The company recently released its 2023 annual report. It achieved annual revenue of 98.13 billion yuan, a year-on-year decrease of 18.4%, and net profit to mother of 890 million yuan, a year-on-year decrease of 85.5%.

Development business revenue and gross margin both declined, and accrued impairment affected performance. In '23, we achieved revenue of 98.13 billion yuan, down 18.4% year on year, mainly due to the company's real estate project settlement area falling 21.13% year on year to 4.86.34 million square meters, and settlement revenue falling 21.72% year on year to 85.469 billion yuan. Net profit attributable to mother in '23 was 890 million yuan, down 85.5% year on year. The decline in performance was greater than revenue. It was mainly due to a decrease of 3.8 pct to 16.2% in gross margin for development business settlement, 50.8% year-on-year decline to 1.96 billion yuan, and combined credit and asset impairment losses of 3.37 billion yuan (4.73 billion yuan in 22). The new construction area of the company in '23 was about 3.13 million square meters, the completed area was about 13.43 million square meters, and the company plans to complete an area of 10.74 million square meters in '24, which supports the settlement volume.

The sales side contracted, and land acquisition focused on refined storage expansion in high-energy cities. In '23, the company achieved a contract area of 8.77 million square meters, with a contract amount of 153.6 billion yuan, down 14% and 30.8% year-on-year respectively, and sales performance remained at the top of the industry. The industry exceeded expectations during the downturn. The company optimized the allocation of investment resources, adding a total of about 950,000 square meters of land storage in core cities such as Shanghai, Hangzhou, Nanjing, and Xi'an, with a total investment of about 12.5 billion yuan. By the end of '23, the company's total land reserves were about 41 million square meters, and equity land reserves were about 18 million square meters, of which Tier 1 and 2 cities accounted for about 73%.

The pressure on interest-bearing debt has been further reduced, and debt repayment pressure has been actively dealt with. As of the end of '23, the company's interest-bearing debt balance was 91.9 billion yuan (-20.2%), of which bank loans accounted for 75.5% and open market financing accounted for 24.5%; the balance ratio after excluding advance payments was 61.3%, and the weighted average cost of debt financing was 4.36%. The company's public bonds for the first quarter of '24 have been fully repaid. As of April 23, the company's 24-year domestic debt balance was 6.5 billion yuan. The repayment peak in the first half of the year was 5-6 billion yuan (3.5 billion yuan), and the second half of the year was November-December (3 billion yuan). The only foreign debt balance will expire in August '24, with a balance of US$480 million; the balance of domestic debt dropped sharply in '25 and '26, respectively. The company actively responds to debt repayment pressure, and stock development projects and operating properties may be a financing window.

The rating for increasing holdings was lowered, and the target price was lowered to $3.74. According to the 2023 annual report data, we adjusted the forecast for the company's revenue growth rate, gross profit margin of various businesses, sales and management expenses, etc. After adjustment, the net assets per share for 24-26 were 14.40 yuan, 14.52, and 14.63 yuan respectively (the original forecast was 16.58 and 17.68 yuan for 24-25), which is comparable to the average PB value of the company in 2024, which is 0.26 times the target price of 3.74 yuan.

Risk warning: Sales and settlement fall short of expectations. The policy easing fell short of expectations. The company's financing environment tightened beyond expectations. Risk of asset impairment losses. The land acquisition fell short of expectations.