Settlement and gross margin declined, and a safe transition strategy was gradually implemented
The company released its quarterly report on April 29. 2024Q1 achieved revenue of 61.59 billion yuan (YOY -10.1%) and net profit to mother of 360 million yuan (YOY -125.0%). We maintain the 2024-2026 EPS profit forecast of 0.72/0.78/0.82 yuan, respectively. A shares (000002 CH) refer to the average PE value of 11.1x (Wind) of comparable companies in 2024. Considering that the company's diversified assets are expected to be revalued, the target price is 8.64 yuan (previous value of 10.08 yuan) to maintain the “increase” rating; H shares (2202HK) refer to the average discount rate of 43% in the past six months, giving A-shares a 43% discount. HK$5.35 (previous value: HK$6.03), maintaining the “Overweight” rating.
Losses were caused by a decline in settlement revenue and gross margin of development. Revenue from the operating service business increased by -22.8% of the company's completed area in 24Q1 compared to the same period last year, completing 12.0% of the annual plan. As a result, settlement area/settlement revenue was -26.7%/-13.8%, and settlement gross margin was -6.7pct to 10.5% year over year. As high-land price projects obtained in '21 were settled, compounded by other rigid expenses at the group level, there was a net loss due to net loss due to the fact that development and settlement profits are still facing challenges this year. Affected by the weak boom in the industry, the sales scale shrank further. The sales amount was 58 billion yuan, -42.8% YoY. Front-end investment was prudent. During the period, only 3 plots of land were acquired in 1 month, with a total equity acquisition amount of 900 million yuan. New construction was -71.2% compared to the same period last year. At the end of the period, land reserves were -19% YoY. The overall development business contracted, while the operating service business increased by 12.0% year over year.
Short-term debt pressure has increased, and the strategic focus of a safe transition has gradually put pressure on the company's short-term debt. Compared with the end of 2023, short-term cash debt decreased by 56 pcts to 1.0, and the net debt ratio was +11 pcts to 54.7% year on year. In the annual report, the company stated that the strategic focus of this year is safety transition and transformation, mainly focusing on three aspects: 1. Ensure a safe bottom line: Revitalize stocks through bulk transactions, etc., transaction repayments in 24 years are not less than 30 billion dollars, and 2024Q1 has already achieved 4.2 billion repayments; 2. Leverage reduction: Reduce interest-paying debt by 100 billion dollars in 24-25 years; 3. Adhere to the sustainable endogenous development of the development business. During the period, the company also carried out organizational adjustments to concentrate and optimize management resources. The 2024Q2-Q4 maturing public debt is about 22.4 billion, and active stock revitalization is expected to ease the pressure on the company's cash flow.
Real estate revitalization, majority shareholders, and policy support helped the company survive the winter with abundant real estate resources. On April 8, the company successfully sold CICC Yinli's consumer infrastructure REIT, raising a net capital of 3.26 billion yuan. At the same time, Huaxia Wanwei Warehousing REITs also entered the declaration. The initial sale raised about 1.16 billion yuan. The guaranteed housing REIT is also being promoted to help revitalize the company's stock. Major shareholders also supported the company: Shenzhen Railway Group subscribed to a 29.75% share of CICC Yinli REIT. The policy repeatedly mentions “equal treatment” for housing enterprises with different forms of ownership, which also supports the company. Operational property loan policies and urban financing coordination mechanisms can all form financial support for the company. With the help of various parties, the company added 3.33% in financing costs during the period, down 28 bps from 2023.
Risk warning: downside risk in industry sales, credit risk of housing enterprises.