occurrences

On March 29, 2024, the company published its 2023 annual report.

Key points of investment

Revenue and profit both increased, and the outstanding performance of industrial investment led to an increase in the company's operating income of 2,026 billion yuan in 2023; net profit to mother of 948 million yuan, +15.29% year over year; basic earnings per share of 0.61 yuan/share, +15.09% year over year; gross margin of 58.04%, -4.05 pct year on year; net margin was 46.43%, year on year +5.12 pct year on year. The company's revenue increased mainly due to partial rent relief for small and medium-sized customers in 2022, and real estate rental revenue reached 1,047 billion yuan in 2023, +25.78% over the same period last year. Net profit due to the increase in net profit due mainly to 1) the company completed land tax increases and liquidation of some projects, reducing the amount of land value-added tax in 2023, 100 million yuan in corporate taxes and surcharges, a decrease of 110 million yuan compared to 2022; 2) investment income of 206 million yuan, +72.5% year over year; and net income from fair value changes of 645 million yuan, +21.38% year over year.

The results of industrial investment were gradually realized, and the profits of the invested companies increased year-on-year

The company continues to invest in the industry through “direct investment+fund+incubation”. By the end of 2023, the company had accumulated 52 direct investment projects, with a total investment amount of 3.86 billion yuan, and completed fund pledges of 1.13 billion yuan during the year. Among them, the invested company developed rapidly, and the Blue Rocket successfully tested for the first time in the world; Zhiji Auto LS7 and LS6 were officially launched in February and October 2023, respectively; and Nanxin, Huaqin Technology, and Glencon completed the listing within the year. The company added 3 new companies listed on the Science and Technology Innovation Board and 1 new company listed on the Main Board to its investment enterprises. The net profit of the company's main controlling shareholding companies in 2023 was $91 million, +57.2% year on year; the total investment income and income from changes in fair value of the company was 851 million yuan, +30.7% year-on-year, accounting for 63.1% of operating profit.

Project development has gradually entered the completion period, providing more business carriers for the company. The company is in a large-scale, fast-paced carrier development cycle. In 2023, the company mainly developed 19 construction projects, with a total construction area of 3.24 million square meters, 2 completed, 16 renewed, and 1 new construction; the company achieved sales amount of 960 million yuan and a sales area of 310,000 square meters, all of which were carried over during the year. In 2024, the company plans to open 3 new projects, with a total construction area of 348,000 square meters, 9 completed projects, and a total construction area of 1.142 million square meters. We believe that as the company's development projects are completed one after another, it can provide the company with more R&D and office space carriers.

Financing costs continue to be optimized. Diversified financing provides support for the main business. By the end of 2023, the company's total financing amount was 25.3 billion yuan, +26% year over year, financing costs were 3.15%, -0.15 pct year on year, and the company's financing costs continued to be optimized. Furthermore, in June 2023, the company and shareholder Zhang Jiang Group successfully completed the distribution work related to the expansion of REITs using the cooperative project of the two parties, Zhang Run Building, as the underlying asset, and became the “first batch in the country and the first order in Shanghai” to expand REITs. The operation of industrial park enterprises generally uses a model of leasing and combining rental and sales for properties, and currently the industrial investment business has become an emerging business for some industrial park enterprises. The “holding asset operation+industrial investment” model generally has a long capital recovery cycle, so higher requirements are placed on financing capacity. We believe that the diversification of the company's financing channels can provide sufficient financial support for the company's main business and is competitive among similar enterprises.

Profit forecasting and valuation

We believe that the company is in a stage of rapid development. The “second curve” is clearly positioned, the production and investment model is mature, and it is expected to achieve continuous high-quality development in the future. The company's net profit from 24-26 is 11.6, 13.6, and 1.49 billion yuan, corresponding to EPS of 0.75, 0.88, and 0.96 yuan, maintaining a “buy” rating.

Risk warning: Development capital falls short of expectations, and the development of industrial investment projects falls short of expectations.