Description of the event

In 2023, the company achieved revenue of 72.14 billion yuan (+19.4%); net profit due to mother of 1.84 billion yuan (-29.6%), net profit after deduction of 870 million yuan (-63.8%). Dividend rate 55.4% (+25pct), dividend rate 5.9%. 2024Q1 earned 350 million yuan (-35.3%).

Incident comments

Factors such as declining gross margin and return on investment, and increased depreciation dragged down performance, and large dividends showed the sincerity of state-owned enterprises. In 2023, the company's revenue was 72.14 billion yuan (+19.4%), while net profit to mother was 1.84 billion yuan (-29.6%). The performance was significantly weaker than revenue, mainly due to the consolidated gross margin falling 2.0pct to 18.1% year on year, and investment income in joint ventures fell 99.2% year on year to 100 million yuan, with an estimated impairment of 1.64 billion yuan (840 million yuan for the same period last year). Although the land tax increase rate and period expense rate decreased by 0.6 pct, 0.9 pct to 3.8%, and 5.9%, respectively, the valuation of investment real estate brought about a fair value increase of 820 million yuan, it was still difficult to overcome the drag on performance due to factors such as declining gross margin and investment income and impairment. 2024Q1's net result was 350 million yuan (-35.3%), mainly due to a decrease in both revenue and gross margin. As of the end of 2023, the company had pre-collected 93.5 billion yuan (+15.7%) of buildings on its account, with advance payments/development business revenue = 1.37X. Ample advance payments guarantee an increase in post-settlement revenue. The downward pressure on gross margin was gradually released, and the outlook for later performance remained relatively steady. It is worth noting that the company's dividend ratio in 2023 was as high as 55.4% (+25pct), and the dividend rate was as high as 5.9%. Large dividends highlight the responsibility of state-owned enterprises.

The sales scale has remained stable at 100 billion for 4 consecutive years. Land storage in high-energy cities has continued to be increased, and sufficient land storage guarantees later sales.

In 2023, the company's sales volume was 126 billion yuan (+4.8%), and the industry ranking rose 4 places to 14th place. It remained stable in the 100 billion camp for 4 consecutive years, with a sales area of 3.99 million square meters (-0.4%), and an average sales price of 32,000 yuan/square meter (+5.2%). The East China region accounts for 55% of sales, maintaining the position of ballast stone; the South China region accounts for 24.6%, which is a significant increase; the Zhuhai region accounts for 15.2%, which is the leading position in Zhuhai; and the northern region accounts for 5.2%. In terms of land acquisition, the company actively won projects in high-energy cities such as Shanghai, Guangzhou, Hangzhou, Nanjing, and Chengdu, and obtained a total of 23 high-quality projects throughout the year, adding a full caliber value of 72.7 billion yuan, ranking 12th in the industry. Land acquisition planning and construction area = 4.97 million square meters, land acquisition/sales area = 124.4%. Land acquisition is active, and the replenishment intensity is at the top of the industry. In 2023, the new construction volume was 2.05 million square meters (-28.3%), the completed area was 5.15 million square meters (-22.0%), and the unfinished soil storage was 16.23 million square meters (-8.4%). The land for sale was abundant to ensure an increase in sales scale in the later stages.

The size of debt has been declining steadily, and financing costs have been continuously optimized. By the end of 2023, the company's interest-bearing debt balance was 144 billion yuan (-1.1%), and interest-bearing debt declined steadily. Among them, long-term debt accounted for 83%, and the debt structure was stable. The financing cost was 5.48% (-0.28pct), and the three red lines remained stable in the green position. The company completed the second case of equity financing in the industry during the reporting period, successfully raising more than 5.1 billion yuan in capital. The first pre-REITS project for rental housing was implemented, and financing channels were diversified to ensure the company's healthy cash flow.

Investment suggestions: 1) In the short term, the company actively sells land, leads the growth rate in the industry, and has sufficient saleable land storage to guarantee scale growth; 2) In the long run, optimizing the industry supply pattern is expected to rely on strong financial resources to build on its base in Zhuhai, invest deeply in the core city, and pursue high-quality growth; 3) The company's three red lines are steady, and capital costs are declining. There is room for further improvement at the broad cost level; 4) Huafa Group actively increases its holdings and fixed subscription increases, showing that Huafa Group is actively increasing its holdings and subscribing to listed companies Support; dividend ratio increased substantially to 55.4 in 2023 %. Large dividends show the responsibility of local state-owned enterprises. The company's net profit for 2024-2026 is estimated at 18.9/19.4/1.97 billion yuan, with performance growth rates of 3%, 2%, and 2%. The corresponding PE is 9.1/8.9/8.7X, giving it a “buy” rating.

Risk warning

1. Market sales continued to be weak, and the company's sales scale growth fell short of expectations; 2. The amount of land acquired by core cities fell short of expectations.