Key points of investment:

The 24H1 settlement slowed down, and the decline in performance was slightly lower than expected, with sufficient advance payments to guarantee the future settlement scale. The company released its 2024 interim report. 2024H1 achieved operating income of 24.84 billion yuan, -21.1% year on year; net profit of 1.73 billion yuan, or -31.5%; net profit of 1.26 billion yuan, or -34.4% year on year; net profit of 1.19 billion yuan after deducted from mother, or -38.3% year on year; basic earnings per share of 0.46 yuan/share, 47.7% year over year. The 2024H1 company's comprehensive gross profit margin and net profit margin were 16.8% and 5.1%, respectively, -2.1pct and -1.0pct year-on-year, respectively; the period rate was 6.4%, +0.7pct year-on-year. In addition, corporate taxes and surcharges were 0.27 billion yuan, -68.8%; investment income was 0.27 billion yuan, +9.5% year over year; minority shareholders' profit and loss was 0.47 billion yuan, -22.4% year over year; the company's settlement scale declined and profit margins declined, making the performance growth rate lower than the revenue growth rate. By the end of 2024H1, the company's pre-collected property balance (including sales tax) was 96.39 billion yuan, -11% year-on-year, 1.3 times the 2023 revenue. The company 24H1 started 0.76 million square meters of new construction and completed area of 3.04 million square meters, -11.4% and +10.8% year-on-year respectively.

24H1 sold 45.2 billion yuan, 41% year-on-year, and rose to 11th tier 1 and 2 cities with a core land storage layout. According to the company announcement, 2024H1 achieved sales volume of 45.2 billion yuan, 41% year over year; sales area of 1.67 million square meters, ranking 11th in Kiri's sales list, an increase of 3 places over 2013; by region, the company accounted for 35.9%, 26.6%, 35.5%, and 2% of sales in East China, Zhuhai, South China, North China, and Beijing, respectively. 24H1 acquired only 2 lots of land resources in Shanghai and Guangzhou, adding 0.09 million square meters of land acquisition, -97% year-on-year, and 6% of the land acquisition sales area. By the end of 2024H1, the company had an area of 10.08 million square meters under construction and 3.65 million square meters of land reserves to be developed, mainly in core Tier 1 and 2 cities.

The three red lines remained stable in the green zone. Financing was smooth, financing costs continued to decline, and shareholders' collections effectively revitalized inventory. According to the company's announcement, 2024H1, the company's monetary capital was 34.88 billion yuan, or -38.4%; after the forecast, the balance ratio was 61%, the net debt ratio was 75%, and the short-term cash debt ratio was 1.4 times, and it remained in the green band of the three red lines. The company's comprehensive financing costs in the first half of the year were 5.13%, down 35 bps from the end of 2023; in the first half of the year, it successfully implemented Jianxin Huajin-Huafa Co., Ltd. consumer infrastructure pre-REITs of 2.125 billion yuan. In addition, the company previously announced that it plans to trade stock commercial housing and supporting parking spaces with Huafa Group or its subsidiaries, with a total transaction amount of no more than 12 billion yuan. The majority shareholder of the acquirer Huafa Group is the Zhuhai State-owned Assets Administration Commission (holding 93.5% of the shares), while Zhuhai Anju Group is a wholly-owned subsidiary of Huafa Group. Therefore, Huafa Group is both a depositor in the Zhuhai market and a major shareholder of Huafa Co., Ltd. It is expected that dual status will help balance the interests of both parties and help the company revitalize its existing assets.

Investment analysis opinions: Performance declines, financing is dominant, shareholders' savings effectively revitalize inventory, and maintain a “buy” rating. The state-owned enterprise background of Huafa Co., Ltd. has recently achieved rapid sales growth, sufficient land reserves, and a focus on the core metropolitan area; it has achieved remarkable results in reducing debt and deleveraging, making it a green enterprise with both future growth and security. Considering that the pace of subsequent settlement will slow down, and that the downturn in the market will put pressure on the company's profit margins and depreciation, we lowered the 24-26 net profit forecast to 1.78, 1.95, and 2.14 billion yuan (original values were 2.02, 2.22, 2.33 billion yuan), and the current price corresponding to 24/25PE is 8.6/7.8X, maintaining the “buy” rating.

Risk warning: Real estate policies have been tightened beyond expectations, sales have declined beyond expectations, and project acquisitions are uncertain.