Abstract: C&D International announced its 2023 annual report. The company achieved operating income of 134.43 billion yuan, an increase of 34.9% year on year; net profit to mother was 5.03 billion yuan, up 2.0% year on year. The company plans to pay a cash dividend of HK$1.3 per share, with a dividend rate of 49.8%.
Revenue and performance have maintained positive growth, and profit margins have declined. The company's revenue increased by 34.9% in 2023, the company's delivery area was 8.522 million square meters, a sharp increase of 83.4% year on year, and real estate business settlement revenue (accounting for 97%) increased by 34.6% year on year. Net profit to mother achieved a 2.0% year-on-year increase. The growth rate was lower than the revenue growth rate, mainly due to a decrease in gross margin carried over from projects and a sharp increase in profit and loss for minority shareholders. The company's gross profit margin, net profit margin, and net profit margin due to mother in 2023 were 11.1%, 4.7%, and 3.7%, respectively, down 4.2, 0.9, and 1.2 percentage points from 2022. ROE fell 0.6 percentage points to 15.0% year over year due to declining profit margins. The profit and loss of minority shareholders in 2023 was 1.30 billion yuan, up 107.1% year on year, and the share of minority shareholders' profit and loss in net profit increased 9.2 percentage points to 20.5%. However, the company focused on cost control, and the three-rate rate fell 3.2 percentage points to 5.6% year over year. Among them, management expenses were 2.85 billion yuan, a year-on-year decrease of 35.8%, and the management expense ratio decreased by 2.4 percentage points to 2.1%, mainly due to a reduction in accrued inventory provisions, which were drastically reduced from 3.79 billion yuan in 2022 to 1.64 billion yuan in 2023. The degree of guarantee of the company's future performance is still high. By the end of 2023, the company's advance accounts were 19.9 billion yuan, an increase of 7.5% over the previous year, and the advance account/operating income was still as high as 1.42X.
Cash in hand grew by double digits; the company maintained a reasonable level of leverage at all times. By the end of 2023, the company held 54.16 billion yuan in cash, an increase of 14.3% over the previous year. The company's interest-bearing debt was 79.91 billion yuan, a year-on-year decrease of 10.6%, and the size of interest-bearing debt decreased. At the same time, short-term debt accounts for a relatively small share, with short-term interest-bearing debt maturing within one year accounting for only 7.4%. By the end of 2023, the company's net debt ratio was 28.3%, and the balance ratio after excluding advance payments was 61.5%, down 24.5 and 1.7 percentage points, respectively. The short-term cash debt ratio reached 9.15X, up 1.10X from the end of 2022, and the company remained in the “green tier”.
Equity incentives fully motivate the company's core management personnel. The company issued an equity incentive plan for three consecutive years. 1) In March 2021, the company awarded 35.3 million restricted shares to 271 incentive recipients at a price of HK$7.22 per share. 2) In December 2022, the company granted 100 million restricted shares to 670 incentive recipients. The incentive recipients can subscribe for the allotted shares at a price of HK$7.01 per share. 3) The 2023 restricted share incentive plan was announced in November 2023. It is proposed to grant no more than 50 million shares to no more than 700 incentive recipients. The incentive recipients can subscribe for allotted shares at a price of HK$8.80 per share, accounting for 2.71% of the company's total share capital. The company's three share incentives were high. The first time the per capita incentive was HK$940,000, the second time the per capita incentive was HK$1.05 million, and the third time the per capita incentive was HK$630,000.
The company successfully achieved the 2023 sales target growth rate; the sales payback rate reached 97.5%. In 2023, the company's sales amount was 189.1 billion yuan, up 11.8% year on year; equity sales amount was 138 billion yuan, up 13.5% year on year; sales equity ratio increased 1 percentage point year on year; equity sales area was 6.66 million square meters, up 9.3% year on year; average sales price was 20,700 yuan/square meter, up 3.9% year on year; basically completed the sales target growth rate of 10% to 20% set at the beginning of the year; Kerrui sales ranked 8th, up 2 places from the 2022 ranking. Looking at sales in specific cities, Xiamen, Shanghai, Hangzhou, Suzhou, and Beijing contributed 149.4, 148.6, 133.9, 120.6, and 8.11 billion yuan in sales, respectively. The above five cities contributed 46% to sales. The company achieved sales repayment of 184.3 billion yuan in 2023, an increase of 13.6% over the previous year. Using the sales repayment/sales amount as the sales repayment rate, the repayment rate reached 97.5%, an increase of 1.6 percentage points over 2022. According to Kerry, in January-January 2024, the company's sales amount was 161 billion yuan, down 34.8% year on year, equity sales amount was 12.1 billion yuan, down 30.8% year on year. The sales equity ratio further increased to 75%, and the sales ranking rose to 7th place. The rapid growth in the company's sales scale over the past two years has also led to a steady increase in carry-over revenue. In 2023, the company's real estate development business revenue was 13.13 billion yuan, an increase of 34.6% over the previous year.
Under the endorsement of state-owned assets, advantages in various aspects such as resources and financing also make the company more proactive in choosing high-quality land, and is still resilient in land acquisition. According to the China Index Institute, the company's land acquisition amount in 2023 was 88.8 billion yuan, an increase of 8% over the previous year. The intensity of land acquisition (land acquisition amount/sales amount) was 47%, a decrease of 2 percentage points over the previous year. By the end of 2023, the company's land reserves were 15.52 million square meters, a year-on-year decrease of 4.2%, with the six cities above Shanghai, Wuxi, Suzhou, Guiyang, Nanchang and Changsha accounting for 32%.
The scale of diversified businesses continues to expand. 1) Commercial asset management: In 2023, rental income from property rental was 808.77 million yuan, an increase of 22.5% over the previous year.
2) Project operation management service (contract construction): The business is beginning to take shape. In 2023, revenue from construction management services and contract construction services was 1.15 billion yuan, an increase of 8.1% over the previous year. 3) Property management: Revenue from property management services in 2023 was 2.60 billion yuan, a significant increase of 56.8% over the previous year.
By the end of 2023, C&D Property (C&D International and C&D Real Estate were the company's first and second largest shareholders respectively, with shareholding ratios of 37.7% and 22.3%, respectively) had a contract construction area of about 102 million square meters, an increase of 12.4% over the previous year.
Investment recommendations and profit forecasts:
The company fully enjoys the support of the parent company of the state-owned enterprise, pays attention to market incentives, and has a certain degree of resilience in sales and land acquisition. The company has maintained a high level of strategic strength in the long-term development process, adhering to the layout of the surrounding core cities with Tier 1, 2 and Tier 1 and 2 extensions, and laying a good foundation for future high-quality development. In light of the current slump in industry sales, we have lowered our profit forecast for 2024-2025. We expect the company's revenue for 2024-2026 to be 1,558/1691/187.1 billion yuan, with year-on-year growth rates of 16%/9%/11%; net profit to mother will be 53/61/70 billion yuan, respectively, with year-on-year growth rates of 6%/14%/15%; corresponding EPS will be 2.81/3.20/3.68 yuan, respectively. The PE corresponding to the current stock price is 4.6X/4.0X/3.5X, respectively. However, considering that the company's revenue, performance, and cash on hand can continue to grow, and at the same time, sales and land acquisition are resilient, we still maintain our buying rating.
The main risks faced by ratings:
Sales and settlement fell short of expectations; real estate regulation was tightened beyond expectations; financing was tightened; diversified business development fell short of expectations.