Event: The company released its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved revenue of 70.443 billion yuan, a year-on-year increase of 69.73%; net profit to mother was 2,529 billion yuan, a year-on-year decrease of 32.41%; and a cash dividend of 0.09 yuan per share. In 2024, Q1 achieved revenue of 13.701 billion yuan, a year-on-year increase of 35.85%; net profit to mother was 660 million yuan, a year-on-year decrease of 17.84%.
Impairment affects performance: The company achieved revenue of 70.443 billion yuan in 2023, an increase of 69.73% year on year; net profit to mother was 2,529 billion yuan, down 32.41% year on year. The reasons why net profit attributable to mother did not rise but declined: 1) in terms of gross margin, gross margin of real estate business was 16.64% in 2023, down 0.74 pct from the previous year; 2) land value-added tax increased 97.31% year over year to 1,099 million yuan; 3) investment income fell 44.67% year on year to 1,231 million yuan; 4) Asset impairment losses were 3.78 billion yuan, compared to 702 million yuan in the same period last year. Many impairment losses were mainly due to preparation for inventory price declines; 5) Credit impairment losses were 527 million yuan, compared to 156 million yuan in the same period last year Yuan. Credit impairment losses have changed a lot due to bad debt losses on accounts receivable and other accounts receivable; 6) Minority shareholders' equity accounted for 11.33% of net profit. This value was 4.16% in the same period last year, or due to the gradual carry-over of cooperative projects. In terms of expense ratios, the sales expense ratio and management expense ratio in 2023 were 1.22% and 1.10%, respectively, down 0.74 pct and 0.41 pct from the previous year. The decline in cost rates during the period showed the advantage of cost control.
Good sales and deep regional cultivation: In 2023, the company achieved sales of 153.47 billion yuan, which is basically the same as the previous year. It ranked 11th in the sales ranking of Lexus in the industry, 2 places higher than in 2022, and won the Hangzhou market sales championship for 6 consecutive years. In 2023, the company added 33 new land projects, including 27 in Hangzhou; the new projects covered a construction area of 3.3 million square meters, with a total land price of 57.677 billion yuan, corresponding to a floor price of 17300.28 yuan/square meter. Based on the total land price and sales amount, the land acquisition effort was 37.58%. The equity land amount is 25.6 billion yuan, and the corresponding equity ratio is 44.36%. By the end of 2023, the company had accumulated 13.2031 million square meters of land storage, of which Hangzhou accounted for 70.99% of land storage, an increase of 0.64 pct compared to the end of the first half of 2023. High-quality land reserves provide a good guarantee for the company's future sustainable development. In 2024, the company plans to generate sales of more than 100 billion yuan, accounting for 1% of the total scale of the industry. The investment amount is limited to 40% of equity repayment. The regional layout focuses on Hangzhou, Zhejiang, and Shanghai from outside the province.
The size of financial stability and debt declined: the company's “three red lines” remained “green”. By the end of 2023, the company's balance ratio after deducting pre-sale accounts was 56.41%, and the net debt ratio was strictly controlled; in terms of debt composition, short-term debt was 13.507 billion yuan, accounting for 32.53% of debt; as of the end of 2023, monetary cash was 32.704 billion yuan, which was 2.42 times the short-term cash debt ratio, which can effectively cover short-term debt. As of the end of 2023, the company's equity and interest-bearing liabilities were 36 billion yuan, down 11 billion yuan from the end of the previous year. Financing costs continued to decline. By the end of 2023, the company's average financing cost was 4.2%, down 0.4 pct from the end of the previous year.
The leasing business progressed steadily: By the end of 2023, the company had achieved rental revenue of 358 million yuan, an increase of 8.16% over the previous year. The company owned about 377,800 square meters of office buildings and commercial podium buildings for rent. Among the company's 28 major projects, 11 had an average occupancy rate of 100% in 2023, showing the company's ability to operate the leasing business.
Investment advice: The company's revenue grew steadily for the full year of 2023 and Q1 of 2024, which was affected by factors such as deductions and impairment, putting pressure on performance. The sales ranking was raised to 11th place, and Hangzhou continues to be deeply cultivated.
The company improved its sales ranking in 2023 and has been rooted in Hangzhou for a long time. Considering factors such as the pressure on the overall gross margin of the industry, we predict that the company's net profit for 2024-2026 will be 2,988 billion yuan, 3.518 billion yuan, and 3,981 billion yuan, EPS will be 0.96 yuan/share, 1.13 yuan/share, 1.28 yuan/share, and corresponding PE will be 6.69X, 5.68X, and 5.02X, maintaining the “recommended” rating.
Risk warning: the risk that the macroeconomy falls short of expectations, the risk of real estate sales falling short of expectations, the risk of falling sharply in housing prices, the risk of falling short of expectations, and the risk of policies falling short of expectations.