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绿城管理控股(09979.HK):环境压力下 企业发展速度与回款节奏放缓

Greentown Management Holdings (09979.HK): The pace of enterprise development and repayment is slowing down under environmental pressure

中金公司 ·  Aug 26, 2024 05:21

Investment advice

Under pressure from the real estate development and sales environment, competition for subdivision racetracks has intensified, and Greentown management is inevitably under corresponding pressure in terms of overall development speed and repayment pace. We are still optimistic about the company's overall competitive advantage as a leading enterprise in the contract construction industry, but we make more conservative predictions about short-term project expansion, revenue, profit, and cash payments. Combined with current valuation levels and dividend payout potential, we downgraded the company's stock rating to neutral. The reasons are as follows:

Revenue, profit, and cash flow for the first half of the year fell short of market expectations; looking forward to the future, there is still some room for growth under a low revenue and profit base. 1H24's revenue increased 8% year over year to 1.67 billion yuan, and net profit to mother increased 6% year over year to 0.5 billion yuan, mainly affected by government construction services (sector revenue down 16% year over year, gross margin down 4.4 ppt) and impairment losses; operating cash flow recorded 0.08 billion yuan, covering 0.15 times net profit to mother, 2.15 billion yuan in cash at the end of the period, and 1.01 billion yuan in dividends payable. Looking ahead, we believe that compared with the absolute amount of the Xintuo contract, the company's revenue scale base is still not very high, and it is still expected to achieve a certain level of growth.

The company's leading position in the industry is stable, but increased market competition has had an impact on the total amount and rate of Xintuo contracts. According to data from the Central Index Institute, Greentown Management has ranked first in the market for many consecutive periods in terms of new contract area and current sales amount. The 1H24 new signing area is about 2.4 times that of the second place, so the competitive advantage is obvious. However, competition in the contract construction market has continued to intensify over the past period, and Greentown Management's new development project has shown a marginal downward trend in construction costs per square meter. 1H24's new expansion contract area continued to rise slightly over the same period last year, the total contract amount fell 18%, and implied that the construction fee for a single square meter fell 19%.

The contract construction industry is still expanding, but the real estate development and sales environment is expected to continue to be under pressure. Supply-side structural changes in the real estate development industry continue to drive the development of the contract construction industry: according to data from the Central Index Institute, the total area of 1H24 newly signed enterprises increased 28% year-on-year compared to 1H23; according to our tracking of the land auction market in 22 cities, 1H24 municipal investment local state-owned enterprises accounted for 22% of the land acquisition amount, maintaining a 20-30% range over the past two years. However, on the other hand, the real estate sales market continues to be under pressure. The CICC second-hand housing homogenous price index shows a cumulative drop of 7.6% in 7M24 housing prices, and there has been no marginal slowdown in the past two months; data from the Bureau of Statistics shows a 26% year-on-year decline in sales of 7M24 new homes. Although we believe that Greentown Management Holdings can perform better than the market (7M24 increased 15% year over year) with the support of its brand and capabilities, it is inevitable that the overall sales trend and individual project flow rate will still be affected by the environment.

What is our biggest difference from the market? We believe that environmental pressure in the real estate industry may present certain challenges to the company's operations and finances.

Potential catalysts: Growth is slowing, dividend potential is being compressed.

Profit forecasting and valuation

We lowered the company's 2024 and 2025 profit forecasts by 11% and 19% to 1.1 billion yuan (+13% YoY) and 1.24 billion yuan (YoY +13%), mainly due to the slowdown in the growth rate of the company's segmented business and the intensification of market competition. The rating was downgraded to neutral, and the target price was lowered by 47% to 3.9 yuan (corresponding to 6.5 times the 2024 price-earnings ratio and 3% downside), which mainly reflects adjustments in profit forecasts and increased uncertainty about future dividend payout potential. The company currently trades at 6.6 times the 2024 price-earnings ratio and 5.8 times the 2025 price-earnings ratio.

risks

The real estate development market surpassed expectations and showed a steady upward trend, and profit and cash flow performance was better than market expectations.

The translation is provided by third-party software.


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