Incident: Longhu Group announced its 2024 interim results. In the first half of '24, the company achieved revenue of 46.86 billion yuan, full-caliber contract sales of 51.12 billion yuan, and a full-caliber sales area of 3.655 million square meters.

Sales are in the first tier of the industry, with sales in 14 cities entering the top five. In the first half of the year, it achieved a full-caliber sales amount of 51.12 billion yuan, and a full-caliber sales area of 3.655 million square meters. According to sales statistics from the top 100 real estate companies in Kerui, the company's sales volume steadily ranked among the top ten in the country. The company continues to focus on core cities. Tier 1 and 2 cities account for more than 90% of sales. Among them, sales rank in the top 3 in 9 cities including Chongqing and Suzhou, and top 5 in sales in 5 cities including Chengdu, Xi'an, and Changsha.

Profitability is stable, and the sales payback rate is over 100%. In the first half of the year, the company's profit margin after core tax was 11.7% (12.6% in the same period last year), and profit margin after core equity was 10.1% (10.6% in the same period last year), and profitability remained relatively stable. The company's sales repayment rate exceeded 100%, net debt ratio was 56.7%, cash on hand was 50.06 billion yuan, interest-bearing debt was 187.4 billion yuan, a decrease of 5.2 billion yuan from the beginning of the year. More than 80% of interest-bearing debt came from bank support, and the average financing cost was 4.16%. Compared with -0.1 pct in the same period last year, the average contract loan period was 9.19 years (7.19 years in the same period last year).

The layout focuses on core cities, and the certainty of new land acquisition is strong. In the first half of the year, the company acquired 7 new plots of land, adding a total construction area of 0.6 million square meters (equity floor area 0.35 million square meters), and an additional equity land price of 5.2 billion yuan, distributed respectively in core cities such as Beijing/Shanghai/Suzhou/Foshan/Xi'an/Chengdu. The Yangtze River Delta region accounts for 48.5% of the total construction area; the total construction area is 41.41 million square meters, and 73% are located in Tier 1 and 2 cities. The layout focuses on Tier 1 and 2 core cities, and the land storage removal is highly certain.

The five major waterways are developing collaboratively, and the operation and service business is growing steadily. In the first half of the year, the company's operation and service business achieved revenue of 13.1 billion yuan (yoy +7.4%), of which the operating business was +4% year-on-year and the service business was +11%. Among them, shopping mall rental revenue of 5.32 billion yuan (yoy +6.2%) reached 96%, compared with +1pct in the same period last year; Guanyu's rental income of 1.31 billion yuan (yoy +6.5%) reached 95.6% at the end of the period, +1.9 pct compared to the same period last year. The company's business is diversified, progressing steadily in parallel on multiple lines, integrating the development experience of all business formats and digital technology capabilities to build the smart brand “Longhulong Intelligent Manufacturing”. With the advantages of the company's entire chain and business format, it continues to expand high-quality projects.

Profit forecasting and valuation. We expect the company to achieve operating income of 175.63, 184.94, and 199.36 billion yuan in 2024-2026; net profit to mother of 11.36, 11.93, and 12.83 billion yuan, respectively. The corresponding PE is 4.73x, 4.51x, and 4.19x respectively, maintaining the “recommended” rating.

Risk warning: industry competition intensifies; rate control is not effective; business development is slowing down