2023 results increased 12% year over year, exceeding market expectations
China Overseas Development Announces 2023 Results: Revenue +12% YoY to 2025 billion yuan, core net profit (net profit and loss from fair value change of investment property after tax) fell slightly 3% year over year to 23.65 billion yuan, and net profit to mother core profit (excluding only profit and loss from fair value change of investment property after tax) +12% YoY to 22.58 billion yuan, exceeding market expectations. The company declared a full year dividend of HK$0.8 per share, slightly increasing the dividend ratio to 33% and a final dividend yield of 4%.
Land acquisition was lucrative, sales bucked the trend and expanded, and market share steadily increased. The total amount of land acquired by the company in 2023 was 144 billion yuan, with a land acquisition intensity of 46%, adding 264 billion yuan in value, excluding Hongyang of 24.4 billion yuan, making it the largest additional investment in the industry. In 2023, the total sales volume increased 5% year on year to 309.8 billion yuan. The total amount and equity amount ranked 2/1 to third and second place, and the country's market share increased 0.29ppt year over year. The market share of 31 cities was the top three, and the market share of 11 cities ranked first.
The quality of assets is solid, the operation strives for excellence, and protects the resilience of performance. Over 80% of the company's land storage stock is located in first-tier and second-tier cities (further focus in '23, with 92% added value in first-tier and second-tier cities). We estimate the gross margin of land acquisition in 2019-23 is 23/21/19/25/ 23%. Driven by impressive endogenous growth and additional expansion of 12 newly launched projects, the company's commercial operating revenue in '23 was +21% to 6.4 billion yuan, and its performance contribution increased to 10%. The company's gross margin for the year 23 fell slightly by 1ppt to 20.3% year on year, and the core net profit margin 1 to the mother remained basically flat at 11.1% year on year, leading the industry in absolute terms.
The financial advantages of central enterprises and strict historical financial discipline are the basic underpinnings for companies to buck the trend and forge ahead aggressively. The company's withheld debt ratio and net debt ratio at the end of '23 were 51.8% and 38.7%, respectively. They were basically at the lowest level in the industry, 2.6 times the ratio of short-term cash loans. The company continues to maintain stable investment-grade credit ratings and prospects of domestic and foreign rating agencies, and the average financing cost at the end of 2023 remained within the industry's lowest range of 3.55%.
Development trends
The 2024 sales target is rising steadily. High supply quality and strong handling capacity are the driving force and basic market. The company's total planned supply for 2024 includes Hongyang's total supply of 702.4 billion yuan, excluding Hongyang's 60.7 billion yuan, of which 355 billion yuan was brought in at the beginning of the year. 46% and 33% of the total supply are located in first-tier and second-tier cities, and the overall sellable value is highly certain. Furthermore, the company's “mainstream cities, mainstream locations, and mainstream products” business strategy and strong trading ability jointly guarantee the level of elimination.
Profit forecasting and valuation
Based on the delivery pace adjustment, the 2024-25 profit forecast was raised by 12%/11% to 241/24.6 billion yuan, +1.8%/+2.3% year over year. Maintaining an outperforming industry rating and target price of HK$19.12, corresponding to 7.7/7.2 times 2024-25 P/E and 70% upward space. The company's stock price has cumulatively retracted 39% from last year's Q3 high. It is currently trading at 0.28/0.25 times P/B, 6.7%/7.2% dividend yield, and 4.6/4.3 times P/E in 2024-25. The valuation is below the standard deviation of two times the central level since 2016. We believe that data improvements and policy improvements under a short window may all bring trading opportunities to the sector, and that the company is both highly flexible and may benefit from policy adjustments in ultra-high-energy cities with more space, and is relatively cost-effective.
risks
The recovery of industry fundamentals was less than expected; settlement scale or profit margins fell short of expectations.