The increase in revenue did not increase in profit in 23 years, maintaining the “buy” rating
The company released its annual report and quarterly report on April 26. In 23, it achieved revenue of 70.44 billion yuan, +70% net profit of 2.53 billion yuan, or -32% year over year; 24Q1 achieved revenue of 13.70 billion yuan, +36% year over year, and net profit to mother of 660 million yuan, +18% year over year. Considering the real estate market situation and the company's sales equity ratio, we lowered the gross profit margin, increased asset impairment losses, and minority shareholders' profit and loss ratio. The estimated EPS for 24-26 was 0.97/1.15/1.23 yuan (the value was 1.68/2.01 yuan 24-25 years ago). Comparable, the company's average of 24PE (Wind's unanimous expectation) is 5.1 times. Considering that the company's land reserves are mainly distributed in Hangzhou and there are plenty of resources to be carried over, we believe that the company's reasonable 24PE is 8 times, lowered the target price to 7.76 yuan (previous value of 12.51 yuan, based on 9 times 23 PE), and maintained a “buy” rating.
Large depreciation is dragging down profits, and there are still plenty of resources to be carried over
The company's delivery volume increased dramatically in '23, driving the rapid release of revenue. However, net profit to the mother declined year-on-year, mainly due to: 1. The company's gross margin of real estate sales was -0.7 pct to 16.4% year on year; 2. Investment income of -990 million yuan year-on-year due to reduced carry-over of cooperative projects; 3. Affected by the decline in real estate, the company calculated credit inventory impairment preparations of 533/3.78 billion yuan, mainly distributed in projects around Hangzhou and Shenzhen, etc., which affected the total net profit of 2.18 billion yuan, +1.73 billion yuan year on year. Furthermore, thanks to savings in sales and management expenses and the decline in the size and cost of interest-bearing liabilities, the company's expense ratio for the period was -2.8pct to 3.1% year over year, which hedged the above effects to a certain extent. By the end of '23, the company's contract liabilities were still as high as 203% of revenue coverage compared to '23, and the planned completion area in '24 was +7%. The resources to be carried over were still plentiful.
Continuing to consolidate Hangzhou's deep-seated advantages, the 24-year sales and land acquisition targets benefited from the steady performance of the Hangzhou market. In '23, the company achieved sales volume of 153.5 billion yuan, which was basically the same as the previous year and outperformed the industry (-7% of the country's commercial housing ratio). Kerry ranked 11th and won the top sales in the Hangzhou market for 6 consecutive years. However, due to the cooling of the Hangzhou market, 24Q1's sales volume was -33% year-on-year to 26.3 billion yuan. The company's land acquisition efforts declined in '23. The amount of land acquisition was -17% to 57.7 billion yuan, but the land acquisition intensity was still 38%, and 87% was concentrated in Hangzhou; the equity ratio was +2pct to 48% year over year, slightly repaired but still low. 24Q1 continues to acquire 5 parcels of land in Hangzhou, with a land acquisition amount of 11.4 billion yuan, maintaining an active replenishment trend. The sales value of the company in '24 was about -13%. The sales target was more than 100 billion yuan, and the land investment amount was no more than 40% of the equity sales repayment (50% in '23).
Financial soundness continues to improve, and comprehensive financing costs have declined again
At the end of '23, the company's interest-bearing debt ratio was -22% to 41.52 billion yuan, of which bank loans accounted for 80% and short-term debt accounted for 33%. All three red lines were significantly superior to regulatory requirements, continuing to consolidate financial soundness and driving comprehensive financing costs -0.4pct to 4.2% year over year. The cost of the company adding 2.1 billion yuan in domestic debt financing over the past 24 years was only 3.5%-3.7%. The company aims to limit the direct financing scale to less than 4 billion yuan within one year, further reducing comprehensive financing costs to 4%.
Risk warning: Risk of fluctuations in industry policies, regional markets, and minority shareholders' profit and loss share.