Event: The company released its 2023 annual report. In 2023, the company's revenue was 72.15 billion yuan, up 19.4% year on year; net profit to mother was 1.84 billion yuan, down 29.6% year on year. The performance was in line with expectations.

Revenue growth is steady, and performance is being pressured by multiple factors. The main reasons why the company's revenue increased 19.4% in 2023 and net profit to mother fell 29.6% year on year: (1) gross margin of real estate development and sales business fell 2.3 pct to 18.0% year on year; (2) increased marketing efforts, sales expenses increased 26.6% year on year, sales expenses increased by 0.2 pct to 3.3% year on year; (3) minority shareholders' share of profit and loss increased 0.5 pct to 47.0% year on year.

It has been in the 100 billion camp for 4 consecutive years and has maintained a leading position in Zhuhai. The company is “based in Zhuhai and facing the whole country” and insists on promoting sales elimination and asset revitalization as the focus of its work. The full year of 2023 achieved sales of 125.99 billion yuan, an increase of 4.8% over the previous year; it remained stable in the 100 billion camp for 4 consecutive years, ranking 14th in the Rikerui full-caliber sales list, an increase of 2 places over the previous year. Looking at the subregion, East China sold 69.27 billion yuan, accounting for 55.0% of sales, laying the foundation for the company's sales; South China sold 31.02 billion yuan, with a significant increase in sales indicators; the Zhuhai region completed sales of 19.127 billion yuan throughout the year, accounting for 15.2% of sales, making it the leading position in Zhuhai.

Obtain high-quality soil storage in a variety of ways and accurately invest in core cities. The company invested 68.24 billion yuan in 2023, with a land acquisition intensity of 54.2%, which is significantly higher than in 2022 (investment amount of 46.5 billion yuan in 2022, land acquisition intensity 38.7%); the company focuses on “9+2” core cities, and since 2022, all land acquisitions have been located in Tier 1 and 2 cities. In 2023, through public auctions, strategic mergers and acquisitions, equity cooperation, etc., the focus was on obtaining a total of 23 high-quality projects in first-tier and second-tier cities, including Shanghai's Hongqiao Central Business District and two “star plots” for the Songjiang Dongjing Rail Transit. The new projects are all located in core cities such as Shanghai, Guangzhou, Shenzhen, and Chengdu, and are very promising. According to Kerui data, Huafa shares added a value of 68.24 billion yuan in the full year of 2023, ranking 12th, the same as last year, ranking at the top of the industry.

The cost of financing is declining, and the controlling shareholders are strongly supporting it. The share of the company's short-term interest-bearing debt in 2021-2023 continued to be low. In 2023, it was 16.8% (less than 20%), a year-on-year decrease of 1.3 pct.

The company has reduced financing costs by replacing high-interest loans with low-interest operating loans, etc., and financing costs have continued to decline since 2019. In 2023, the company's average financing cost was 5.5%, down 28BP year over year. Huafa Group, the controlling shareholder of the company, promised to increase its holdings of the company's shares within 6 months from September 27, 2023. During the planning period, it has increased its holdings by 3.677 million shares through the Shanghai Stock Exchange system, which shows Huafa Group's strong support for the company's development.

Profit forecast and investment rating: According to the company's latest annual report, we lowered the company's net profit forecast for 2024/2025 to 19.7/2.11 billion yuan (previous value was 32.2/3.53 billion yuan), and the estimated net profit for 2026 is 2.24 billion yuan. The corresponding EPS is 0.72/0.77/0.81 yuan, and the corresponding PE is 8.7X/8.2X/7.7X. In the medium to long term, the company has the advantage of state-owned shareholders. It is based in Zhuhai and faces the whole country. Sales performance has increased steadily and maintained a “buy” rating.

Risk warning: The recovery in gross margin fell short of expectations; the recovery in market sentiment fell short of expectations; the fall in housing prices exceeded expectations.