Description of the event

The company achieved revenue of 49.7 billion yuan (+24.5%), net profit attributable to mother of 2.2 billion yuan (-18.3%), and net profit of 2.1 billion yuan (-20.3%) after deducting non-return to mother.

Incident comments

The revenue side maintained steady growth, and profit margins were under pressure to erode performance. 2024Q1 achieved a completed area of 5.42 million square meters (+5.0%), and the settlement side performed better. The company achieved revenue of 49.7 billion yuan (+24.5%) in the first quarter. Under cyclical pressure, gross margin inevitably came under pressure. 2024Q1's comprehensive gross margin fell 3.2pct year over year to 18.6% (16.0% for the full year of 2023). Although the increase in investment income and effective rate control hedged against the decline in profit margins, 2024Q1 minority shareholders' share of profit and loss increased due to the settlement project structure, and in the end, the company achieved net profit of 2.2 billion yuan (-18.3%) to mother.

In terms of follow-up prospects, the 2024 completion target is 34 million square meters (-16.1% compared to 2023's actual), but the rising average sales price in the previous period may gradually be reflected in back-end settlement; advance receipt and potential carry-over volume are relatively abundant (1.17 in advance receiving/settlement at the end of 2023, 96.6 billion yuan in sold capital), and the company's performance is expected to gradually improve as low-cost land is settled one after another.

Sluggish demand and supply-side rhythms suppress short-term sales and investment performance, and the annual sales scale is still guaranteed. 2024Q1 was affected by sluggish industry demand and the pace of supply. The company achieved a sales amount of 63 billion yuan (-44.8%), an area of 3.67 million square meters (-41.8%), and an average price of 172,000 yuan/square meter (-5.1%); emphasized cash return, achieved sales return of 57.7 billion yuan (-44.2%), and a sales return rate of 91.5% (+1.0pct). The supply of high-quality land was limited at the beginning of the year. Combined with sluggish demand performance, the company was more inclined to settle production, and the land acquisition side was more cautious. 2024Q1 only expanded 4 parcels of land in the three cities of Tianjin, Xi'an, and Taiyuan, respectively, with a land acquisition amount of 5 billion yuan (-72.8%), an area of 590,000 square meters (-35.4%), average land acquisition price/sales price (-47.9%); land acquisition amount intensity 8.0% (-8.2 pct), average land acquisition price/average sales price (-49.5%) 2.2pct). Considering the company's abundant on-hand soil storage (by the end of 2023, the company's estimated land storage capacity was 77.9 million square meters), additional construction was started to lay the foundation for the second half of the year (2.83 million square meters of new construction in Q1, +42.9% year over year; 18 million square meters planned for the whole year, +20.7% compared to actual 2023), and the continuous optimization of expectations from subsequent policies, the company's annual sales scale is still guaranteed.

Taking the initiative to increase the dividend ratio highlights the responsibility of central enterprises, and boosts market confidence by actively increasing holdings and repurchases. The company revises the 2023-2025 shareholder return plan to increase the 2023-2025 cash dividend ratio by no less than 40%; the actual cash dividend ratio in 2023 is 40.3% (considering previous stock repurchases, the total dividend ratio is 42.4%), which is a significant increase from the 29.4% dividend ratio in 2022; considering subsequent performance, it is still expected to remain generally stable, providing at least a bottom line dividend value for investors. Implementing the repurchase promise, as of 2024/3/7, when the repurchase period expires, a total of 105 million shares have been repurchased, and the actual controller has increased its holdings by a total of 0.27 million shares, amounting to 250 million yuan. Taking the initiative to increase repurchases has strongly boosted market confidence and demonstrated the responsibility of central enterprises.

Cyclical pressure does not change the long-term logic, and the pressure on valuation due to pessimistic expectations in the early stages is expected to gradually ease. Although cyclical pressure is inevitable, considering competitive advantages and long-term positions such as financing, land acquisition, and rate control, the expectations implied by the early valuation are already too pessimistic. It is only necessary to wait for a repair opportunity to release greater flexibility, which has recently been reflected in stock prices. When high-quality land storage enters the settlement period in recent years, profitability is expected to increase; pattern optimization and share increase are the company's long-term deterministic logic, increasing the dividend ratio highlights the responsibility of central enterprises, and actively repurchases to increase holdings boosts market confidence. Net profit due to mother for 2024-2026 is estimated to be 121/13/13.7 billion yuan respectively, corresponding PE is 8.8/8.2/7.8X, maintaining a “buy” rating.

Risk warning

1. There is some uncertainty about when gross margin will bottom out;

2. If housing prices continue to decline, the company will still have some depreciation pressure.