Summary: Jindi Group announced its 2023 annual report. The company achieved total revenue of 98.13 billion yuan in 2023, a year-on-year decrease of 18.4%; net profit to mother was 890 million yuan, a year-on-year decrease of 85.5%. The company plans to pay a cash dividend of $0.197 (tax included) for every 10 shares, with a dividend rate of 10.0%.

The company's revenue showed negative year-on-year growth for the first time since 2018, and short-term performance continued to be under pressure. In 2023, the company's total revenue fell 18.4% year on year. Due to the decline in early sales, the company's settlement pace slowed down. The settlement area of real estate projects in 2023 was 4.86 million square meters, a year-on-year decrease of 21.1%. Net profit due to the sharp drop of 85.5% year on year was affected by the downturn in the market and was due to a combination of factors: 1) The gross profit level of settled real estate projects declined. 2) The company's investment income in 2023 was 1.96 billion yuan, a year-on-year decrease of 50.8%. 2) In order to speed up sales and cash return, the company dynamically adjusted its operating and sales strategies according to market conditions. Sales expenses reached 2.97 billion yuan, an increase of 5.1% over the previous year. 3) Financial expenses increased 32.9% year over year to 1.12 billion yuan due to a decrease in interest income. 3) Profit from changes in fair value was 40 million yuan, down 69.9% year on year, mainly due to a decrease in fair value changes in investment real estate. 4) The decline in minority shareholders' profit and loss was significantly less than the decline in net profit, causing the decline in profit and loss attributable to parent shareholders to be significantly greater than the decline in revenue. However, in 2023, the company's asset impairment losses fell from $3.69 billion in 2022 to $2.42 billion. The company's short-term performance guarantee level continues to be under pressure. At the end of 2023, the company's advance accounts were 66.1 billion yuan, a year-on-year decrease of 14.3%, and the advance account/operating income was 0.67X.

The company's profitability is under significant pressure. In 2023, the company's overall gross profit margin, net profit margin, and net profit margin to mother were 17.4%, 3.3%, and 0.9%, respectively, down 3.3, 4.4, and 4.2 percentage points from the previous year. The company's ROE fell 8.0 percentage points to 1.4% year over year due to declining profit margins, reduced total asset size, and lower equity multipliers. The decline in gross margin was mainly due to the fact that gross margin of the real estate business fell 3.8 percentage points year on year to 16.16%, and the gross margin of the property management business fell 1.5 percentage points year on year to 7.64% year on year. The three fee rates increased 1.6 percentage points year over year to 8.9%. The profit and loss of minority shareholders of the company was 2.31 billion yuan, but the share of minority shareholders' profit and loss in net profit increased sharply from 33.4% in 2022 to 72.2% in 2023. This is a relatively high proportion of cooperative projects among the company's projects that generated carry-over profits this year.

The size of the company's interest-bearing debt has declined, but the share of short-term debt has increased. By the end of 2023, the company's interest-bearing debt was 91.91 billion yuan, a year-on-year decrease of 20.2%. Among them, bank loans accounted for 75.5% and open market financing accounted for 24.5%. The average cost of financing in 2023 was 4.36%, down 0.17 percentage points year over year. The company's short-term liabilities accounted for 44.4% of all interest-bearing liabilities, an increase of 8.5 percentage points over the previous year. By the end of 2023, the company had received a total credit of 252.4 billion yuan from various banks and financial institutions, and 67% of the amount was still unused. At the end of the year, the company's balance ratio after excluding advance payments was 61.3%, down 4.0 percentage points from year on year. The net debt ratio was 53.2%, up 1.0 percentage point year on year. Short-term cash debt ratio was 0.73X, down 0.59X year on year.

The company's short-term cash flow is under pressure. As of the end of 2023, the monetary capital in the company's consolidated statements was 29.74 billion yuan, a year-on-year decrease of 45.4%, of which the restricted capital was 1.08 billion yuan, accounting for 3.6%. The net operating cash inflow in 2023 was $2.19 billion, down 89.0% year on year, mainly due to a decrease in sales and a decrease of 12.8% of cash received from the sale of goods and services to 67.4 billion yuan; at the same time, the net cash outflow from financing was $31.22 billion (net outflow of 27.74 billion yuan in 2022), mainly due to reduced borrowing and increased debt repayment.

In 2023, the company achieved a contract sales amount of 153.6 billion yuan, sales area of 8.77 million square meters, down 30.8% and 14.0% year on year; average sales price was about 17,509 yuan/square meter, down 19.5% year on year; market share (company sales amount/national commercial housing sales amount) was 1.3%, and the market share fell 0.5 percent year on year. It ranked 10th in full-caliber sales, down 3 places from 2022. From January to January 2024, it achieved a signed sales amount of 16.7 billion yuan and a sales area of 980,000 square meters, down 62.1% and 59.5%, respectively. The sales ranking was 14th, with an average sales price of 1,702 yuan/square meter, down 6.4% year on year.

The company's land acquisition has continued to shrink sharply in the past two years, and the land storage equity ratio is less than 50%; however, it has insisted on deepening the cultivation of high-energy cities to optimize the allocation of investment. In 2023, the company added about 950,000 square meters of land reserves in Shanghai, Shenzhen, Hangzhou, Nanjing, Xi'an, Taiyuan, Dongguan, etc.; the total amount of land acquired was 12.5 billion yuan, down 66% year on year; the average floor price was 13,158 yuan/square meter, down 11% year on year; land acquisition intensity (land acquisition amount/sales amount) was 8%, down 9 percentage points from 2022. By the end of 2023, the company's total land reserves were about 41 million square meters, down 20.9% from the previous year. Equity land reserves were about 18 million square meters, and the land storage equity ratio was only 44%. Among them, Tier 1 and 2 cities accounted for about 73%, and Tier 1 and 2 cities increased by 2 percentage points compared to the end of 2022.

The company's investment and sales have shrunk in the past two years, weakening current construction and settlement. In 2023, the company's new construction area was 3.13 million square meters, down 40.0% year on year, completing only 72% of this year's new construction plan (4.35 million square meters); in 2023, the company completed 13.43 million square meters, down 5.3% year on year, and actual completion was slightly lower than planned (13.53 million square meters). In 2024, the company plans to start a new construction area of 1.83 million square meters and a completed area of 10.74 million square meters.

In 2023, the settlement area of the company's real estate projects was 4.86 million square meters, down 21.1% year on year; settlement revenue was 85.5 billion yuan, down 21.7% year on year; average settlement price was 17,600 yuan/square meter, down 0.7% year on year.

Investment recommendations and profit forecasts:

Since 2022, the company's sales and investment scale have been drastically reduced, which may affect the scale and progress of the company's late-stage carry-over. We expect the company's settlement revenue and performance to remain under pressure in the short term. Furthermore, the cash on hand in the company's consolidated statements is close to running out. The share of short-term debt is higher, and the short-term cash debt ratio is less than 1.0X. At this stage, the company is still facing considerable financial pressure, and it is necessary to continue to pay attention to the company's subsequent sales repayments and incremental financing implementation. In view of the current slump in industry sales, we have lowered our profit forecast for 2024-2025. We expect the company's revenue for 2024-2026 to be 872/753/66.7 billion yuan, respectively, with year-on-year growth rates of -11%/-14%/-12%; net profit to mother of 7.2/5.6/450 million yuan, respectively, with year-on-year growth rates of -19%/-22%/-20%; corresponding EPS of 0.16/0.12/0.10 yuan, respectively. The PE corresponding to the current stock price is 20.1X/25.9X/32.5X, respectively. We downgraded the company's rating to a neutral rating.

The main risks faced by ratings:

Sales and settlement fell short of expectations; land acquisition fell short of expectations; gross margin declined beyond expectations; incremental financing fell short of expectations; debt payments fell short of expectations.