Matters:

The company announced its semi-annual performance forecast for 2024, and is expected to achieve net profit to mother of -22.8 million yuan to -34.2 million yuan in the first half of 2024.

Commentary:

Low gross margin project settlements put pressure on profits. 1) The real estate projects and carry-over area delivered by the company decreased compared to the same period of the previous year, resulting in a decrease in operating income compared to the same period of the previous year. The company completed 0.2729 million square meters in the first half of 2024, with no new construction area. 2) Affected by the continued decline in the real estate market, the company's gross margin level declined again compared to the same period last year (the company's gross margin of settlement was about 11.42% in the first half of 2023), resulting in a loss in net profit to mother.

Affected by the downturn in the market, the company's sales volume fell 55% year-on-year in the first half of 2024, and the deeply cultivated city of Xi'an accounted for about 67% of the total sales amount. 1) In the first half of 2024, the company achieved a contract sales area of 0.1253 million square meters, a year-on-year decrease of 62.35%; the contract sales amount was 2.71 billion yuan, a year-on-year decrease of 54.67%, and the equity contract sales amount was 2.47 billion yuan, or about 91% of the equity ratio. 2) According to the sales ranking of real estate enterprises in Xi'an, Tiandi Yuan's sales volume in Xi'an in the first half of 2024 was 1.82 billion yuan, accounting for about 67% of the total sales amount, but the company is still facing sales pressure in regions other than the city.

A plot of residential land in the Xi'an High-tech Zone was acquired in the first half of 2024, and the investment is still cautious. 1) In the second quarter of 2024, the company obtained a plot of residential land in the Central Innovation Zone of Xi'an High-tech Zone, with a planned construction area of about 0.129 million square meters, a total price of 1.082 billion yuan, and a 100% equity ratio. 2) The company plans to acquire a land area of 0.51 million square meters in 2024, with an estimated land acquisition amount of 5.6 billion yuan. It is expected that the investment in the second half of the year will still focus on the Xi'an High-tech Zone. 3) Since the second half of 2021, the company's investment has focused on the deeply cultivated cities of Xi'an and Suzhou. As of the end of 2023, the company's land reserves are about 2.53 million square meters, of which Xi'an accounts for 42%.

Two medium-term notes were issued in January-July to raise 1.5 billion yuan, and the monetary capital is relatively abundant. 1) From January to July 2024, the company issued 2 medium-term notes with an amount of 1 billion yuan and 0.5 billion yuan respectively, with coupon interest rates of 6% and 3.53% respectively. 2) As of Q1 '24, the company's monetary capital was 6.83 billion yuan, a year-on-year increase of 43.5%.

Investment advice: The company is heavily invested in the core high-tech zone market in Xi'an, and has accumulated a good reputation and strong trading ability in Xi'an. It has strong sustainable advantages on both the land acquisition side and the brand side. In recent years, settlement of non-intensive urban projects has dragged down profit realization, but with the adjustment of the deep cultivation strategy, the company's profit is expected to gradually recover. Considering that current housing prices are still facing strong downward pressure and land storage may be depreciated, we lowered the company's profit forecast. The company's EPS for 2024-2026 is 0.20, 0.27, and 0.43 yuan respectively (the previous forecast values were 0.3, 0.4, and 0.43 yuan, respectively). According to the residual income valuation model, the target price for 2024 is 3 yuan, corresponding to 14.8 times PE in 2024, maintaining the “recommended” rating.

Risk warning: The industry continues to shrink unilaterally, and the market is declining beyond expectations.