2024H1's performance declined due to the carry-over structure and depreciation. In 2024H1, the company achieved main business revenue of 35.34 billion yuan (YoY +10.1%, same below); net profit to mother of 1.83 billion yuan (-15.9%); and core net profit of 1.74 billion yuan (-18.8%). Gross profit margin 13.7% (-4.0pct); net profit margin to mother 5.2% (-1.6pct). The company's performance declined, mainly due to the carry-over of low gross margin projects and the continued accrual of asset impairment of 1.07 billion yuan (0.11 billion yuan for 2023H1, 1.57 billion yuan for 2023A). The company has now sold an outstanding amount of 190.9 billion yuan. While sufficient resources drive revenue growth, it will also offset the impact of declining gross margin on performance to a certain extent, and the company's performance is expected to gradually stabilize as low gross margin projects are gradually cleared.

Bond financing channels are unobstructed, and financial liquidity is stable and worry-free. The company successfully issued a total of 1.5 billion yuan of domestic bonds during the period, with an interest rate of 2.25%-2.75%; issued overseas RMB dim sum bonds of 2.39 billion yuan, with a weighted average interest rate of 4.07%. At the end of the period, the company's interest-bearing debt was 110.24 billion yuan (+10.4%), of which 27.7% were due within 1 year. The weighted average cost of financing declined further to 3.57% (-0.41pct). By the end of the period, the company had a balance ratio of 68.3%, a net debt ratio of 58.6%, and a short-term cash debt ratio of 1.53 times. The three red lines remained in line with the green standard.

Sales were under pressure in the first half of the year. The company kept its annual sales target of 3.5% year-on-year growth unchanged, and may increase marketing efforts in the second half of the year. The company achieved contract sales amount of 55.4 billion yuan (-33.7%) in 2024H1.

Looking at the horizontal comparison, the company ranked 9th among the top 100 real estate companies in full caliber sales, up 3 places from year on year. The year-on-year decline in the company's sales was slightly smaller than that of the industry. The company remains unchanged at its annual sales target of 147 billion yuan (that is, annual sales growth of 3.5% year-on-year). According to Kerry data, in January-July, the company achieved full-caliber sales of 60.4 billion yuan, achieving 41.1% of the annual target. Objectively speaking, it is difficult for the company to achieve sales targets throughout the year, and keeping the target unchanged shows the management's determination to operate. The company's total land storage at the end of the period was 25.03 million square meters, with Tier 1 and 2 cities accounting for about 94%, and the resources available for sale were about 270 billion yuan. Excellent land storage layout and sufficient saleability were the driving force behind the company's firm goals. We expect the company to further increase its marketing efforts starting in September.

In the first half of the year, investment intensity was maintained, and diversified land acquisition focused on core cities. The company added 12 plots of land through the “6+1" diversified storage model, with a total construction area of 1.722 million square meters, of which 66% of the project area was obtained through diversified methods. Investment and development continues to focus on core cities, mainly to acquire land in high-energy cities such as Shanghai, Beijing, Guangzhou, Hangzhou, Chengdu, and Hefei.

Investment advice: Considering the company's (1) state-owned background, financing channels such as bonds are unobstructed, and liquidity is worry-free; (2) it will continue to benefit from the improvement of the competitive landscape. Multiple land acquisition channels and excellent regional layout will guarantee sales momentum and resilience; profit margins are expected to stabilize and performance is improving. Based on the current downturn in the industry, we adjusted our profit forecast. The company's revenue for 2024/2025/2026 is 86.78/92.7/99.27 billion yuan, respectively; net profit to mother is 3.04/3.1/3.21 billion yuan; the corresponding EPS is 0.76/0.77/0.80 yuan/share; and the corresponding PE is 4.9/4.8/4.7 times. Maintain a “buy” rating.

Risk warning: Policy relaxation fell short of expectations, the decline in gross margin exceeded expectations, and settlement progress fell short of expectations.