Key points of investment
Revenue grew steadily, and gross margin declined, leading to lower profits
In 2023, the company's revenue was 80.2 billion yuan, +10.8% year on year; net profit to mother was 3.19 billion yuan, -19.4% year on year; basic profit per share was 0.85 yuan, -28.4% year on year. The main reasons for the decline in net profit due to the increase in the company's revenue were: 1) gross margin fell 5.1 pct to 15.3%, and 2) changes in fair value of investment properties changed from positive to negative, resulting in losses of 1,348 billion yuan, a year-on-year decrease of 1,559 billion yuan.
The dominant region's basic market is steady, and the sales growth rate is among the highest in the industry. In 2023, the company's sales amount was 142.03 billion yuan, +13.6% year over year; sales area was 4.45 million square meters, +7.5% year over year. The company achieved 107.6% of its annual sales target of 132 billion yuan for 23 years; according to Kerry data, the company ranked 12th in the full-caliber sales ranking of the top 100 real estate companies, up 4 places from before 2022, and the company's sales revenue growth rate ranked 1st among the TOP 20 real estate companies in 2023. Among them, the company's sales amount in the Greater Bay Area was 71.6 billion yuan, or +20%, accounting for 51% of total sales; sales volume in Guangzhou was 61.3 billion yuan, +15.3% year over year, accounting for 43% of total sales; the Greater Bay Area, as the company's traditional dominant area, can continue to provide strong support for the company's sales scale growth.
Continue to focus on core cities and add new projects to urban renewal
In 2023, the company acquired 28 parcels of land in 11 cities, with a total construction area of 4.91 million square meters, an additional saleable value of about 130 billion yuan, and the new land storage was all located in first-tier and key second-tier cities. Looking at land acquisition regions, East China, Central and Western regions, and the Greater Bay Area accounted for 32%, 38%, and 18% of the land acquisition area, respectively. In terms of land acquisition methods, the company obtained 53% of land storage through diversified methods such as TOD and urban renewal.
Among them, the company obtained the first urban renewal project in Hongkou District of Shanghai and the Xingqiao TOD project in Hangzhou, which is the second TOD project obtained by the company in a city other than Guangzhou. By the end of 2023, the company had a total land reserve of 25.67 million square meters. 95% of the total land reserves were in first-tier and key second-tier cities, with first-tier cities accounting for 44% and key second-tier cities accounting for 51%. The company's share of land reserves in East China has gradually increased since 2020, from 12% in 2020 to 19% at the end of 2023.
Diversified financing remains smooth, and borrowing costs continue to be optimized
In 2023, the company's “three red lines” indicators remained all “green”, and the financial situation remained good. In 2023, the company issued 6.9 billion yuan of domestic corporate bonds with a weighted average interest rate of 3.37%; issued 3.4 billion yuan of overseas free trade zone bonds, with a weighted average annual interest rate of 3.92%; issued 1.21 billion yuan of overseas RMB dim sum bonds with a coupon interest rate of 4.0%, driving the company's overall average borrowing cost down 34 basis points to 3.82% year-on-year. In addition, the company completed share financing, raising a net capital of HK$8.3 billion. The share offering was oversubscribed by 1.15 times, and diversified financing remained smooth.
Sales targets continue to grow, and 2024 results can be expected
Looking ahead to 2024, the company's sales target is 147 billion yuan, an increase of 3.5% over 2023 sales. The total land acquisition budget is 40 billion yuan, and the corresponding annual land acquisition intensity is 27%. We think it is more likely that the company will achieve its sales target in 2024: the company can sell about 270 billion yuan of resources in 2024. Assuming that the company maintains a removal rate of 59% in 2023, it can achieve a sales amount of 159.8 billion yuan. From the perspective of reserve value, it is not very difficult for the company to achieve the sales target of 147 billion yuan.
Investment advice
We believe that the company's operation is steady and the value of goods is abundant. Supplementary high-quality land storage is expected to be carried over in 2022 to 2023, and gross margin may improve in 2024. We expect EPS to be $0.86 in 2024, maintaining a “buy” rating. (Not specified in this article; all prices are in RMB, based on the 12-month average exchange rate, 1 HKD = RMB 0.9091)
Risk warning
Demand recovery is weakening; the TOD model's expansion falls short of expectations.