2023 results are in line with expectations and dividends exceed expectations

China International Trade announced its 2023 results: revenue of 3.95 billion yuan, up 15% year on year; net profit to mother of 1.26 billion yuan, up 13% year on year, basically in line with market expectations. The company plans to pay a dividend of 0.8 yuan per share and an additional special dividend of 0.5 yuan, for a total share dividend of 1.3 yuan. The dividend ratio has increased dramatically to 104% (63% in 2022), exceeding market expectations and corresponding to the current dividend yield of 5.9%.

The resilience of rental properties is outstanding, and the hotel business contributes additional support. In 2023, the company's leasing business continued to operate steadily, with rental revenue increasing 7% year on year to 3.4 billion yuan. Among them, office/mall/apartment rents increased 2%/10%/16% year over year to 15/12/2 billion yuan respectively, implying -0.4%/+7%/+13% in a single quarter in 4Q23. At the same time, the company's hotel business recorded revenue of 600 million yuan (already recovered to 85% in 2019), and gross margin increased to 8% (same as in 2019), providing additional momentum for both revenue and profit growth.

The company's gross margin before tax remained high at 58%, and the three expense ratios reached a new low of 6.3%. Expense control results were outstanding; in the end, net profit to the mother recorded steady double-digit growth. For specific business categories, see:

Office buildings: At the end of 4Q23, the occupancy rate fell 0.3ppt to 95.9% month-on-month. The average annual rent was flat compared to the previous three quarters, and increased by an average of 11 yuan/square meter/month compared to 2022. Looking at installments, the occupancy rate of Phase I office buildings declined a lot in 2023 (-2.9ppt). Although the occupancy rate for Phase III B fell by 1ppt, rents still increased 6 percentage points year-on-year to 730 yuan/m2/month.

Shopping malls: At the end of 4Q23, the average occupancy rate declined by 0.5ppt to 98.2% month-on-month, but the average rent continued to rise to 1,279 yuan/m2/month (1,159 yuan/m2/month in 2022), mainly due to increased rents, renewal rents, and commission rental income during the period. Looking at instalments, the rent for Phase III B and East Wing had the highest year-on-year increase, reaching 20% and 14%, respectively.

Apartment: The occupancy rate continued to increase by 1.5ppt to 85.9% month-on-month at the end of 4Q23, with a cumulative increase of 12.6ppt from the end of '22; the average annual rent continued to stabilize at around 370 yuan/square meter/month.

Development trends

Abundant cash flow supports dividends that exceed expectations, and the value of high dividend allocations is prominent. In 2023, the company's net operating cash flow increased 5% year-on-year to 1.9 billion yuan, reaching a record high; at the same time, capital expenditure remained low (70 million yuan), driving cash on hand to continue to increase to 4.1 billion yuan at the end of the period. The company's basic dividend ratio this time is 64% (63% in 2022), and the dividend ratio after adding additional dividends reached 104%. We expect the company's subsequent dividend ratio to continue to increase steadily and sustainably from 64%. The dividend rate corresponding to the company's latest closing price is 5.9%. We encourage investors to seize the company's allocation opportunities before the dividend date (the company distributed dividends in June for the past three years). At the same time, considering the strength of the company's core property assets and the emphasis on shareholder feedback, we think the long-term allocation value of the company is also clear.

Profit forecasting and valuation

We kept our profit forecast for 2024 unchanged, and introduced a profit forecast of 1.58 billion yuan for 25 years, corresponding growth rates of 14%/10%, respectively. The current share price corresponds to 15/14 times 2024/25 P/E. Maintaining the outperforming industry rating, the target price was raised by 8% to 25.5 yuan to reflect the shift in profit forecasts and the increase in market preference for higher dividend targets, corresponding 18/16 times the 2024/25 P/E and 16% upward space.

risks

The increase in rental rates and rents for owned properties fell short of expectations; the recovery in consumption fell short of expectations.