Net profit attributable to mother decreased by 39%. In the first half of 2024, the company achieved operating income of 139.2 billion yuan, an increase of 1.7% year on year; net profit to mother was 7.4 billion yuan, a year-on-year decrease of 39.3%, which is basically in line with the previously released performance report. The main reason for the increase in the company's revenue and no increase in profit is that the gross profit margin of the project fell 5.2 pct to 16.0%, and the share of settlement equity decreased by 11.7 pct to 69.4%.

Maintain leading sales and continue to optimize soil storage. In the first half of 2024, the company achieved a sales area of 9.54 million square meters, a year-on-year decrease of 31.0%; achieved sales volume of 173.3 billion yuan, a year-on-year decrease of 26.8%, and continued to rank first in the industry, and its market share continued to rise to 3.68%. The company's sales contribution in 38 core cities increased by 2 pct to 89%. Among them, 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%. The company has 12 expansion projects, all located in 38 core cities, with a total floor area of 1.16 million square meters, equity land price of 10.9 billion yuan, and total land price of 12.6 billion yuan. Of these, the residential sector accounts for 96% of the new value added. By the end of the first half of 2024, the company's total land storage was 71.4 million square meters, down 8% from the beginning of the year. The core 38 cities accounted for about 70% of the area reserves, and the stock residential area that had already started construction and not sold decreased 16% compared to the beginning of the year.

The debt structure remains stable. By the end of the first half of 2024, the company's debt structure continued to be optimized. Interest-bearing debt maturing within one year accounted for 19.82%, down 0.99 pct from the beginning of the year; interest-bearing debt maturing over three years accounted for 33.12%, up 1.52 pcts from the beginning of the year. In the first half of the year, the company achieved a total return amount of 146.6 billion yuan, with a return rate of 84.6%. The company's cash balance was 146.4 billion yuan, accounting for more than 10% of total assets, and the total cash flow was 103.3 billion yuan.

Investment advice: The company's performance in the first half of the year is under pressure. Since the company's gross margin is still bottoming out, and the asset depreciation pressure brought about by falling housing prices has not been completely eliminated, we lowered our previous profit forecast (the reduction is in line with the decline in the company's settlement equity ratio). The company's net profit to mother for 24-25 is 11.1/12.3 billion yuan (the original value was 12.4/14.6 billion yuan), respectively. The corresponding EPS is 0.92/1.02 yuan, corresponding to the latest stock price PE of 8.7/7.8X, maintaining “superior” “City” rating.

Risk warning: The decline in housing prices exceeded expectations, the company's gross margin fell short of expectations, the actual effect of policy relaxation fell short of expectations, the progress of sales recovery fell short of expectations, and the company's financial risk exceeded expectations.