The company's recent situation
The company recently participated in an offline strategy meeting organized by us in Shanghai and exchanged views with investors on the company's business situation. We have updated the company's recent status as follows.
reviews
Land acquisition efforts continue to be high, emphasizing the speed and certainty of removal. From January to May, the company added 9 new projects, all located in Hangzhou. The equity acquisition amount exceeded 10 billion yuan, corresponding to the equity level of land acquisition intensity of nearly 50%. We estimate that the total value added by the company exceeded 30 billion yuan. Although there is a high premium rate for some of the new land plots, considering the cost control capabilities that the company has been deeply involved in in Hangzhou for many years, we believe that the company can still achieve a certain degree of profitability while ensuring a safe margin of removal and rapid cash return. We estimate the average net interest rate for land acquisition from the beginning to date of about 6% (slightly lower than 8% in 2023). Looking back, considering that the overall flow rate within Zhejiang Province and regions other than Hangzhou is still slow, and that the Hangzhou purchase restriction policy may be relaxed or siphon surrounding regions, we expect that the company's subsequent land acquisition will still focus heavily on the core sector of Hangzhou.
Market volume increased in June, and the new push structure is expected to improve. In January-May, the company achieved sales of 43.3 billion yuan, a year-on-year decrease of 46%, mainly due to the small scale of pure new promotions during the period of the company, mainly renewals and promotions, corresponding to an overall elimination rate of about 70%. In June, the company launched a new Xia Ying Jinxiuli project, which was sold out for the first time, and the overall winning rate was only 9.34%; the company still has projects such as Feicui Jiayunfu, Chaoqi Jiangnan City, Aoyin Chaoguanfu, and Tangyue Yingcuifu. We estimate the total value of the goods is about 15 billion yuan. We believe that with the optimization of the company's push market volume and push structure, the company's sales situation is expected to improve. The company has already secured sales resources of about 160 billion yuan at the beginning of this year, adding an additional value of 30 billion yuan in January-May. We expect a total sales value of about 190 billion yuan this year, which is expected to support the company's sales reduction performance to continue to be superior to that of its peers.
The balance sheet remains healthy, and the debt structure is expected to continue to be optimized. In 2023, the company reduced its interest-bearing debt by 12 billion yuan to 41.5 billion yuan, and the net debt ratio at the end of the period fell sharply to 15%. We expect that in 2024, the company may further optimize the financing structure while maintaining basic stability in interest-bearing debt, including controlling the size of open market bonds maturing within one year, increasing the share of bank loans, and reducing the share of direct financing.
Since the beginning of the year, the company has issued 5 new public bonds, corresponding to a total financing of 3.3 billion yuan. The coupon interest rate has fallen between 3.55% and 3.80%. We believe it is expected to drive the average financing cost of the company down further (4.2% at the end of 2023).
Profit forecasting and valuation
Keep profit forecasts unchanged. The company's stock price has accumulated a 22% retreat from its highest point after surging in late April. Currently, trading is 8.9/8.1 times 2024/2025 P/E and 0.9/0.8 times 2024/2025 P/B. The company's land storage is highly focused on Hangzhou, with stable finance and smooth financing. We are optimistic about the return of valuation opportunities in the sector as the sector transitions from gaming policy to gaming fundamentals. Keep the outperforming industry rating and target price of 9.3 yuan unchanged, corresponding to 10/9 times 2024/2025 P/E and 17% 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.