Incident: The company announced its 2024 semi-annual results. The first half of 2024 achieved operating income of 46.855 billion yuan, a year-on-year decrease of 24.48%; net profit to mother of 5.866 billion yuan, a year-on-year decrease of 27.21%; and a basic profit of 0.9 yuan per share.

The gross margin of development dragged down net profit: the company achieved revenue of 46.855 billion yuan in the first half of 2024, a year-on-year decrease of 24.48%, and net profit to mother of 5.866 billion yuan, a year-on-year decrease of 27.21%. The year-on-year decline in net profit due to the year-on-year decline in net profit due to the fact that 1) gross profit margin: 2024 H1 development settlement gross margin was 7.4%, 14.3% in the same period last year. Affected by overall market pressure, the gross profit margin for development fell 6.9pct from 2023 H1, which is a significant decrease; overall, the company's H1 gross margin in 2024 was 20.57%, down 1.83 pct from the same period last year, but due to the increase in the share of operating revenue, the gross margin decline was less than the gross profit margin for development; 2) Equity ratio: The profit and loss ratio of H1 shareholders in 2024 was a minority profit and loss ratio of H1 shareholders in 2024 1.109 billion yuan, accounting for 15.90% of net profit. This value was 13.31% for the same period in 2023. Minority shareholders' profit and loss ratio increased by 2.59 pct. The decline in equity ratio affected net profit attributable to mother. In terms of cost control, due to the overall pressure on the property market, the company may step up its marketing efforts. In 2024, the H1 sales expense ratio and management expense ratio were 4.08% and 4.87%, respectively, up 0.19 pct and 0.23 pct higher than the same period in 2023, respectively. The total cost rate increased slightly by 0.43 pct.

Multi-city sales lead: In 2024, H1 achieved a sales area of 3.655 million square meters, a year-on-year decrease of 36.97%. The sales amount was 51.12 billion yuan, a year-on-year decrease of 48.11%. The corresponding sales unit price was 13,984 yuan/square meter, a year-on-year decrease of 17.68%. In terms of regional distribution, in 2024, H1 sales in the Yangtze River Delta, Western China, Bohai Rim, South China, and Central China regions respectively accounted for 28.1%, 27.0%, 20.1%, 14.3%, and 10.5% of total sales. The Yangtze River Delta, Western China, and Bohai Rim together accounted for 75.2%. The company reached TOP3 in 9 cities including Chongqing and Suzhou, and TOP5 in 14 cities including Chengdu and Xi'an. As of the end of H1 in 2024, the company's outstanding sales amount was 173.9 billion yuan, with a sales area of 12.39 million square meters, which can lay a stable foundation for the company's development.

Cautious investment focuses on the core: In 2024, a total of 7 new plots were added to H1, with a full-caliber construction surface of 0.5975 million square meters, and the corresponding equity ratio was 57.79%. The land acquisition effort calculated according to the equity scale was 14.81%, and the investment was still cautious; the new land storage floor price was 14,946 yuan/square meter, and the land sales ratio was 1.07. The quality of the new land storage was high. 2 of the 7 plots were located in first-tier cities and 5 were located in second-tier cities. By the end of H1 in 2024, the company had a total land storage area of 41.41 million square meters and an equity construction area of 29.59 million square meters, corresponding to an equity ratio of 71.46%; the average floor price of land storage was 4,729 yuan/square meter, which was 33.8% of the average sales price for the current period. Looking at the regional distribution of total land storage, the Bohai Rim, Western China, Yangtze River Delta, Central China, and South China account for 34.0%, 25.8%, 15.3%, 14.9%, and 10.0%, respectively.

Steady business growth: 1) Commercial focus: shopping center rent revenue was 5.32 billion yuan, up 6% year on year. By the end of 2024, H1 had opened 91 shopping malls in 20 cities, with an operating floor area of 8.29 million square meters, and an overall occupancy rate of 96.0%; in 2024, H1 shopping center's turnover increased 12% year on year, and average daily passenger flow increased 16% year on year; in 2024, H1 opened 3 new shopping malls, 2 of which are heavy assets and 1 is asset-light. By the end of H1 in 2024, the company had 19 main shopping malls under construction, with a construction area of 2.1238 million square meters. Of these, 5 are expected to open in 2024, with a construction area of 0.5261 million square meters. 2) Leading the scale of long-term rental apartments: Long-term rental apartments achieved revenue of 1.31 billion yuan, an increase of 6% over the previous year. By the end of 2024H1, Guanyu had opened 0.123 million rooms, with an overall occupancy rate of 95.6%. Among them, the occupancy rate for projects that have been in operation for more than 6 months was 96.3%. 3) Active expansion of property management: Services and other businesses achieved revenue of 6.49 billion yuan, an increase of 11.1% over the previous year. Of these, property management achieved revenue of 5.78 billion yuan, an increase of 0.4% over the previous year, and a gross profit margin of 31.4%. By the end of H1 in 2024, the company's management area was 0.37 billion square meters, of which development projects accounted for more than 60%

Stable financial debt optimization: Strict control of leverage: As of the end of H1 in 2024, the balance ratio of the company's advance receipts was 58.6%, and the net debt ratio was 56.7%. Healthy debt structure: As of the end of H1 in 2024, the company's interest-bearing debt was $187.42 billion, down 5.2 billion yuan from the beginning of the year, with short-term debt accounting for 15.7%. Financing channels remain smooth. 1) Cooperation between the company and strategic banks is stable, more than 80% of interest-bearing debt comes from bank support, and 2) a net increase of 21.9 billion yuan in operating property loans with advantages such as long terms and low costs. Finances remain secure. There are 1 billion yuan of remaining public bonds due in 2024, and there will be no overseas public bonds maturing until the end of 2026.

Investment advice: Affected by the overall decline in the property market, the sales volume and price of the company's development business are under pressure, and investment is carefully focused on core cities; business is growing steadily, commercial shopping malls combine importance, leading the scale of long-term rental apartments, and active outsourcing of property management services; maintain steady finances, continuously optimize the debt structure, and keep financing channels smooth. Considering the overall pressure on the property market, we predict that the company's net profit for 2024-2026 will be 10.925 billion yuan, 11.288 billion yuan, and 11.842 billion yuan, corresponding EPS of 1.59 yuan/share, 1.64 yuan/share, 1.72 yuan/share, and corresponding PE of 4.97X, 4.81X, and 4.59X, maintaining the “recommended” rating.

Risk warning: the risk that the macroeconomy falls short of expectations, the risk of real estate sales falling short of expectations, the risk of a sharp drop in housing prices, the risk of business falling short of expectations, the risk of capital return falling short of expectations, and the risk of debt payments falling short of expectations.