Incident: Urban Construction Development announced its 2023 annual report. It achieved annual revenue of 20.36 billion yuan, -17.1% year-on-year; realized net profit of 550 million yuan to mother, turning a loss into a profit.
Net profit attributable to mother turned loss into profit, and the gross margin for settlement of the development business was repaired. In 2023, the company achieved full-year revenue of 20.36 billion yuan (yoy -17.1%); realized net profit of 550 million yuan, which turned loss into profit over the previous year, an increase of 1.49 billion yuan over last year. The main reasons for the strong reversal of the company's net profit due to: ① the company's real estate development business settlement gross margin was +7.1pct to 18.3% year on year; ② the company's losses due to changes in fair value in 2023 were drastically reduced by 550 million yuan compared to 2022; ③ the company's net investment income in 2023 increased sharply by 1.13 billion yuan compared to last year.
The results of deepening cultivation in Beijing have been remarkable, and Beijing's sales ranking is stable in the top two. The company's layout is deeply rooted in Beijing, with clear ideas for differentiated products, and has formed a product layout of “Nantiantan, Beiyanyuan, Dongxingyu, and Xixiangshan”.
At the sales level, the project elimination situation is hot. Among them, the Tiantanfu project is the first high-end project in Beijing to sell over 10 billion yuan on a single disk for two consecutive years. The number of online signings for the second half of the year is also ranked first in Beijing. According to Kerry's caliber, the company ranked second in the sales rankings of real estate companies in Beijing for three consecutive years.
Sales bucked the trend throughout the year, and there are plenty of resources that can be carried over. Facing structural adjustments in the real estate industry in 2023, the company achieved annual sales area of 875,800 square meters (including wholly-owned, holding, and shareholding subsidiaries), with sales of 511,400 square meters in the same period last year; sales of 42,465 billion yuan (including wholly-owned, holding, and participating subsidiaries), compared to 30.614 billion yuan in the same period last year. The sales scale bucked the trend and achieved positive year-on-year growth.
By the end of 2023, the company's contract liabilities plus accounts receivable totaled 36.36 billion yuan, which can cover 1.78 times the 2023 revenue and is rich in resources to be carried over.
The reserves for urban renewal projects are of high quality and sufficient, and are expected to benefit from the steady progress of urban village renovation projects. By the end of 2023, the company had a total of 3 first-level land development and 8 shed renovation projects. Of these, 10 projects were located in Beijing, and the urban renewal projects in progress were of sufficient quality and quantity. We mentioned in “Urban Reform in the Beginning - Urban Village Renovation Series Topics (1)” that urban village renovation has received great attention from the central government, its strategic significance is highlighted, and the company will directly benefit from the acceleration of urban village renovation from the top down.
Profit forecasting and valuation: The company's performance turned losses into profits. Deepening the Beijing strategy has achieved remarkable results, is rich in transferable resources, and is expected to benefit from the steady progress of urban reform. We expect the company's revenue for 24-26 to be 242.3, 269.0 billion yuan, and 28.20 billion yuan, respectively, and net profit to mother of 1.01 billion yuan, 13.1 billion yuan, and 1.42 billion yuan, corresponding PE of 7.7, 6.0, and 5.5 times, respectively, maintaining the “recommended” rating.
Risk warning: Policy implementation falls short of expectations; property market recovery falls short of expectations; real estate sales fall short of expectations