Incident: On May 27, the company issued the “Notice on the Privatization of Huafa Property Services Group Co., Ltd.”
Comment: Strengthen resource integration to enhance profitability, sufficient revenue reserves, generous dividend performance, and sound financial resources.
Privatize Huafa Property Services to strengthen resource integration and profit improvement: Huajin Investment Co., Ltd., an overseas wholly-owned subsidiary of the company, plans to privatize Huafa Property Services Group Co., Ltd. (0982.HK, the company's consolidated subsidiary, “Huafa Property Services” for short). After privatization, 57.44% of Huafa Property Services shares will be cancelled. The share cancellation price of this privatization plan was HK$0.29 per share, with a total transaction price of about HK$1,676 million. The price-earnings ratio calculated based on Huafa Property Services' net profit in 2023 is about 10.7 times. Compared with WIND's consensus forecast PE average for 2024 of the 10 listed property companies we focused on as of May 29, 24, the average PE was about 11.3 times, and the overall transaction consideration was reasonable. In '23, Huafa Property Services' revenue was 1.78 billion yuan, and net profit was RMB 250 million. It is expected that after the privatization of Huafa Property Services, it will help the company to more accurately share and integrate resources between real estate and properties, while further increasing the level of contribution of Huafa Property Services to the company's net profit.
Adequate resources to be settled, dividend performance is generous: in '23, the company's revenue was 72.1 billion yuan, up 19.4% year on year (after traceability, same below), mainly due to the increase in the settlement scale of the development business, the final contract debt increased 15.7% year on year to 93 billion yuan, with sufficient resources to be settled; the company's comprehensive gross margin was 18.1%, of which the gross profit margin of the development business was 18.0%, a decrease of 2.3 pct year on year; the company's net profit to mother fell 29.6% year on year, mainly due to increased factors such as a decline in gross profit in the development business, a decline in investment income from long-term equity investments, and inventory impairment. The decline in annual gross margin of development narrowed marginally, and the short-term inventory impairment pressure gauge was sufficient. The company plans to pay a dividend of 1.02 billion yuan in '23, accounting for 55.4% of net profit due to mother in '23, an increase of 25 pct over the previous year, and the dividend performance is generous.
Abundant core soil storage, heavy sales in East China: In 23 years, the company acquired 23 new projects, focusing on Shanghai, Hangzhou, Chengdu, Changsha, Xi'an, etc., with sufficient core soil storage; achieved sales of 126 billion yuan, an increase of 4.8% over the previous year, forming a “3+1” business layout. The East China/South China/Zhuhai region and the northern region accounted for 55%, 25%, 15%, and 5% of sales in 23 years, respectively. According to Kerry data, from January to April '24, the company achieved cumulative sales of 24 billion yuan, a year-on-year decrease of 58.3%, mainly due to declining market demand and a high year-on-year base.
Finances remain steady, and financing costs still need to be optimized: by the end of '23, the company's interest-bearing debt was 144 billion yuan, down 1.1% year on year; the company's balance ratio after deducting advance payments was 63.3%, net debt ratio was 74.2%, short-term cash debt ratio was 1.92 times, financial leverage declined steadily, and overall remained steady; overall average financing cost was 5.48%, down 28 BP year on year.
Profit forecast, valuation and rating: Considering the weak recovery of demand in the real estate market, housing prices in some cities are under obvious pressure, or affecting the company's sales progress and gross margin repair, we lowered the company's 24-25 EPS to 0.82/1.00 yuan (original forecast was 1.72/2.02 yuan), the new 26-year EPS forecast was 1.12 yuan, and the current stock price corresponds to a 24-26 PE of 8.8/7.1/6.4 times, respectively. The company has been operating steadily in recent years, actively expanding core land storage. The product strength is strong, and the credit advantage of state-owned enterprises is in the future Performance improvements can be expected, and the “buy” rating is maintained.
Risk warning: Sales and land acquisition fall short of expectations, construction and delivery fall short of expectations, market downturn exceeds expectations, etc.