Matters:
The company released its 2023 annual report. In 2023, it achieved revenue of $80.22 billion, up 10.8% year on year; net profit to mother was $3.19 billion, down 19.4% year on year, and plans to pay a final dividend of HK$0.148 per share.
Ping An's point of view:
Adequate value of goods pushed sales to exceed the annual target, and a positive sales growth target for 2024 was set: in 2023, the company's revenue and net profit to mother increased 10.8% year on year and fell 19.4%, respectively. The increase in revenue and no increase in profit was mainly due to a decline in gross margin (5.1 pct year-on-year decline) and accrued depreciation. The contract sales volume was 142.03 billion yuan, up 13.6% year on year. The sales growth rate was ahead of mainstream real estate companies, and the annual sales target completion rate was 107.6%. The company proposed a sales target of 147 billion yuan in 2024, up 3.5% year-on-year from sales for the full year of 2023. The saleable value in 2024 is about 270 billion yuan. Currently, 95% of land storage (by area) is located in Tier 1 and 2 cities, and the combined advantage layout of sufficient goods value is expected to support the achievement of the 2024 sales target.
Open market investment intensity remains high, and breakthroughs have been achieved in urban renewal and TOD projects. According to data from China Index and Kerui, the company ranked 4th and 5th among the top 50 housing enterprises in the open market in terms of sales area ratio and land acquisition sales amount ratio, respectively. In 2023, the company added 28 new parcels of land in 11 cities, with a total construction area of 4.91 million square meters. Diversified channels of additional storage accounted for 53%. Among them, the new Xingman Helun TOD project was acquired in Hangzhou, and the TOD project gradually expanded offsite. In terms of urban renewal, the Guangzhou Lirendong Old Village Renovation Project is expected to supply 340,000 square meters in 2024, adding an additional sales value of 18 billion yuan; the first urban renewal project was obtained in Hongkou District of Shanghai to further strengthen diversified storage in Shanghai.
Financing advantages supported active expansion, and shares were oversubscribed. The company's “three red lines” remained “green”, and the average borrowing cost fell back to 3.63% at the end of the period, making flexible use of overseas RMB free trade zone bonds and dim sum bonds to reduce overseas financing costs; 2023H1 completed share financing, raised about HK$8.3 billion, and was oversubscribed by 1.15 times, focusing on investment in key regions such as the Greater Bay Area and East China region. The dividend payout ratio remained stable at 40% of core net profit.
Investment suggestions: The company is a local state-owned enterprise in the Greater Bay Area, seeking steady progress in the downturn of the industry. The financing advantages are compounded to help break through countercyclical land acquisition efforts. It is expected to further expand its market share in the industry reshuffle; considering that the industry as a whole is in the volume and price adjustment period, the company may still be under pressure to depreciate inventory, and adjust the company's 2024-2025 EPS forecast to 0.79 yuan (originally 1.21 yuan) and 0.82 yuan (originally 1.32 yuan), respectively, adding the 2026 EPS forecast of 0.86 yuan. (As of March 26, 2024) Corresponding PE is 5.0 times, 4.9 times, and 4.6 times, respectively, but we believe that accrued impairment is a common phenomenon during the industry adjustment period. The company is one of the few real estate companies in the industry that maintain high investment intensity and positive sales growth. It accurately acquires land in core cities, strengthens shareholder background and financing advantages, and still maintains a “recommended” rating.
Risk warning: 1) There is a risk that the company's gross margin will decline; 2) Land acquisition efforts fall short of expectations: if subsequent land auction rules are adjusted or the market fluctuates, the company's expansion of land storage will be blocked, which will also limit future sales scale growth; 3) Policy improvements fall short of expectations: affected by credit incidents involving housing enterprises, sales reduction expectations for cooperative development projects, or affected by partner credit qualifications. If a credit risk incident occurs with subsequent partners, it will also hinder the company's sales elimination.