Description of the event

The company announced that 2024Q1 achieved revenue of 6.96 billion yuan (-51.5%), net profit to mother of -280 million yuan (profit of 510 million yuan in the same period last year), and a comprehensive gross profit margin of 14.9% (-2.6 pct).

Incident comments

Revenue and profitability have both declined, and further efforts are still needed for subsequent results. 2024Q1 achieved revenue of 6.96 billion yuan (-51.5%). The sharp decline in revenue was mainly due to a decrease in the amount of settlement resources. Earnings lost 280 million yuan, mainly due to a sharp drop in revenue, the consolidated gross margin fell 2.6 pct to 14.9% year on year. In addition, the cost ratio for the period increased 11.7 pct to 22.9% year on year due to the decline in revenue. As of 2024Q1, the advance accounts receivable of 68.83 billion yuan (-24.6%) in the company's statement, accounts received/2023 settlement revenue = 81%. Later settlement revenue may still be under pressure. The bottom margin of gross margin fluctuates, depreciation pressure on inventory is still present in the context of falling housing prices, and further efforts are needed for subsequent results.

The sales scale is at the forefront of the industry, and active contraction of investment and construction commencement is a rational choice. 2024Q1 has sales of 16.73 billion yuan (-62.1%), sales area of 984,000 square meters (-59.5%), average sales price of 17,000 yuan/square meter (-6.4%), ranking 14th in the industry (10th in the 2023 industry ranking). Due to the tightening capital chain, the company invested prudently, and no announcements were made to acquire new projects in the first quarter. 2024Q1 has a new construction volume of 278,000 square meters (-51.9%), and a completed volume of 1.49,000 square meters (+8.0%). By the end of 2023, the company had not settled 41 million square meters of soil storage (-20.9%). Soil storage is still on a certain scale, but the share of marketable new inventory has declined. Sales continue to be weak, the capital chain is getting tighter, and the company's front-end investment and active contraction in construction are rational choices.

Reducing leverage is the main trend, and financing costs continue to decline. As of the end of 2023, the company's interest-bearing liabilities totaled 91.91 billion yuan (-20.2%). Reduced leverage was the company's main trend, with bank loans accounting for 75.5% and long-term debt accounting for 55.6%. The three red line indicators are in the green range, with a balance ratio of 68.7%, a balance ratio of 61.3% after excluding advance payments, and a net debt ratio of 53.2%.

Financing costs continued to decline, and the weighted average cost of debt financing in 2023 was 4.36% (-0.17pct).

Investment advice: Constrained by declining market demand and contraction in industry credit, the company's operating orientation also tends to be cautious; as debt pressure approaches and the capital chain is tightening, the company's attitude of focusing on sales repayment and actively collateralizing high-quality assets in exchange for cash flow is worthy of recognition. As an established high-quality real estate enterprise, the company still has relatively outstanding operating efficiency and resource endowments. If the policy is further relaxed and market demand stabilizes, the company is expected to usher in marginal improvements at the management level with efficient operation and excellent brand. The net profit to the mother is expected to be 9.6/10.2/1.05 billion in 2024-2026, with a growth rate of 8.4%/5.7%/3.2%. The corresponding PE is 18.7/17.7/17.1X, maintaining the “increase” rating.

Risk warning

1. Sales declined, cash payments declined, and pressure on the capital chain was further tightened; 2. Asset disposal was blocked, and pressure on the capital chain increased.