Profit release pressure was strong, and the rating was lowered to “hold”
The company released its annual report on March 29. In 23, it achieved revenue of 55.74 billion yuan, -27% year-on-year; net loss to mother was 6.49 billion yuan, with a loss of 10.09 billion yuan in the same period last year. We comprehensively considered the company's sold resources to be carried over and the real estate market situation, lowered revenue and gross profit margin, and adjusted 24-26 EPS to 0.01/0.02/0.03 yuan (value 0.39/0.48 yuan before 24/25). Due to the high pressure on the company's profits, we think the PB valuation method should be adopted. The average PB (LF) of comparable companies is 0.53 times. Considering that the company is facing performance pressure, we believe that the company's reasonable PB (LF) is 0.35 times, and the target price is 2.70 yuan (previous value 5.27 yuan, based on 13.5 times 24PE), downgraded to a “hold” rating.
The amount of losses decreased year-on-year, and liquidity management achieved results
The year-on-year decline in the company's revenue in '23 was mainly affected by the contraction in the scale of real estate carryover. Real estate business revenue was -51% YoY to 24.2 billion yuan, while comprehensive tourism business revenue was +15% YoY to 31.4 billion yuan, boosted by industry recovery. For the second year in a row, the company experienced a net loss due to: 1. The gross margin was -3.9 pct to 19.0% year on year due to real estate market adjustments and carry-over at historically high prices; 2. Asset impairment losses of 3.6 billion yuan were accrued due to price adjustments for some projects; and 3. Net investment loss of 1.7 billion yuan due to losses in cooperative projects. However, thanks to a significant narrowing in asset impairment and improvements in the travel business, the company achieved a year-on-year reduction in losses. In addition, the company strengthened liquidity management. Net operating cash flow was corrected to 3.4 billion yuan year on year in '23, short-term debt coverage reached 156%, and the average financing cost was -32 bps to 3.91% year on year.
Land acquisition efforts have resumed, and the scale of land storage is still sufficient
Affected by adjustments in the real estate market, some of the company's large-scale comprehensive development projects located far away were slow to be eliminated. The sales volume in '23 was -26% to 44.9 billion yuan, and the sales area was -23% to 2.27 million square meters. However, the company's land acquisition efforts have resumed. The total land acquisition price was +171% to 7.2 billion yuan compared to the same period in Chengdu, Foshan, and Wuxi. The land acquisition intensity was 16% (only 5% in '22), and the equity ratio was 91%.
By the end of '23, the company still had 10.98 million square meters of developable floor space, which is still sufficient in terms of sales scale.
There was a marked recovery in cultural tourist traffic, and the cancellation of shares to boost shareholders' equity. In '23, the company's travel projects received a total of 93.65 million visitors, +51% over the same period last year. The company keeps abreast of the recovery trend in the tourism market, increases the supply of high-quality products, strengthens IP applications, and steadily promotes project expansion and renewal of mature projects. In '23, the company reached an asset-light export agreement for the first phase of the Changsha Cultural Tourism Comprehensive Project (Family Park), and the construction of the Beijing Maya Beach Water Park was carried out in an orderly manner. Furthermore, on March 18, 2024, the company cancelled 164 million shares previously repurchased, accounting for 2% of the total share capital before cancellation, further increasing shareholders' equity.
Risk warning: downside risks in the real estate industry, downside risks in profitability, and cultural tourism project management risks.