2023 earnings fell 48% year over year, in line with market expectations
Midea Real Estate announced its 2023 results: Revenue was basically flat at 73.6 billion yuan. Due to significant inventory impairment, reported gross margin fell 3.8 percentage points to 11.5% year on year (calculated at 19.41 billion yuan in 2022 - 23), and core net profit fell 48% year on year to 1.03 billion yuan, in line with market expectations. The company declared a dividend of HK$0.36 per share for the whole year. The dividend ratio has basically remained at 45%, which corresponds to the current dividend yield of about 9%.
Build a higher margin of financial security. Thanks to efficient repayments and restraint in land acquisition, the company's withholding debt ratio and net debt ratio at the end of 2023 fell 0.9 and 8.1 percentage points year-on-year to 67.3% and 35.8%, respectively, and the short-term cash loan ratio (excluding restricted cash) was 1.4 times. As an exemplary private enterprise, the company was supported by regulators and exchanges on the financing side. In 2023, it issued a total of 4.62 billion yuan in votes, with a weighted average interest rate of 4.39% (and issued 1.44 billion yuan in January this year, with a coupon interest rate of 4.96%), and the average financing cost remained low at 4.8% at the end of 2023. In terms of debt maturity, the company has not issued US dollar bonds. Domestic bonds are only 900 million yuan actually maturing and 5.4 billion yuan resale due in 2024 (1.95 billion yuan has been paid as scheduled up to now). We believe that the maturing pace of the company's open market debt is stable.
Continuously optimize the soil storage surface. The company began optimizing the stock soil storage structure in the second half of 2021, and while speeding up the removal of low-energy urban assets, the company also cut shares in stock projects. Up to now, the company has acquired shares in 21 high-quality projects and also removed shares in 24 low-energy city projects, resulting in a net increase of 6.6 billion yuan in the corresponding equity value. The company also obtained 5 high-quality plots in core cities such as Guangzhou, Changsha, and Foshan in 2023, corresponding to an additional value of 7 billion yuan. We estimate the gross profit margin of the new projects to be over 20% and the IRR of about 25%. By the end of 2023, the company's land storage value equity ratio was the same as 66% at the beginning of the period. About 80% were located in Tier 1 and 2 cities, and about 50% in the Yangtze River Delta and Greater Bay Area. We estimate that the company's current unsold value is about 250 billion yuan, which can support development for the next three years.
Development trends
It is expected that sales rankings will generally be maintained in 2024. According to Kerry, the company's 2023 overall caliber and equity sales rankings advanced 2/5 from 2022 to 22/22. The company plans to supply about 110-120 billion yuan for the full year of 2024 (about 70 billion yuan in rollover), and the annual sales target is about 55-60 billion yuan. We believe that the company will continue to optimize its stock soil storage structure. In addition, a solid financial situation will also help support the company to take opportunities to supplement high-quality supplies, and the 2024 sales ranking is expected to continue to be maintained.
Profit forecasting and valuation
We basically maintain our 2024-25 profit forecast, outperform the industry rating, and target price of HK$6.10, which corresponds to 0.30/0.28 times the 2024-25 net market ratio and 53% upside. The company currently trades at 0.20/0.18 times the 2024-25 net market ratio.
risks
The recovery in the industry's sales boom fell short of expectations; settlement scale and profit margins fell short of expectations.