Net profit due to 2023 was dragged down by depreciation, and 2024Q1 returned to positive growth. In 2023, the company achieved operating income of 70.4 billion yuan, +70% year-on-year; net profit to mother was 2.5 billion yuan, -32% year-on-year. On a quarterly basis, 2023Q4 contributed little to profit, mainly because at the end of the year, the company calculated asset impairment preparations (mainly inventory price reduction preparations) of 4.3 billion yuan, which dragged down 2.2 billion yuan in net profit to mother. With 2024Q1, the company achieved operating income of 13.7 billion yuan, +36% year-on-year; net profit to mother was 660 million yuan, a year-on-year correction of +18%.
Profit margins continue to be under pressure. In 2023, the company's net interest rate to mother was 3.6%, down 5.4 percentage points from the previous year, mainly affected by accrued depreciation; overall gross margin was 16.8%, down 0.7 percentage points from the previous year; in addition, net profit to mother accounted for 89%, down 7 percentage points from the previous year. 2024Q1, the company's net profit margin was 4.8%, while the gross profit margin of 12.1% continued the downward trend.
Improve sales rankings and maintain investment intensity. In 2023, the company's contracted sales amount was 153.5 billion yuan, which was basically the same as -0.3%, ranking 11th in the industry, up 2 places from the previous year; 2024Q1 ranked 8th in the company's sales ranking, rising 3 places. In 2023, the company added a total land price of 57.7 billion yuan for land storage, -15% over the same period. The investment intensity calculated based on land acquisition amount/sales amount was 38%, maintaining the leading level in the industry. By the end of 2023, 60% of the company's soil storage was located in Hangzhou, 25% in Zhejiang Province (excluding Hangzhou), and only 15% outside Zhejiang Province.
The financial situation continues to be optimized. At the end of 2023, the company's balance ratio excluding accounts receivable was 56%; the net debt ratio was 15%, down 40 percentage points from the previous year; monetary capital was 32.7 billion yuan, +34% year-on-year, thanks to net operating cash flow reaching a high level of 32.7 billion yuan; and the short-term cash debt ratio was 2.4 times. In 2023, the company's financing costs were 4.2%, down 0.4 percentage points from the previous year.
Investment advice: Considering the downward pressure on gross margin of the real estate development business and the impact of impairment calculations, we lowered our profit forecast. The company's net profit for 2024/2025 is estimated to be 2.7/2.9 billion yuan (the previous forecast was 4.4/5.1 billion yuan, respectively), corresponding earnings per share of 0.87/0.94 yuan, and 7.9/7.3 times the current stock price PE, respectively, to maintain a “buy” rating.
Risk warning: The contracted sales scale, carry-over progress, and profit level of the company's development properties fell short of expectations.