Net profit attributable to mother was -329.9% YoY, downgraded to “holding” rating

The company released an interim report on April 11. In 2023, it achieved revenue of 12.57 billion yuan, or -38.7% year on year; net profit to mother was 1.95 billion yuan, or -329.9% year-on-year. As the impact of low-energy city inventories on the company's gross margin will continue for some time, we expect EPS to be -0.57/0.18/0.26 yuan in 2024-2026 (previous value 0.29/0.34/- yuan), the 2024 BVPS will be 11.46 yuan, and the reference comparable company's 2024PB average will be 0.27 times (Wind's consistent expectations). Due to pressure on the company's short-term performance, the target price will be 0.27 times the company's reasonable PB in 2024. The target price will be reduced to 3.09 yuan (previous value 5.22 yuan).” “Hold” rating.

Development business performance is under pressure, and self-owned business is progressing steadily

The company's development business carry-over revenue in '23 was 10.07 billion yuan, down 45.5% year on year, and gross profit margin was -8.4%, down 18.7 percentage points year on year. During the downturn in the market, the company adopted various sales strategies, including adjusting sales prices, to promote sales elimination, leading to pressure on gross margins. In particular, project adjustments in third-tier cities in the Greater Bay Area were even more significant. At the same time, due to housing prices still declining, a net loss of 430 million dollars was calculated during the period. Revenue from leasing/operating business increased by 12.3%/79.7% year on year, gross margin was 86.2%/20.2%, respectively, up 2.4/73.7 pct year on year. Mainly due to the company's adjustment and optimization of investment strategies in the commercial writing sector, the occupancy rate level has risen; at the same time, seizing the recovery in the travel market to expand the number of visitors, passenger traffic in scenic spots and project operating revenue have increased.

Sales declined year-on-year, and front-end investment was cautious, focusing on the company's annual sales volume of -26.3% to 23.22 billion square meters, with a sales area of 1.125 million square meters. The company traded price for volume. The average sales price ratio was -9.2% to 2.07 yuan/square meter. The Beijing-Tianjin-Hebei/Yangtze Delta/Greater Bay Area sales accounted for 58%/21%/10%, respectively, compared to 22 years. The company is careful in acquiring land. A new plot of land in Suzhou was added throughout the year. The land acquisition intensity was 5.3%, but the company had sufficient land reserves. By the end of the period, the company had a total construction area of about 13.68 million square meters, and the total construction period of unsettled projects reached 12 years; structurally, first-tier, second-tier and third-tier cities accounted for 23%/37%/41%, respectively. Relatively speaking, the fast-flowing regional reserves were relatively limited. The company also focused on inventory elimination, reducing the 24-year new construction plan by 62% to 244,000 square meters.

Financing advantages are highlighted, and short-term debt has declined sharply

The company's financing channels were smooth. The company reached a small peak in debt repayment during the period. Domestic bonds matured in the open market were about 13.7 billion yuan, and long-term loans matured at 11.4 billion yuan. However, a total of 31.5 billion domestic bonds were issued during the period, an increase of 372% over the previous year, and the interest rate range was 2.8-4.5%. Overall, the total size of interest-bearing debt dropped by 6.3 billion dollars over the same period last year, and the debt structure was optimized. Non-current liabilities maturing within one year fell by 12.3 billion to 1.6 billion yuan year-on-year, and the short-term cash debt ratio was as high as 8.2 billion. As a local state-owned enterprise that is deeply involved in commercial real estate operations, the company's financing advantages have been demonstrated, helping the company move through the industry cycle.

Risk warning: industry policy, industry downturn, profit and loss risk from changes in fair value.