Accumulate losses in main business due to impairment, and deepen specialized integration. In 2023, the company achieved main business revenue of 55.6 billion yuan, -27% year-on-year, of which the comprehensive tourism business contributed 31.4 billion yuan, +15% year-on-year; the real estate business contributed 24.2 billion yuan, or -51% year-on-year. As of the end of 2023, the company's net profit to mother was -6.5 billion yuan. The main reason for the loss was that the real estate business revenue carry-over amount and gross margin decreased compared to the same period in '22, and asset impairment provisions were calculated for some projects. During the year, the company further clarified the asset relationships and management boundaries of various business segments, completed the management and restructuring of more than 50 active projects, promoted the divestment of operational projects from city companies to centralized management of specialized companies such as Happy Valley, commercial management, China Fashion, Hotel, Travel and Development, etc., and the transfer of hotel companies' real estate business stock to real estate companies. Each division assumed the main responsibility for assets, and specialized companies assumed responsibility for operational improvement, and further implemented specialized integration.
The tourism business is recovering strongly, hammering specialized development capabilities. In 2023, the company's travel programs received a total of 93.65 million visitors, +51% over the same period last year. On the one hand, the company continues to increase the supply of high-quality products, launch special themed activities, and enhance off-season business performance. On the other hand, the company is strengthening IP applications to enrich the visitor experience. For example, Happy Valley in Chongqing is actively exploring new “IP+” models, and collaborating with IPs such as Smiley, Smurfs, and Bingo to enable festival innovation. In addition, the company steadily promoted project expansion and renewal of mature projects. During the year, it reached an asset-light export agreement with the local government on the first phase of the Changsha Cultural Tourism Comprehensive Project (Family Park), and the construction work of the Beijing Maya Beach Water Park project was carried out in an orderly manner.
The real estate business is paying close attention to elimination and improving growth. In 2023, the company achieved a total contracted sales area of 2.27 million square meters, with a contract sales amount of 44.9 billion yuan. In the 2023 full-caliber sales ranking of Kerry's top 100 companies, OCT rose from 35th place in 2022 to 31st place. On the one hand, the company adopted a flexible sales strategy and paid close attention to elimination. Projects such as Songhu Yuan'an in Dongguan, Shunde Phase II in Foshan, and Xinhe in Chengdu ranked in the top three local or district commercial housing sales lists. On the other hand, adhering to the “choose the best from the best” concept, the core area was deeply cultivated, and 4 projects were successfully expanded during the year, adding a total land area of 381,300 square meters and a planned construction area of 598,700 square meters.
Strengthen liquidity management and re-optimize the capital structure. The company firmly implements the management strategies of “production determined by sales” and “investment by revenue” to ensure safe and stable cash flow. By the end of 2023, the company's monetary fund balance was 41 billion yuan, accounting for more than 10% of total assets, and the short-term debt coverage ratio was 1.63 billion yuan; net operating cash flow was 3.4 billion yuan, a significant improvement from -570 million yuan in 2022. In addition, the company maintained smooth financing channels and accelerated the expansion of long-term debt. The average financing cost in 2023 was 3.91%, down 32 bps from the beginning of the year, and the total amount of interest-bearing debt was 133.4 billion yuan.
Investment advice: Maintain an “better than the market” rating. Considering that the pressure on the company's performance in 2023 is fully released and the cultural tourism industry gradually recovers in the later stages, we predict that the company's EPS in 2024 will be 0.07 yuan, net assets per share will be 7.77 yuan, giving 0.4-0.5 times PB, corresponding to a reasonable value range of 3.11-3.89 yuan per share. Risk warning: There is a downside risk in industry sales.