Key points of investment
Event: The company released its 2023 annual report. The full year of 2023 achieved revenue of 20.36 billion yuan, a year-on-year decrease of 17.1%; net profit to mother was 550 million yuan, an increase of 1.49 billion yuan compared with a loss of 930 million yuan in the same period last year. The results were in line with expectations.
Revenue declined year over year, and profit margin repair turned a loss into a profit. The company's revenue for the full year of 2023 decreased 17.1% year over year, mainly due to reduced project carry-over. The company's net profit to mother turned a loss into a profit for the full year of 2023. There are two main reasons: (1) The reason the company's performance was under pressure in 2022 was due to a sharp drop in financial asset prices. In 2023, the company strengthened the management of equity investment. Net investment income was reduced from -640 million yuan in 2022 to 490 million yuan in 2023, and income from changes in fair value was reduced from -740 million yuan in 2022 to -190 million yuan in 2023. (2) In 2023, the company's gross margin of real estate development increased by 7.1pct to 18.3% year-on-year, with the gross margin of the Beijing region increasing by 9.7pct to 20.8% year-on-year. On the other hand, due to the downturn in the real estate market, the company calculated asset impairment losses and credit impairment losses of 970 million yuan, an increase of 430 million yuan over the previous year. By the end of 2023, the company had contractual liabilities of 36.32 billion yuan, covering 1.8X of revenue in 2023, laying the foundation for subsequent performance releases.
Sales increased dramatically, focusing on the Beijing market. The company achieved sales of 42.47 billion yuan in 2023, an increase of 38.7% over the previous year. The company focuses on the Beijing market. In the second half of 2023, the number of online signings ranked first in Beijing, and Kerry ranked second for 3 consecutive years. The company invests carefully and focuses on hot regions and cities. In 2023, two parcels of land were acquired in Beijing at a price of 11.38 billion yuan (land remodeled in the shantytown area in Shuangxin Village in Haidian District and land remodeled in the shantytown area in Chaoyang District), followed by land acquisition in Huangshan City and Sanya City. The total amount of land acquisition was 15.11 billion, with an equity ratio of 58.4%, and the annual investment intensity reached 35.6%.
The shed renovation project progressed efficiently, and commercial real estate bucked the trend. In 2023, the company's Wangtan relocation housing and riverside housing achieved smooth handover and occupancy. The riverside shed was relocated to lock in management fees and obtained government approval records. The relocation area of the big and small kings of Miyun completed the evacuation and management fee calculation, laying a solid foundation for the subsequent settlement of the project. In terms of commercial real estate, the company's first self-operated project city, Yuehui, opened in 2023. Chengdu Manyueli and Xiyue Center attracted more than 40,000 square meters of investment, and the rent increase exceeded that of similar projects in the market. In 2023, the company's commercial real estate holding area was 463,400 square meters, and the commercial real estate turnover was 650 million yuan
Financing channels are unobstructed, and interest rates are superior to the market level during the same period. The company's net operating cash flow in 2023 was $13.12 billion. By the end of 2023, the company had an abundant cash balance of 13.69 billion yuan. The company's net debt ratio is 90.3% and the short-term cash debt ratio is 1.6, all of which have met the “three red lines” regulatory requirements.
The company issued three corporate bonds in 2023, totaling 4.5 billion yuan. Interest rates were superior to the same period in the market, at 3.40%/3.40%/3.37%, respectively, and financing channels were unobstructed.
Profit forecast: The company has been deeply involved in the Beijing shed reform market for many years. According to the company's latest annual report, we lowered the company's net profit forecast for 2024/2025 to 1.25 billion yuan (previous value was 15.2/1.85 billion yuan), and the estimated net profit for 2026 is 1.37 billion yuan. The corresponding EPS was 0.49/0.58/0.64 yuan, and the corresponding PE was 7.5/6.3/5.8 times, maintaining the “buy” rating.
Risk warning: The implementation of urban village renovation policies fell short of expectations; the real estate market sentiment exceeded expectations and declined; settlement progress fell short of expectations.