FY23: Affected by the downturn in the real estate industry, overall performance declined; downgraded to “increase” the company released FY23 results: revenue of 73.6 billion yuan, which was basically the same; gross margin was -3.9 pct to 11.5% year over year; net profit to mother was -47% year over year to 914 million. The decline in performance was mainly affected by the downturn in the real estate industry over the past two years. The decline in performance was mainly due to the increase in unilateral costs of carry-over projects during the year and increased depreciation of inventory calculation. Considering the impact of the downturn in the real estate industry on carry-over resources, we adjusted the company's 24-26E EPS to 0.75/0.68/0.71 yuan (24-25E previous value: 1.28/1.40). Comparing the company's 24E PE average value of 6.1 times (Wind's unanimous expectation), considering that the company's performance is affected by impairment, we believe that the company's reasonable 24E PE is 5.8 times, adjusted the target price to HK$4.75 (previous value: HK$11.44), and downgraded the rating to “increase holdings”.
The development business is under pressure, and the operating business is growing significantly
In 2023, due to the downturn in the real estate market, the company's development business was under pressure, with carry-over revenue of 71.7 billion yuan, which was basically the same as the previous year; overall gross profit was -25% to 8.5 billion yuan; the estimated impairment of property sales in '23 was 4.1 billion, and the accrued impairment provision for uncarried land reserves was 6.5 billion. If the market recovers in the future, this part of the asset is expected to increase its performance. In comparison, the company's operating business increased significantly: 1) property management revenue +33% to 1.5 billion yuan, and operating area +22% to 65.35 million square meters; 2) commercial investment and operating revenue +23% to 360 million, the average daily passenger traffic of shopping malls in operation in 23 years was +94% to 184,000; 3) Ruishu Construction Technology and Ruishu Intelligence's share of third-party orders both increased year-on-year.
Adhere to the warehouse exchange strategy and gradually optimize soil storage
In 2023, the company's contract sales volume was -17% year-on-year to 65.9 billion, and the decline was basically in line with the average decline of the top 100 real estate companies. The company's land acquisition side adheres to the stock exchange strategy. In 21-23, it voluntarily cleared the equity value of about 3.3 billion dollars, of which 88% was located in low-energy cities; in '23, the company added 660,000 square meters of construction, of which the core area of the core city accounted for 81%. By the end of 23H2, the company had 25.91 million square meters of unsold land storage, of which second-tier cities and above accounted for 67%, +1pct compared to the previous year. The land storage coverage ratio for sales was about 5.1, and the land storage resources were abundant. The company plans to supply 110-120 billion dollars in 24, of which 70 billion dollars will be rolled over. In the future, supply may be adjusted according to market conditions to support the completion of the 24-year sales target of 55 billion dollars.
Leverage declined in an orderly manner, and financing channels remained unobstructed
By the end of 23H2, the company's three red line indicators remained at the green level. The size of interest-bearing debt was -21% to 38.1 billion, of which 6.25 billion corporate bonds matured in 24 years. As of the end of February, 1.95 billion dollars had been repaid, and the pressure to pay open market bonds was low during the year. In 2023, the company's financing channels were unobstructed, and it became the first private housing enterprise to receive China Bond Credit Promotion and the joint establishment of CRMW by the three authorities of the Bank of Communications and CITIC Securities. Five installments of medium-term notes totaling 4.62 billion yuan were issued throughout the year. Furthermore, the company has 1501 billion bank credit lines, of which 119.8 billion have not been used. Weighted financing costs for 23 years were 4.8%, compared to +0.18pct. Considering the company's good credit background, financing costs are expected to drop further in the future.
Risk warning: Sales growth and profitability fall short of expectations; the downturn in the industry weakens the company's ability to finance.