Matters:
In 2023, the company achieved operating income of 70.443 billion yuan, a year-on-year increase of 69.73%, and net profit to mother of 2,529 billion yuan, a year-on-year decrease of 32.41%; in the first quarter of 2024, the company achieved operating income of 13.7 billion yuan, an increase of 35.85% year-on-year, and net profit to mother of 660 million yuan, an increase of 17.84% year-on-year.
Commentary:
Accrued impairment affected the company's profits, and the decline in gross settlement margin narrowed. The company's revenue growth rate in 2023 was far higher than the profit growth rate. The main reasons are: 1) the estimated asset impairment rate was about 3.8 billion yuan, up 438% year on year; 2) the gross margin settled in 2023 was about 16.8%, down 0.7 pcts from 2022, but the decline narrowed markedly. With the gradual carry-over of the high premium rate projects obtained before 2022, the company's strong cost control capabilities, high operating efficiency, and good reputation are expected to gradually recover.
Sales volume decreased 0.3% year over year in 2023, but Hangzhou equity sales increased 25% year over year. 1) In 2023, the company achieved sales of 153.5 billion yuan, a year-on-year decrease of only 0.3%, far lower than the sales decline of the top 100 real estate companies.
2) Equity sales amount was 74 billion yuan, of which the equity sales amount in the deeply cultivated city of Hangzhou was 64.7 billion yuan, bucking the year-on-year trend, up 25% from the previous year, accounting for about 87% of total equity sales, ranking first in Hangzhou. 3) Single high-energy city strategic security companies still had strong performance during the downturn in the industry. In the first quarter of 2024, the company's equity sales fell 32% year on year, lower than the decline of the top ten housing enterprises (-45%). It is expected that the sales decline in 2024 may be lower than that of the national layout housing enterprises.
The value of new land in 2023 ranked 9th in the country, and the floor price of land acquisition increased 17% year over year, focusing more on the core area. 1) According to Kerry's new value list of Chinese real estate companies, the company added 105.75 billion yuan in value in 2023, ranking 9th in the country, making it the only private enterprise in the top ten in the list. 2) The total planned construction area of the company's new projects in 2023 was 3.33 million square meters, a year-on-year decrease of 30%, but the average floor price of land acquisition was 17,320 yuan/square meter, an increase of 17% over the previous year. The land acquisition focused more on the core area, with an equity ratio of 44%. 3) By the end of 2023, Hangzhou accounted for 60% of the company's land reserves, 25% of the second- and third-tier cities in Zhejiang Province, and 15% outside Zhejiang Province. The management radius is concentrated, which helps the company maintain its brand advantage and improve operational efficiency in Zhejiang.
Finances are sound, and financing costs continue to fall. 1) By the end of 2023, the company's short-term debt was 13.507 billion yuan, accounting for only 32.53%, lower than the year-end monetary capital (32.704 billion yuan). The short-term cash debt ratio was 2.42 times, which can effectively cover short-term debt. 2) The company's comprehensive financing costs have continued to decline in recent years. The average financing costs in 2020, 2021, 2022, and 2023 were 5.2%, 4.9%, 4.6%, and 4.2%, respectively.
Investment advice: The company has been deeply involved in Hangzhou for many years and has been transformed into a brand, operation and cost moat to support the company to create differentiated products, enhance profitability, and help improve future profit margins. The company's 23-year settlement speed exceeded expectations. We expect 24-26 revenue to be 757, 722, and 74.4 billion (last forecast revenue of 58.1 billion yuan and 64.7 billion yuan respectively), and EPS for 24-26 will be 0.99, 1.33, and 1.48 yuan, respectively. The company has established a clear competitive advantage in Hangzhou. It is expected that it can maintain a high level of ROE in the medium to long term, and give a 10% valuation premium on the remaining revenue model. The company's target price for 24 years is 10 yuan, corresponding to PE 10 times 24, maintaining the “recommended” ratings.
Risk warning: The industry continues to shrink unilaterally, and the market is declining beyond expectations.