The company's performance is in line with market expectations
Urban Construction Development announced its 2023 results: revenue decreased 17% year on year to 20.4 billion yuan, gross margin before tax increased 6.7ppt to 20.4% year on year, net profit to mother reversed year-on-year loss and profit of 550 million yuan (loss of 930 million yuan in '22), in line with market expectations. In 2023, the company plans to distribute dividends of 0.1 yuan. The total dividend payout is the same as in 2022, corresponding to a dividend ratio of 37%.
Settlement gross margin rebounded, and the equity investment business contributed additional help to reverse performance losses. The main reasons why the company turned a loss into profit during the period were: 1) the profit margin of Beijing project settlement increased by 9.7ppt to 20.8% year-on-year in 2023, driving the overall gross margin of the development business to 18.3% (11.2% in 2022); 2) the improvement in foreign equity investment business performance led to a combined investment income of 500 million yuan (this recorded a loss of 600 million yuan in 2022), and fair value losses narrowed to 190 million yuan. At the end of 2023, the company's contract debt increased 33% year over year to 36.3 billion yuan, which is equivalent to 1.8 times the 2023 operating income. We believe this can form a strong support for the growth in settlement scale from 2024-2025.
Repayments are steady, cash is plentiful, and financing costs continue to decline. In 2023, the company achieved and repaid cash of 31.3 billion yuan, and the net operating cash inflow increased 57% year-on-year to 13.1 billion yuan, reaching another record high. At the end of 2023, the company's cash balance was 13.7 billion yuan, which can cover 1.65 times the short-term debt; the net debt ratio and withheld debt ratio were 122% and 74%, respectively, an improvement from the beginning of 2023. In 2023, the company issued three public bonds, with a total financing of 4.5 billion yuan. The weighted average financing cost was only 3.39%, driving the comprehensive financing cost down 55BP to 4.12% at the end of the period.
Development trends
Sales bucked the trend in 2023 and were carefully developed in due course. In 2023, sales increased 40% year over year to 42.5 billion yuan, and traffic sales in the Beijing region increased by more than 50% year on year to 39.8 billion yuan (Kiri data). The company has ranked second in the Beijing sales list for two consecutive years. In 2023, the company added 2 new plots of land in Beijing, 1 plot of land in Sanya, and 1 plot of land in Huangshan through equity acquisitions, joint auctions, etc. The total land acquisition amount for full caliber and equity caliber was 14.7 billion yuan and 8.5 billion yuan respectively. We expect the total value of the goods to be around 26 billion yuan, corresponding to 35% of the land acquisition intensity. Supported by sufficient capital, we believe that the company will maintain a steady pace of storage expansion in Beijing in 2024, and rely on high-quality land storage to achieve superior sales performance than peers.
Shed reform and first-level development projects are progressing efficiently. In 2023, the company made important progress in several shed reform and first-level development projects, such as the Linhe shed renovation project receiving management fee locks and government approval notes, the Tucheng Xincun first-level development project completed and withdrawn, and the Miyun Big King project achieved management fee calculation. In 2023, Beijing plans to promote 20 urban village projects and build a number of demonstration projects1. The company also set up a special class to actively explore urban village business opportunities. We believe that the company can use its rich resources and experience to promote the acquisition and testing of urban village renovation projects and further consolidate Beijing's resource reserves.
Profit forecasting and valuation
We keep our profit forecast unchanged. The current share price corresponds to 0.3/0.3 times 2024/25 P/B. Maintaining an outperforming industry rating, considering recent industry credit events disrupting the sector's risk appetite, the target price was lowered to 5.25 yuan, corresponding 0.5/0.4 times the 2024/25 P/B and 43% upward space.
risks
The scale of land acquisition fell short of expectations; settlement progress fell short of expectations; and the decline in sentiment in heavily stocked cities exceeded expectations.