The company's recent situation
The company's stock price has risen 22% from its low on April 23 to the close of trading on May 24, but there is a phased lag compared to the average increase of more than 30% of key housing enterprises. We think it may be due mainly to market concerns that the lifting of the company's fixed new shares will cause selling pressure in the future. We are optimistic about Huafa Co., Ltd.'s potential to make up for the increase as a leading state-owned enterprise with outstanding operating flexibility, sufficient performance potential, and high valuation and cost effectiveness. Considering that the recent combination of policies on both sides of supply and demand is expected to increase the visibility of subsequent fundamentals from volume to price stabilization, we believe that positive sentiment at the beta level is expected to suppress fluctuations at the technical level to a certain extent, and investors are advised to choose the timing and layout.
reviews
High-intensity investment and rapid stock exchange, and abundant high-quality saleable resources. The company's land acquisition intensity in 2023 was over 60%. The new supplies were all located in first-tier and second-tier cities such as Shanghai, Guangzhou, Nanjing, Chengdu, and Hangzhou. We estimate that the additional value of the goods was about 150 billion yuan, which led to an increase in saleable resources at the end of the year and the continued optimization of the structure. 1Q24 added a high-quality project in Shanghai Gumei and Guangzhou Haizhu, with premium rates of 10%/59% respectively. We estimate the total value of goods to be close to 10 billion yuan, and it is expected that cash flow will return quickly in the future.
At the end of 2023, the company's sales value was about 460 billion yuan, of which ultra-high and high-energy cities accounted for nearly 80%. If the fundamentals and price side are expected to stabilize in the future, we believe that the company's upward operating flexibility is considerable.
There are plenty of resources available, and performance potential is expected to be unleashed one after another. At the end of 2023, the company's contract debt increased 16% year over year to 93 billion yuan, and further increased to 97.3 billion yuan at the end of 1Q24, which is equivalent to 1.25 times our forecast revenue for 2024, and there is a strong guarantee for subsequent settlement scale growth. At the same time, considering that the company's new land acquisition project will gradually enter the settlement cycle after 22 years (the net interest rate for the corresponding project will return to 6-8%), we believe there is little room for further decline in profit margins (2023/1Q24 gross margin before tax was 18%/15%, respectively), and we expect the company's profit to return to a high single-digit growth center this year and next two years.
Technical factors have slightly suppressed the increase in stock prices, which is expected to reverse in the future. The company's stock price rose by 22% cumulatively from the lowest point on April 23 to the close of May 24, slightly outperforming the average increase of more than 30% for key A-share housing companies; and compared with the increase in the upward band in the past 2 years (about 45%/33%/28% in each round of increases in March-April '22, 11-December '22, and July-August '23), we think the lifting of the ban on APRs may have created selling pressure later (450 million shares placed by fixed increase institutions were listed and circulated on May 6, with an issue price of $8.07)). The company's latest transaction was 0.9 times the 2024 P/B, and there is still plenty of room for 1.5 times the 2020-23 P/B high. We believe that against the backdrop of an overall drop in sales and a combination of policies expected to boost expectations, the positive factors of the 6-12 month industry beta may hedge against fluctuations at the technical level. Investors are advised to wait for the phased release of pressure and then take the opportunity to allocate it.
Profit forecasting and valuation
Keep profit forecasts unchanged. The current share price is trading 0.9/0.8 times 2024/2025 P/B. Keep the target price of 9.2 yuan unchanged, corresponding to 1.1/1.0 times 2024/2025 P/B and 26% upward space.
risks
The recovery rate of the urban landscape was weaker than expected; the quality and quantity of new soil storage fell short of expectations.