Embrace Shencheng's endowments and welcome the realisation of resources
As a local urban investment backed by the Shanghai State-owned Assets Administration Commission, the company is deeply involved in Shanghai, focusing on real estate development and rental housing operations. It has significant endowment advantages and solid fundamentals. This year, it has entered a period of rapid growth in real estate sales and performance. At the same time, the restoration of market popularity under the care of the Shanghai New Deal, the promotion of government storage and inventory removal policies, and the development space for guaranteed housing under the new real estate model are all factors favorable to the company's medium- to long-term development. We forecast revenue for 2024-2026 to reach 78/107/12.8 billion, net profit to mother of $556/12.32/1,495 million yuan, EPS of 0.22/0.49/0.59 yuan, and BPS of 8.38/8.81/9.34 yuan respectively. Comparatively, the company's 2024 PB was 0.62 times, and the company's 2024 PB was 0.62 times, and the target price was 5.20 yuan, which covered the “buy” rating for the first time.
Property development: Focusing on Shanghai's core assets to meet the inflection point of sales and performance, the company relied on Shanghai City Investment's platform resources and industrial synergy advantages to deeply cultivate the Shanghai real estate market, forming a dual cycle pattern integrated with the collaborative development of the CITI industry chain and the company's development and operation. With the entry of the company's core project, Luxiangyuan, supply efforts will increase in 2024. Regardless of additional soil storage, we expect supply volume to increase by 77%/124% in 2024/2025 compared to 2023 sales, respectively, which is expected to drive sales into a period of rapid growth. From a medium- to long-term perspective, the company also proposed that in future development plans, the development and sales scale will remain at the level of 10 billion dollars. This means that the company is expected to rely on location advantages to actively replicate the old renovation model of the Luxiangyuan Project, seek opportunities to expand storage, and strengthen future sales stability. Meanwhile, the Shanghai market is showing signs of recovery, creating good opportunities for the company's development.
Guaranteed housing business: a new engine for performance growth based on favorable policies
On August 8, 2019, the company released the rental housing brand “CITIC Kuanting”. Since then, the leasing business has rapidly entered large-scale operation. As of June 24, the total number of active communities the company has reached 8, and the total number of rental properties that have entered the market is about 16,000. At the same time, brand export is being implemented. The superior location laid the foundation for rapid project cultivation and steady operation, and achieved rental revenue of 290 million yuan in 2023. Furthermore, favorable policies continue: the new model of real estate development broadens the development space for guaranteed housing, the government's collection and savings benefit the urban investment platform, and the local government also has stock conversion policy support. Furthermore, the company is the first urban investment platform to achieve the entry of guaranteed housing REITs into the market, and it is of far-reaching significance in opening up the full cycle of financial investment management and withdrawal.
Financial analysis: Low levels are poised for growth, NAV valuation has a high discount rate
Affected by the pace of sales and carry-over, the company's performance has been low for the past two years. According to the 2023 annual report and our estimates, the company's saleable value is about 58.8 billion yuan, and sufficient saleable resources will protect the company's future development. The company's financing channels were unobstructed, and the overall average financing cost in 2023 decreased by 53 bps year on year to a low level of 4.17%. As of 2024Q1, the debt structure was relatively healthy, and the net debt ratio was slightly higher, but the high-cash short-term debt ratio strengthened the margin of safety. From an absolute valuation perspective, the current market value is 68% discounted compared to NAV, and the company has significant undervaluation attributes to enhance allocation value.
Risk warning: The slow pace of project settlement led to lower performance than expected; insufficient value of goods led to a decline in the company's medium- to long-term sales scale.