Incident: The company announced its mid-year results for '24. In the first half of '24, the company achieved operating income of 46.86 billion yuan, a year-on-year decrease of 24.5%; net profit to mother was 5.87 billion yuan, a year-on-year decrease of 27.2%.

Comment: Development performance is under pressure, diversified business supports performance, inventory removal needs to be accelerated, and debt structure optimized.

The profit of the development business continued to be under pressure. The main profit from the operation and service business contributed: in H1 in '24, the company achieved operating income of 46.86 billion yuan, of which the development business revenue was 33.76 billion yuan, down 32.3% year on year, mainly due to reduced settlement resources; operating business revenue of 6.61 billion yuan, up 4.3% year on year, the lower growth rate was mainly due to the small size of newly opened shopping malls in the first half of the year; service business revenue was 6.49 billion yuan, up 11.1% year on year, maintaining steady growth ; The company's comprehensive gross margin was 20.6%, down 1.8 pct year on year, mainly due to a decrease in gross margin of 6.9 pct to 7.4% year on year; operating and service business gross margin was stable, contributing a total gross profit of 74.1%; net profit to mother was 5.87 billion yuan, of which the core net profit to mother was 4.75 billion yuan, down 27.9% year on year. Among them, the operation and service business contributed more than 80%. The decline in performance was mainly due to the decline in the settlement scale and profit margin of the development business. It is expected that the profit level of the development business will continue to be dragged down in the short term. Under pressure at the bottom, the profit contribution of operations and services will steadily increase.

Short-term sales are under pressure, and inventory removal needs to be accelerated: in 24 H1, the company achieved sales of 51.1 billion yuan, a year-on-year decrease of 48.1%, with a sales area of 3.655 million square meters. Among them, Tier 1 and 2 cities accounted for more than 90% of sales. The top five cities contributing sales were Chengdu/Xi'an/Suzhou/Hangzhou/Wuhan. In '24 H1, the company added 7 new land storage sites and acquired a total land area of 0.598 million square meters, which are located in Beijing/Xi'an/Chengdu/Shanghai/Suzhou/Hangzhou/Foshan, respectively.

By the end of June '24, the company had 41.41 million square meters of land under construction, down 8.8% from the end of '23. Based on the preliminary calculation of average monthly sales in the first half of '24, the removal cycle was about 5.7 years, and inventory removal needed to be accelerated.

The scale of shopping malls has steadily increased, and asset management efficiency has steadily improved: in H1 in '24, the company opened 3 new shopping malls, and the company plans to open about 10 new shopping malls in the second half of '24. By the end of the first half of '24, the company had operated 91 shopping malls, with a total floor area of 8.29 million square meters (excluding parking spaces), an increase of 8.8% over the previous year, with an overall occupancy rate of 96.0%, a decrease of 0.2 pct from the end of 23; Guanyu had built a total of 0.123 million square meters, with an overall occupancy rate of 95.5%, an increase of 0.1 pct over the end of 23; the area under management of the property was 0.37 billion square meters, up 2.8% from the end of 23.

The three red lines remained green, and the average loan period was lengthened: as of the end of June '24, the company's comprehensive loan ratio was 187.4 billion yuan, a decrease of 5.2 billion yuan from the end of 23, with active monetary capital of 50.1 billion yuan (of which pre-sale supervision capital was 19.2 billion yuan), short-term debt ratio was 1.01 times, average contract loan period was 9.2 years, net debt ratio was 56.7%, and the financial situation remained stable.

Profit forecast, valuation and rating: Considering the effects of the current downward pressure on the real estate market volume and price, and increasing pressure to repair the company's sales and gross margin, we lowered the 24-26 net profit forecast to 10.93/11.61/13.25 billion yuan (the original forecast was 12.36/12.84/13.95 billion yuan). The current stock price corresponds to the 24-26 PE basic valuation of 4.9X, 4.6X, and 4.0X. The company maintains diversified and steady development, and the credit remains steady, and optimistic about the company Long-term development, maintaining a “buy” rating.

Risk warning: Risks such as sales and land acquisition falling short of expectations, diversified development falling short of expectations, and market downturn exceeding expectations.