2023 Guimu's core net profit increased 2.9% year over year, in line with market expectations. The company announced 2023 performance: revenue +21.3% YoY to 251.1 billion yuan, and +2.9% YoY to 27.8 billion yuan, in line with market expectations. The year-on-year dividend rate remained flat at 37%, and the annual DPS was +2.9% to 1.441 yuan, corresponding to the annual dividend rate of 6.4% (final 5.5%).
Development and sales maintain the basic market, actively replenish positions, and refine the financial market. The company's contract sales last year were +2% year-on-year to 307 billion yuan, and the annual settlement gross margin was restored to 20.7% from 17.0% of 1H23. They are actively filling up positions and strictly adhering to the schedule. Last year, they received 68 new projects (Tier 1 and 2 cities account for about 93% of the value), and we estimate the gross margin of land acquisition is about 20%. Thanks to the tight repayment cycle, reduced initial opening cycle (1 month to 6.1 months faster year on year), and excellent principal credit, it achieved financial optimization while maintaining a high land acquisition intensity of 52% 1: by the end of 2023, the net debt ratio/calculated deducted debt ratio decreased 6.2/1.7ppt to 32.6%/58.4% year on year, and the short cash debt ratio was 1.49x, which stabilized the “three red lines”; average financing costs fell 19BP to 3.56% year on year.
Recurring business boosts performance growth and structural optimization. In 2023, its retail sales were +44% YoY (same store +31%), rent +30%, and gross margin +4.4ppt to 76.0%. It drove the company's recurring revenue +26.4% to 39.1 billion yuan last year, covering dividends and interest multiples of 1.9x, and the contribution of recurrent business to total revenue/core profit +0.7/+10.4ppt to 15.6%/34.4%, and promoted structural optimization.
Development trends
The housing development business protects cash flow and performance delivery. The company's sellable supply in 2024 is of high quality and sufficient quantity (the value of goods is 530.8 billion yuan, 88% is in the first and second tier), and its sales scale is expected to maintain its leading position in the industry in 2024 (ranking TOP4). The company has sold 284.1 billion yuan unsettled in early 2024, and is expected to settle 193.9 billion yuan during the year. It is expected to strongly support the scale of the housing development business and continue to play a role as a “stabilizer” of performance.
Diversified businesses are the driving force for growth. Asset management transformation capabilities are complete and steps are firm. Driven by the opening of 16 new shopping malls in 2024, the company expects shopping mall rents to maintain double-digit growth on a normalized basis, increase the visibility of recurring profits by about 40% in 2025, and simultaneously expand the size of its core assets. The company has now positioned “big asset management” as the main channel business. With the consumer infrastructure REITs Dongfeng, the company's asset value and management capabilities are expected to be fully released: its underlying assets are abundant, and the company expects more than 20 active shopping malls to meet REITs issuance conditions. If successfully issued, in addition to supplementing its cash flow and profits, it is also expected to help the company enjoy fairer pricing as an “asset manager”.
Profit forecasting and valuation
Taking into account the settlement pace and structural adjustments, we raised our 2024/25 revenue forecast by 18%/15% to $253.9/258.5 billion to maintain profit forecasts, outperform industry ratings and target price of HK$43.5 (9.6/9.0x 2024/25 P/E, 75% upside). Currently trading at 5.6/5.1x 2024/25P/E with a dividend ratio of 6.6/ 7.2%.
risks
The settlement progress or profit margin of the development and sales business fell short of expectations; offline consumption performance was worse than expected.