Matters:

The company released its 2024 mid-year report. 2024H1 revenue was 32.75 billion yuan, up 34.5% year on year; net profit to mother was 0.82 billion yuan, down 36.4% year on year.

Ping An's point of view:

There is no increase in revenue, no increase in profit, abundant unsettled sales, and strengthened financial advantages. The company's revenue growth did not increase profit. The main reason was that carry-over projects mainly stemmed from land acquisition projects in 2020 and 2021. Settlement gross margin declined, and average equity in carry-over projects decreased year-on-year. As of 2024H1, the company has sold an outstanding amount of 231.7 billion yuan, an increase of 11% over the end of 2023, laying the foundation for future carry-over. Of these, the consolidated amount of land acquisition projects sold in 2022 and beyond accounts for about 75% of the outstanding amount. The company's “three red lines” indicators continued to be optimized. Excluding advance accounts, the balance ratio, net debt ratio, and short cash debt ratio were 61.1%, 45.7%, and 5 times, respectively. The average financing cost of existing interest-bearing debt is 3.65%, down 10 bps from the end of 2023, and the financing advantage continues to be prominent.

The soil storage structure is healthy, and 2024H1 has the highest land acquisition intensity. According to China Index (open market land acquisition) and Kerui (full caliber sales) data, the company's 2024H1 land acquisition sales area ratio and land acquisition sales amount ratio in the open market were 54.7% and 50.2% respectively, ranking in TOP1 and TOP2 of the top 50 housing enterprises respectively. 2024H1 ranked first in terms of added value, following the trend to build “fourth-generation residential” products, which is expected to maintain a good level of project elimination. 2024H1 added 14 new lots of land to the open market, with a full-caliber land acquisition amount of 42 billion yuan, a full-caliber land acquisition value of 74.2 billion yuan, 78% of the land acquisition equity ratio (goods value); as of 2024H1, the company's land storage value was 257.7 billion yuan, of which Tier 1 and 2 accounted for 83%, and 77% of newly acquired projects since 2022; “new rollover” sold within one year accounted for 67%, maintaining an improved removal rate and asset flow rate.

Investment suggestion: The company relied on Xiamen State-owned Enterprise Construction and Development Group to break through adversity with majority shareholder support and market-based management mechanisms. Relying on refined product positioning and focusing on regional layout, sales performance is superior to peers. It is expected to further expand market share in the industry reshuffle; considering that the industry is still in an adjustment period and pressure on the settlement side is still present, the company lowered its 2024-2026 EPS forecast to 2.53 yuan (originally 2.70 yuan), 2.56 yuan (originally 2.73 yuan), and 2.58 yuan (originally 2.75 yuan) ). The current stock price (as of August 26, 2024) is 4.6 times, 4.5 times, and 4.5 times PE, respectively, but considering the company's land acquisition, sales, financing, and removal situation, it is still superior to its peers, maintaining a “recommended” rating.

Risk warning: 1) There is a risk that the company's gross margin will decline: if the sales boom continues to decline and the “price for volume” of housing enterprises increases, it will still limit the gross profit margin on the settlement side; 2) The risk that land acquisition efforts fall short of expectations: if subsequent land auction rules are adjusted or the market fluctuates, the company's expansion of land storage may be blocked, which will also limit future sales scale growth; 3) Policy improvements fall short of expectations, and property market recovery falls short of the expected risk.