Incident: According to Wind data, new and second-hand housing transactions in Hangzhou picked up marginally from May 9 to June 14.
Comment: The company's fundamentals remain steady, the Hangzhou property market is picking up marginally, and the company's sales are expected to benefit first.
The property market in Hangzhou is recovering marginally, and the company's sales are expected to be the first to benefit: on May 9, 24, Hangzhou completely lifted purchase restrictions, and the recent marginal improvement in Hangzhou's new and second-hand housing market transactions have improved markedly. From May 9 to June 14, 24, the average daily transaction area of new and second-hand housing in Hangzhou reached 23,000 square meters and 17,000 square meters respectively, up 44.7% and 13.1% from April 24. According to Kerui data, in May '24, the company achieved full-caliber sales of 7.7 billion yuan, a year-on-year decrease of 60.3%; in January-May '24, the company achieved sales of 43.3 billion yuan, a year-on-year decrease of 46.0%. Of these, it achieved sales of about 20 billion yuan in Hangzhou, ranking first in the local sales ranking in Hangzhou. The company is deeply involved in Hangzhou, and the saleable value is sufficient. It is expected that the recovery in the Hangzhou market will help the company's sales to rise steadily.
Actively supplement Hangzhou's high-quality land storage and lay a good sales foundation: By the end of '23, the company had accumulated 13.2 million square meters of land storage (including projects under construction and proposed), of which the total land storage area of Hangzhou was 9.37 million square meters. The urban layout of non-Hangzhou cities in Zhejiang Province included second- and third-tier cities with a solid economic foundation, such as Ningbo, Jinhua, Huzhou, and Jiaxing. From January to May '24, the company publicly contested 7 parcels of land, all located in Hangzhou, with a total land price of 18.8 billion yuan. The average land acquisition price was about 27,000 yuan/square meter, and the land acquisition sales ratio was about 43.4%. It actively complements Hangzhou's high-quality land storage and lays a good foundation for future sustainable development.
Revenue is expected to grow steadily, depreciation pressure has abated, and finances remain steady: in 2023, the company achieved revenue of 70.44 billion yuan, up 69.7% year on year; gross margin was 16.8%, down 0.72 pct year on year; net profit to mother was 2.53 billion yuan, down 32.4% year on year; the increase in revenue and unincreased profit was mainly due to factors such as the gross margin of real estate sales falling 0.71 pct to 16.4% year on year and asset impairment losses increasing by 3.08 billion yuan to 3.78 billion yuan year on year. In Q1 2024, the company achieved revenue of 13.7 billion yuan, a year-on-year increase of 35.9%; gross margin was 12.1%, a year-on-year decrease of 8.65pct; and net profit to mother was 660 million yuan, an increase of 17.8% year-on-year. The company's overall sales performance in 21-23 was good, and revenue is expected to maintain steady growth in 24-25; in '23, the company mainly prepared for large inventory price drops for some projects outside of Hangzhou, and the depreciation pressure on extraterritorial projects in Hangzhou eased; in view of the continued downward trend in the company's Q1 gross margin in '24, it is expected that the company's profit level may still bottom out in the short term. By the end of '23, the company's interest-bearing debt was 41.5 billion yuan, down 12 billion yuan from the previous year. The short-term cash debt ratio was 2.4 times, which can effectively cover short-term debt. The average financing cost is 4.2%, and it has a strong credit advantage.
Profit forecast, valuation and rating: Considering factors such as the company's 24-year sales decline and gross margin decline, we lowered the 24-25 EPS forecast to be 0.88 yuan, 1.16 yuan (the original forecast was 1.60 yuan, 2.02 yuan), and the new company's 26-year EPS forecast to 1.34 yuan. The current stock price corresponds to a 24-26 PE of 9.0/6.9/5.9 times. The company is deeply involved in Hangzhou, has good sales, and is financially stable, and maintains a “buy” rating.
Risk warning: Sales and land acquisition fall short of expectations, project delivery and settlement fall short of expectations, market downturn exceeds expectations, etc.