Core views:
The dividend ratio increased dramatically, and consolidated settlement led to revenue growth. According to the company's annual report, in 2023, Huafa Co., Ltd. achieved total operating income of 72.14 billion yuan (+19.4% year over year) and net profit to mother of 1.84 billion yuan (-29.6% year over year). The annual dividend is planned to be 1.02 billion yuan, and the corresponding dividend ratio is 55%, which is a sharp increase. In 2023, Huafa Co., Ltd. achieved settlement revenue of 68.35 billion yuan (+20.4% YoY), corresponding settlement area +18.2% YoY, and average price +1.8% YoY.
Settlement gross margin is under pressure, and declining investment income, increased impairment, and confirmed increases in combined income tax are the main reasons for the decline in profits. The company's overall gross margins and real estate gross margins in '23 were 18.1% and 18.0% respectively, down 2.0pct and 2.3pct respectively from '22. The gross margin will pick up after the recent settlement of high-profit projects. Asset and credit impairment increased by 800 million dollars compared to '22, investment income decreased by 1.26 billion dollars, and the income tax rate was raised to 41%, making profit performance less than revenue.
Stable sales and investment performance, focusing on advantageous markets. In 2023, Huafa Co., Ltd. achieved sales volume of 126 billion yuan (+4.8% year over year), and the sales ranking rose to 14th place in the country, thanks to the company's layout shifting to a high-energy market. Huafa Co., Ltd. acquired 57.5 billion yuan of land throughout the year. The amount of land acquisition efforts was 21 pct higher than that of 44 mainstream housing companies, and the enthusiasm for expansion was high. Investment in a strong dominant market. Investment in East China accounts for 73%, and the gross margin obtained from the project for the whole year was about 31.2%, an increase of 4.2 pcts over '22.
With rational use of financial resources, financing costs continue to decline. As of December 31, 2023, Huafa Co., Ltd.'s total interest-bearing debt was 144 billion yuan, a year-on-year decrease of 1%, and comprehensive financing costs were reduced to 5.48%. The three red line ratings remain in the green category.
Profit forecasting and investment advice. The sales and investment performance of Huafa Co., Ltd. in '23 was significantly superior to the national market level. Current settlement and depreciation also absorbed the performance pressure of inefficient stocks. The company's net profit for 24-25 is estimated to be 2.35 billion yuan or 2.80 billion yuan, +28% over the same period. The net profit returned to mother in '24 corresponds to 11xPE, giving a reasonable value of 9.39 yuan/share, maintaining a “buy” rating.
Risk warning. The improvements fell short of expectations, including policy improvements, the sustainability of residents' demand falling short of expectations, etc.; supply-side clean-up disrupted market sentiment; settlement scale and profit margins fell short of expectations.