Event: The company released its annual report for the year 23. In 2023, the company achieved revenue of 346.8 billion yuan, up 23.4% year on year; net profit to mother was 12.1 billion yuan, down 34.1% year on year.
Comment: Net operating cash flow has been positive for six consecutive years, with sufficient impairment accrual for 23 years, and abundant high-quality land storage.
Settlement volume and price in the 23-year table rose sharply, actively accounting for inventory impairment: In 2023, the company achieved operating income of 346.8 billion yuan, up 23.4% year on year, of which real estate sales revenue was 322.5 billion yuan, up 25.7% year on year. The high revenue growth was mainly due to the sharp rise in real estate settlement volume and price in 23, the settlement area increased 21.4% year on year, and the average settlement price increased 3.5% year on year; at the same time, the company's overall gross margin decreased by 16.0% year on year 6.0 pct, of which gross margin of real estate sales was 16.3%, down 5.5 pct from year on year, and settlement of low margin projects was still high; the company's net profit to mother was 12.1 billion yuan, after deducting net profit of 11.8 billion yuan, a year-on-year decrease of 34.1% and 34.3%, respectively. The decline in profit was mainly due to a decline in gross margin, impairment losses of assets such as accrued inventory and long-term equity investments of about 5 billion yuan (up 337% year over year), etc. By the end of '23, the company's contract debt balance had decreased by 8.4% year-on-year to 377.2 billion yuan. The planned completion area in '24 was 34 million square meters. It is expected that the settlement scale may decline somewhat in '24. At the same time, active calculation of impairment and accelerated carry-over of low-margin projects in the early stages will accelerate the inflection point in profit margins.
The market share continued to increase: in 2023, the company achieved sales of 422.2 billion yuan, a year-on-year decrease of 7.7%, ranking first in the industry, with a market share of 3.6%, an increase of 0.2 percentage points over the previous year; the company accelerated the sale of high-quality new listings and accelerated inventory sales, with inventory project sales of 257.5 billion yuan in 23 years, accounting for 61% of the year's sales; 41 new development projects started in the year. The average initial opening time was 5.2 months, and the initial operating efficiency increased 3.7 months; net cash flow from operating activities increased by 3.7 months; net cash flow from operating activities was 13.9 billion yuan, 6 consecutive months The year is positive.
Land storage is abundant, and warehouse adjustments are effective: In 2023, the company added a total land price of 163.2 billion yuan for land storage, 99% located in the core 38 cities. The sales ratio of land acquisition was 38.7%, the expansion equity ratio increased by 16 pcts to 83% over the previous year, and control was strengthened; the average profit margin before tax for new projects was above 15%, and future profit margin improvements can be expected. By the end of '23, the company's land storage area was 77.9 million square meters, of which the stock project was 66.08 million square meters, a decrease of 8 pct; the core 38 cities accounted for nearly 70% of the area reserves, increasing 2.4 pcts, and the resource structure was continuously optimized.
Financial leverage has been declining steadily, and the credit advantage is remarkable: by the end of '23, the company's prepaid balance ratio was 67.1% and net debt ratio was 61.2%, down 1.34 and 2.37 percentage points from the beginning of the period, 1.28 percent, and short-term debt accounted for 20.8%; the company's interest-bearing debt balance was 354.3 billion yuan, a decrease of 27.1 billion yuan from the beginning of the period, and comprehensive financing costs were about 3.56% lower than at the end of the previous year, and financing costs continued to be optimized.
Profit forecast, valuation and rating: Considering factors such as slow market sales recovery in the beginning of '24, pressure on housing prices, etc., or affecting the company's future settlement scale and profit margin repair level, we lowered the company's 24-25 EPS forecast to 1.04/1.18 yuan (the original forecast was 1.09 /1.30 yuan), and the new company's EPS forecast for 26 years was 1.29 yuan. The current stock price corresponds to the 24-26 PE valuation at 7.7/6.8/6.2 times. The company's sales are steady, and the core land reserves are abundant, and we are optimistic about the company as an industry leader There is room for future development and maintaining a “buy” rating.
Risk warning: Risks such as sales and land acquisition falling short of expectations, project delivery falling short of expectations, and industry downturn exceeding expectations.