Incident: According to Kerui data, Longhu Group achieved full-caliber sales of 23.7 billion yuan from January to January '24.
Comment: The sharp decline in development revenue and other factors led to a decline in performance, short-term sales pressure, and overall financial stability.
Development business revenue was drastically reduced in 23, and the sharp decline in gross margin is expected to bottom out: in 2023, the company achieved operating income of 1807 billion yuan, a year-on-year decrease of 27.9%, mainly due to a decrease in sales in the previous period, a year-on-year decrease of 31.3% to 155.9 billion yuan; the company's comprehensive gross margin was 16.9%, a year-on-year decrease of 4.2pct, of which the gross margin of the development business was 11.0%, a decrease of 6.9 pcts year-on-year, mainly due to the settlement of low-margin projects obtained in the early stages and a reduction of 1 billion yuan in new inventory in 23; the company's net profit to mother 12.85 billion yuan, a year-on-year decrease of 47.3%, of which the core net profit was 11.35 billion yuan, a year-on-year decrease of 49.6%. The large year-on-year decline was mainly due to a large year-on-year decline in revenue and gross margin, and a 30.8% year-on-year decrease in the fair value of investment properties.
Short-term sales are still under pressure, focusing on high-quality soil storage: In 2023, the company achieved sales volume of 173.5 billion yuan, a year-on-year decrease of 13.9%. According to Kiri data, in the first quarter of 2024, the company achieved sales of 23.7 billion yuan (9th in the sales ranking), a year-on-year decrease of 52.9%. Of these, sales in March were 111 billion yuan, a year-on-year decrease of 49.9%. In the short term, due to weak market demand, sales were still under pressure. In 2023, the company maintained reasonable land acquisition efforts and added 3.68 million square meters of land storage, focusing on popular cities in the region such as Chengdu, Xi'an and the Yangtze River Delta.
By the end of '23, the company's total land storage was 45.39 million square meters, 4.2 times the sales area in '23, and the total volume was sufficient.
Operating business grew steadily, accounting for 60% +: In 2023, the company achieved operating and service revenue of 24.9 billion yuan, up 5.7% year on year, accounting for 13.8% of total revenue, while core net profit accounted for more than 60%; when split, operating revenue was 12.9 billion yuan, up 8.9% year on year, gross profit margin 75.9%; service revenue was 11.9 billion yuan, up 2.4% year on year; the company added 12 new shopping malls during the year. By the end of '23, the company had operated 88 buildings, with a total operating floor area of 7.97 million square meters, and a occupancy rate of 96.2%; the area of the property under management was 360 million square meters, an increase of 12.5% over the previous year.
Overall finance is stable, and the debt tenure structure is reasonable: as of the end of 2023, the company's cash balance was 60.42 billion yuan; interest-bearing debt was 192.65 billion yuan, a decrease of 15.4 billion yuan compared to 2012, and debt pressure dropped in an orderly manner; the net debt ratio was 55.9%, short-term debt ratio was 1.36 times (2.61 times in 22), and the overall balance was stable; external debt accounted for 17.7%, and the debt structure was optimized. The average financing cost was 4.24%, which is at a low level.
Profit forecast, valuation and rating: Considering the impact of the current decline in demand in the real estate market and increased pressure to repair the company's sales and gross margin, we lowered the company's 24-25 net profit forecast to 123.6/12.84 billion yuan (the original forecast was 153.6/16.13 billion yuan), and the new company's net profit forecast for 26 years was 13.95 billion yuan. The current price corresponds to the basic valuation of 24-26 PE to 5.5X, 5.3X, and 4.9X. The company maintains diversified and steady development, and maintains steady credit. We are optimistic about the company's long-term long-term Develop and maintain a “buy” rating.
Risk warning: Risks such as sales and land acquisition falling short of expectations, diversified development falling short of expectations, and market downturn exceeding expectations.