The 2023 performance declined, mainly affected by real estate development-related businesses. Shenzhen Holdings announced the 2023 annual results: the company achieved revenue of HK$15.83 billion (same below) for the full year of 2023, down 49.8% year on year; recorded gross profit of 5.11 billion yuan, down about 52.2% year on year; overall gross margin was about 32.3%, down 1.1 percentage points from the previous year. Throughout 2023, the company recorded losses attributable to shareholders of 260 million yuan.

The company's revenue and gross profit declined sharply in 2023, mainly due to the decline in carry-over revenue from the property development business during the period. Profits recorded losses. On the one hand, there was a decline in carry-over revenue from the property development business. On the other hand, losses in profits due to joint ventures and joint ventures, as well as rising financial costs, also had a clear adverse impact on the company's overall profit. Excluding the net effect of changes in the fair value of various assets and the impact on the results of joint ventures, the profit attributable to shareholders of the company during the period was HK$1.92 billion.

In terms of specific business, the company's property development business recorded revenue of 9.59 billion yuan in 2023, a year-on-year decrease of 62.6%; revenue from the property investment business was 1.42 billion yuan, up 18.8% year on year, mainly due to a significant recovery in the commercial and office rental markets, and the gross profit margin of 69% was the same as the previous year. The comprehensive urban operation business achieved revenue of 2.79 billion yuan, an increase of about 6.4% over the previous year. Other revenue, including the hotel business and agricultural business, recorded 1.56 billion yuan, an increase of 7.2% over the previous year. Overall, the decline in the company's performance in 2023 was mainly affected by real estate development-related businesses. Other than that, most other businesses maintained a good growth trend.

2023 contract sales hit a record high

In 2023, the company's contract sales area was 714,000 square meters, down about 13% year on year. The contract sales amount was about 26.59 billion yuan, surging 38.4% against the market and reaching a record high.

By the end of 2023, the company's land reserves had a planned construction area of 6.742 million square meters, a slight increase over the previous year.

Among them, projects under construction cover a floor area of 5.05 million square meters, 600,000 square meters of completed and unsettled projects, and 1.09 million square meters of unstarted projects. In terms of soil storage distribution, the Guangdong-Hong Kong-Macao Greater Bay Area accounts for about 66% of the land storage area, and the Yangtze River Delta accounts for about 14% of the land storage area. In terms of saleable value, the company can sell more than RMB 30 billion in 2024.

Despite a decline in carry-over revenue from property development in 2023, contract sales results are impressive. It is expected that these projects will be completed and settled in 2024 and 2025, providing solid support for the revenue growth of the property development business over the next two years.

The growth of the city's integrated operations business is expected to accelerate

In 2023, the company's comprehensive urban operation business achieved revenue of 2.79 billion yuan, an increase of 6.4% over the previous year, and reached a record high. By the end of 2023, the company managed an area of 80.47 million square meters of property, an increase of 23% over the end of 2022. With the rapid increase in the area under management, we expect the revenue growth of the company's integrated urban operations business to accelerate significantly in 2024.

The spin-off listing of the company's urban integrated operations business has made significant progress. It has now submitted a listing application to the Hong Kong Stock Exchange and obtained a filing notice from the China Securities Regulatory Commission in February 2024.

The scale of the property investment business is expected to continue to expand rapidly

In 2023, the company's property investment business revenue was 1.42 billion yuan, an increase of about 18.8% over the previous year, and the revenue scale has returned to a historically high level. Domestic and offline consumption recovered and the commercial market improved markedly during the year, providing favorable conditions for the growth of the company's property investment business.

By the end of 2023, the company held a total investment property area of about 1.73 million square meters, with a fair value of over HK$33 billion. According to the company, 80 to 1 million square meters of properties will be transferred to the property investment business one after another in the future. We believe that the company's revenue and profit scale from this business is expected to continue to expand rapidly in the next few years.

Profit forecasting

We expect the company's total revenue to grow by more than 20% year on year in 2024. Among them, the property development business is expected to recover rapidly from a low level, and major industries such as property investment and integrated urban operation are expected to achieve rapid double-digit growth. We predict that the profit attributable to the company's shareholders in 2024 will reverse losses and quickly rise to a scale of more than 1 billion yuan, mainly due to the recovery in the property development business and the rapid growth of other main businesses.

Valuation and investment ratings

The closing price of Shenzhen Holdings (00604.HK) Hong Kong stock on March 28, 2024 was $1.02, or only 0.22 times PB. The company's valuation is currently at an all-time low. The downturn in the real estate industry has had an adverse impact on the company's overall valuation, but the company's own fundamentals are still solid and steady. As an advantageous state-owned enterprise in Shenzhen, the company has outstanding advantages in various aspects such as business model, resource endowment, operating efficiency, capital and financing capabilities. The company's transformation to a new development model has achieved remarkable results, and its property investment, property management, commercial and other operating platforms have large scale and good profitability. We believe that the company's current stock price is significantly undervalued, the investment value is still significant, and the margin of safety is very high. Maintain a buy rating.

(Note: The above data are all collected from listed company announcements, listed company websites, Wind, and Guoxin Securities (Hong Kong) Research Department) Risk Alerts

Property investment business and integrated urban operation business are not developing smoothly, and the real estate market has been sluggish for a long time.