We expect the company's sales growth rate this year It is expected to continue to outperform its peers.

Fluctuations in settlement profit margins do not change the trend of performance growth. At the end of 2023, the company's consolidated sales and outstanding sales increased 6% year-on-year to 208.7 billion yuan, about 1.5 times the forecasted housing revenue in 2024; inventory depreciated by 38.16 billion yuan in 2024, and the sales profit margin in 2023 has improved. We estimate that the net profit margin at the level of outstanding items sold by the end of 2023 is about 6%, and the profit margin for the 2024 statement is expected to gradually stabilize.

Profit forecasting and valuation

We basically maintained our 2024-25 profit forecast of $59.7/6.31 billion, an increase of 38%/6% year over year. Maintaining an outperforming industry rating and target price of HK$23.2, corresponding to 6.6/5.9 times the 2024-25 price-earnings ratio and 65% upward space. The company currently trades at 4.0/3.6 times the 2024-25 price-earnings ratio.

risks

The recovery in industry sentiment was slower than expected; settlement scale and profit margins were worse than expected.