Revenue is steady, performance is lower than expected, sold and unsettled resources are abundant, and future settlement certainty is strong. Yuexiu Real Estate announced its 2023 results announcement. In 2023, the company achieved operating income of 80.22 billion yuan, +10.8% year on year; gross profit of 12.26 billion yuan, -17.2%; net profit to mother of 3.19 billion yuan, -19.4% year on year; core net profit of 3.49 billion yuan, -17.5% year on year; and profit per share of 0.85 yuan, -28.4% year on year.
The company's revenue grew steadily, but profits declined, falling short of market expectations. The decline in performance was mainly due to: 1) the company's consolidated gross profit margin of 15.3% in 23, -5.1 pct year on year; 2) net income from other operations in '23 - 1.35 billion yuan, mainly including a net decline of 1.50 billion yuan in revaluation of investment properties. In addition, the company's three annual rates (financial, sales, and management expenses) were 4.9%, -0.7 pct year on year; income tax was 3.15 billion yuan, -33% year on year, driving the company's net interest rate of 5.7% and -2.8 pct year over year. By the end of '23, the company had sold unrecorded sales of 199.3 billion yuan, +11% compared to the beginning of the year, 2.5 times the current revenue, and there is strong certainty about future settlement. The company paid 0.347 yuan per share for the year, or -36.6% year-on-year. The dividend ratio was 40% of core profit.
Sales bucked the trend, investment focused on core Tier 1 and 2 cities, and the 24-year sales plan was +4% year-on-year. The company announced that in 2023, the company achieved sales volume of 142 billion yuan, +13.6% year over year, achieving 107.6% of the annual sales target of 132 billion yuan; sales area of 4.45 million square meters, +7.5% year over year; according to Kerry data, the company rose to 12th place in the industry ranking in '23, continuing to rise 4 places from the end of '22. Looking at the regional layout, the company's Greater Bay Area, East China, and Midwest China accounted for 51%, 26%, and 14% of sales respectively. The company proposed a sales target of 147 billion yuan in '24, +3.5% over the same period, demonstrating confidence in development. The company invested actively. In 2023, the company added 28 new plots of land in 11 cities, with a land acquisition area of 4.909 million square meters, a year-on-year ratio of -29.4%, with a land acquisition sales area ratio of 110%, all arranged in Tier 1 and 2 cities; the company insisted on six in one and two diversified land acquisitions, accounting for 53%. The company is rich in marketable resources. At the end of '23, the land storage scale was 25.67 million square meters, and the layout was in 29 cities; first-tier, second-tier, and third-tier land storage accounted for 44%, 51%, and 5% respectively; TOD, urban operation, state-owned enterprise cooperation, and land collateral accounted for 13%, 12%, 16%, and 8%, respectively.
Green state-owned enterprises have new low financing costs and maintained financial stability during active expansion. The company announced that in 2023, the company's interest-bearing debt was 104.4 billion yuan, an increase of 18% over the previous year; the company excluded a balance ratio of 67.4%, a net debt ratio of 57.0%, and a short-term cash debt ratio of 2.0 times; the company completed share financing in '23, raised a net amount of HK$8.3 billion, and issued domestic corporate bonds of 6.9 billion yuan and RMB 3.4 billion in free trade zone bonds; the company's overall average financing cost was 3.82%, down 34 bps year on year.
Investment analysis opinion: performance declined, sales rebounded, financial performance was steady, and the “buy” rating was maintained. The first two major shareholders of Yuexiu Real Estate have state-owned assets. After the Guangzhou Metro strategic shareholding, the company achieved a new strategic development of “rail transport+property”, and the resource endowment advantage was obvious. The company has six integrated and diversified investments, and TOD and land acquisition for urban operations have emerged. Considering the slowdown in the company's settlement scale while profit margins are still under pressure, we lowered our 24-25 net profit forecast to 32.0 billion yuan and 3.54 billion yuan (the original forecast was 4.7.0 billion yuan and 5.63 billion yuan), adding a 26-year forecast of 3.91 billion yuan. The current price corresponding to 24/25PE is 4.6/4.2X (comparable to the company's 24-year PE average of 5.8X), maintaining the “buy” rating.
Risk warning: Real estate regulation policies were tightened beyond expectations, and the market sales elimination rate fell short of expectations.