Incident: Poly Development released its 2024 semi-annual report. The company achieved operating income of 139.25 billion yuan (yoy +1.66%) in the first half of 2024, achieved a stable leading position with a net profit of 7.42 billion yuan (yoy -39.3%), and its market share was rising steadily. In the first half of '24, the company achieved a full-caliber contract amount of 173.34 billion yuan (yoy -26.8%), and achieved equity sales volume of 133 billion yuan (yoy -17%), ranking first in the industry; the company's sales equity ratio in the first half of the year reached 77%, an increase of 9 pcts over last year; in the first half of '24, the market share of the company increased 0.06pct to 3.68% compared to the end of 2023, with 38 core cities increasing by 0.3 pct to 7.1%. At the same time, sales contributions from 38 core cities increased by 2pct to 89% year over year. During the reporting period, out of 38 core cities, 32 cities ranked in the top 5 in market share, 11 cities ranked first in market share, and 8 cities including Guangzhou, Foshan, Taiyuan, Shijiazhuang, Sanya, and Putian exceeded 15% in market share.

Financing costs are declining, and it is proposed to issue convertible bonds to raise 9.5 billion dollars. 24 In the first half of the year, the average cost of the company's new financing decreased by 21BP to 2.93% compared to '23, and the comprehensive cost was reduced to 3.31%, down 25BP from the beginning of the year.

During the reporting period, the company's financing channels were smooth, and the company achieved an additional debt of 93.8 billion yuan, with a cumulative net increase of 19.3 billion yuan in interest-bearing debt. At the same time, the company used its credit advantage to increase the proportion of direct financing, of which 19.9 billion yuan was direct financing, accounting for 21% of the new financing. By the end of the reporting period, the company's debt structure continued to be optimized. Interest-bearing debt maturing within one year accounted for 19.82%, down 0.99pct from the beginning of the year; interest-bearing debt maturing over three years accounted for 33.12%, up 1.52 pct from the beginning of the year; and the share of direct financing increased by 1.52 pct to 17.82%.

As of the disclosure date of the report, the company has been approved to register 10 billion yuan corporate bonds and launch a 9.5 billion yuan convertible corporate bond program to specific targets, laying the foundation for further optimizing the debt structure.

Investments insist on revenue as output, with land storage accounting for 70% of the core 38 cities. 24 In the first half of the year, the company expanded a total of 12 projects, all located in 38 core cities, with a total floor area of 1.16 million square meters, equity and total land prices of 10.9/12.6 billion yuan, respectively, and a land acquisition intensity of 7.3%. Among the newly acquired projects, 3 projects have already been launched, with an initial subscription of about 2 billion. The company continued to step up efforts to remove inventory. By the end of June, the company's land reserves had a floor area of 71.4 million square meters, down 8% from the beginning of the year. At the same time, the company's land reserve structure continues to be optimized, accounting for about 70% of the core 38 city area reserves; the stock residential area that has started construction and not sold decreased by 16% compared to the beginning of the year; the company is responding positively to the stock land revitalization policy and carrying out regulation and replacement of existing land in many cities across the country.

The gross margin stabilized, and the balance and liability structure remained stable. 24 In the first half of the year, the company achieved total operating income of 139.2 billion yuan (yoy +1.6%); gross profit margin of 16.0%, consistent with the full year level of 2023; net profit of 7.4 billion yuan (yoy -39.3%) due to the decline in the settlement equity ratio. The company continued to strengthen the control of various expenses. The management expense ratio decreased by 0.15 pct compared to the same period last year, partially hedging the impact of declining profit margins. By the end of June, the company's net operating cash flow was 17.1 billion yuan, down 24.3 billion yuan from the same period last year, mainly due to land payments of 36.6 billion yuan for the 2023 expansion project, an increase of 16 billion yuan over the previous year. It is expected that the company's operating cash flow will continue to improve with the completion of land price payments for the previous year.

By the end of June, the company had excluded a balance ratio of 65.67%, a net debt ratio of 66.18%, and a short-term cash debt ratio of 1.22. The three red lines remained green, and the balance and liability structure remained stable.

Profit forecasting and valuation: The company's market share is rising steadily, soil storage is exchanging positions significantly, financing costs continue to decline, and the debt structure remains stable. We expect the company's 24-26 revenue to be 354.99, 365.2, and 376.13 billion yuan, respectively, and net profit to mother of 11.15, 11.9, and 12.63 billion yuan, corresponding PE of 8.8, 8.2, and 7.8 times, respectively, maintaining the “recommended” rating.

Risk warning: the real estate market continues to be sluggish; policy implementation falls short of expectations; rate control is not effective