2023 earnings fell 27% year over year, in line with market expectations
China Overseas Hongyang Group announced its 2023 results: revenue fell 2% year on year to 56.4 billion yuan, reported gross margin fell 3.2 percentage points to 11.2% year on year, and net profit to mother fell 27% year on year to 2.3 billion yuan, in line with market expectations. The company declared a full year dividend of HK$0.16 per share (including HK$0.05 for the interim period), with a stable dividend yield of 22.5% and a final dividend yield of 5.9%.
Prudent financial management and smooth financing channels. Thanks to efficient repayment (cumulative repayment rate of 105% in 2023) and a quantitative operating strategy (net operating cash of 9.1 billion yuan in 2023), the company's withholding debt ratio and net debt ratio at the end of 2023 decreased by 3.0 and 2.9ppt to 65.7% and 46.0%, respectively, from a year-on-year period, and the short-term cash loan ratio was 1.9 times. The company is a joint venture developed overseas in China. Thanks to the majority shareholder background and its own steady financial management, the company issued 4 corporate bonds totaling 4 billion yuan in 2023, with a weighted average interest rate of only 3.68%. At the end of 2023, the company's average domestic financing cost decreased by 0.1 ppt to 4.3% year on year, but as HIBOR continued to rise during the year (the share of non-RMB debt fell 7.2 ppt to 32.6% year on year in 2023), the overall average financing cost increased 0.4 ppt to 4.6% year on year.
Measurement is used to supplement high-quality soil storage. In view of the company's abundant unsold value (we estimate about 170 billion yuan at the end of 2023), a strategic contraction in the industry due to the supply side, and a decrease in the level of competition in the local auction market in the cities where it is located, the pace of the company's land development in 2023 was relatively calm. In 2023, the company continued to adhere to the principle of “mainstream cities, mainstream locations, and mainstream products”. A total of 13 plots of land were acquired throughout the year, with an additional value of about 235 billion yuan, corresponding to a total land payment of 9.8 billion yuan, a land acquisition intensity of 23%, and the overall equity ratio remained around 80%. We estimate the average gross margin of the newly purchased land mentioned above is about 21% and the IRR is about 26%.
Development trends
Sales performance is expected to continue to lead comparable peers in 2024. Thanks to strong product strength and deep urban cultivation strategies, the company's market share in the cities where it is located has steadily increased (18 cities with the top 3 sales volume and 7 cities with the highest sales volume in 2023). While taking into account the flow rate, the average sales price in 2023 recorded a 12% year-on-year increase, and the equity sales ranking rose to 30th place. The company's current land storage targets 101.6 billion yuan in sellable resources for the whole year (68.7 billion yuan rollover plus 32.9 billion yuan newly introduced). We believe that if we consider the conversion of new land acquisitions this year, the total supply in 2024 may be close to 111.6 billion yuan in 2023. Combined with the continuous strength of the city's deep cultivation strategy and outstanding product strength, we believe that the company's sales performance in 2024 is expected to be superior to the overall level of the layout city and comparable to its peers.
Profit forecasting and valuation
We basically maintain our 2024-25 profit forecast, outperform the industry rating, and target price of HK$2.75, which corresponds to 5.1/4.8 times the 2024-25 price-earnings ratio and 50% upside. The company currently trades at 3.4/3.2 times the 2024-25 price-earnings ratio.
risks
The recovery in sales sentiment in major layout cities fell short of expectations; settlement profit margins fell beyond expectations.