The company's recent situation
The company recently participated in an online conference call organized by us to communicate with investors about recent business developments.
reviews
The sales performance in the first 5 months was superior to that of peers, and the opening of key projects in the middle of the year is expected to continue to strengthen its leading edge. Driven by high-quality soil storage, excellent product strength, and individual hot projects, the company announced a total sales volume of 101.7 billion yuan in January-May, a year-on-year decrease of 31%, and the decline was slightly less than the industry average (average year-on-year decline of 37% and 44% for Crewe Top 10 and Top 20 housing enterprises). The company expects several key projects to enter the market in June, such as Shanghai Xuhui Binjiang and Shenzhen Chaosong. We believe this will further strengthen the company's leading edge on the sales side. Considering the company's abundant supply and high quality (excluding Hongyang's total supply of 60.7 billion yuan this year, 46% and 33% are located in first-tier and second-tier cities), we expect the company's annual sales performance to outperform comparable peers.
Asset quality is solid, marketing volume and price are balanced, cost control is strong, and profit margins are resilient. Over 80% of the company's land reserves are located in first-tier and second-tier cities. We estimate the gross margin of land acquisition in 2019-23 is 23/21/19/25/ 23%. Considering that the company's marketing strategy focuses on price balance, we believe that the profit margin on land acquisition is highly realized; the combination strengthens the ability to control expenses (historical sales and management expense ratios mostly remain at 3-4%, which is basically the lowest level in the industry), and we think the comparative advantage of the company's profit margin is obvious.
With good value, quality and quantity, the pace of investment and development is relatively calm, and the financial strength of central enterprises provides support for flexible land supplementation. We estimate that the company's current unsold goods are worth about 900 billion yuan, which can support 2-3 years of sales development. According to the company announcement, the total land acquisition intensity of 5M24 is about 10% (including Hongyang), mainly due to slow land supply by local governments since this year and the company's own “low front to high” investment pace (5M23 total caliber land acquisition intensity is about 6%). At the end of 2023, the company had a debt withholding ratio of 51.8%, a net debt ratio of 38.7%, and a short-term cash loan ratio of 2.6 times. The average financing cost remained within the industry's lowest range of 3.55%. We believe that the company's financial and capital side advantages are expected to provide strong support for the flexible capture of investment opportunities in the second half of the year.
The commercial operations sector is expected to achieve a revenue volume of 10 billion yuan by the end of the 14th Five-Year Plan. The rental rate of the company's mature office buildings at the end of 2023 was nearly 90%, and revenue related to shopping centers increased 40% year-on-year in 2023. In terms of new projects entering the market, the company plans to add 4, 5, and 8 new shopping centers/offices/other commercial projects within the 14th 5 phase, and they will all continue to focus on deepening the development of ultra-high and high-energy cities.
Profit forecasting and valuation
Maintain the 2024-25 earnings forecast. After the company's stock price surged in late April, it has accumulated a cumulative retracement of about 13% from its high point. Currently, trading is 5.9/5.8, 0.4/0.3 times the 2024-25 P/E and P/B. Considering that the company's land storage focuses on core leading cities and that central enterprises have outstanding financial advantages, we are optimistic about the return of valuation opportunities in the sector as the sector transitions from the bottom of game policy to the fundamentals of gaming. Maintaining an outperforming industry rating and target price of HK$19.12 (7.9/7.7 times 2024-25 P/E and 33% upside).
risks
The recovery in industry fundamentals fell short of expectations; new soil reserves and quality were worse than expected.