Incident: The company released its 2024H1 annual report. 24H1 achieved operating income of 142.78 billion yuan, -28.93%; net profit loss to mother of 9.85 billion yuan, -199.82%; basic earnings per share -0.83 yuan/share, -198.56% year-on-year.

The decline in carry-over profit margins was compounded by factors, putting pressure on performance. The company's 24H1 achieved 142.78 billion yuan, or -28.93%; net profit loss to mother was 9.85 billion yuan, or -199.8% year over year, mainly due to (1) decline in development business settlement scale and gross margin, 24H1 settlement gross profit margin of 6.8%, a year-on-year decrease of 13.5 pct; (2) calculated impairment, the company prepared 2.1 billion yuan (including 0.17 billion yuan for non-consolidated items), accruing deductible credit value losses for some accounts receivable 2.1 billion yuan; (3) Some non-main financial investments lost; (4) In order to return funds more quickly, the company disposed of asset transactions and equity, and some transaction prices were lower than book value. The company's 24H1 gross profit margin was 8.12% (before taxes and surcharges), down 10.75pct from the same period in '23. Among them, gross margin for development and property was 7.25% and 13.65%, respectively, -12.06 pct and -1.74 pct compared to the same period in '23. The company focuses on operational safety. In the future, the company will continue to work on “housing delivery, payment guarantee, transformation and high-quality development” to comprehensively resolve potential risks and push the enterprise to return to a healthy development path as soon as possible.

Maintain sales advantages and accelerate inventory elimination. 24H1 achieved 9.395 million square meters of sales area, -27.6% year-on-year, sales amount of 127.33 billion yuan, or -37.6% year-on-year. Sales ranked first in 14 cities, second in 14 cities, and third in 9 cities. At the same time, inventory removal was accelerated, and 24H1 achieved sales of 24 billion yuan of existing homes, 32 billion yuan of approved existing housing sales, and 15 billion yuan of vehicle (space) commercial (shop) office (public) sales. As of the end of 24H1, the company had sold outstanding area for 22.13 million square meters and 327.2 billion yuan respectively, -5.4% and -9.2% respectively at the end of 23. 24H1 has acquired a total of 3 new projects, with a total planned construction area of 0.246 million square meters. The total land price of the project is 1.02 billion yuan, the total equity land price is about 0.78 billion yuan, and the average land price of the new projects is 3,944 yuan/square meter. Over the past 22 years, the company has invested in 82 projects, and the initial execution rate is about 87%. In addition, the company has completed resource revitalization and optimization of a total production capacity of 45.5 billion yuan over 23 years through commercial conversion and resource replacement, and has achieved sales contracts of about 14 billion yuan for revitalized and optimized resources.

Cash flow continues to be under pressure, accelerating the promotion of large transactions. On the debt side, as of the end of 24H1, the company's interest-bearing debt was 331.27 billion yuan, accounting for 23.3% of total assets. Of this, interest-bearing debt maturing within one year was 101.95 billion yuan, accounting for 30.8%. By financing target, bank loans, bonds payable, and other loans accounted for 67.8%, 19.5%, and 12.7%, respectively. At home and abroad, domestic and foreign debt accounted for 83.3% and 16.7% respectively. The company's net debt ratio was 62.0%, up 7.4pct from the beginning of '24.

The company still has 2 billion yuan of domestic public bonds due in September to be paid during the year. By the end of 24H1, monetary capital was 92.4 billion yuan, or -24.4% year-on-year. 24H1 operating cash net expenditure was 5.18 billion yuan, and cash flow pressure increased. On the financing side, 24H1 added 61.2 billion yuan in financing and refinancing, with a comprehensive cost of 3.66%. Operating property loans reached 21.9 billion, of which 15 billion was added to the table; 175 “white list” projects were declared; syndicated loans progressed in an orderly manner. The company actively promoted major transactions to achieve capital repayment. In July 24, the contract amount was increased by 20.4 billion yuan for major transactions (including printing power asset transactions and REIT issuance).

Operating business performance is steady, and REITs fund-raising is progressing smoothly. 24H1, Company 1) Property Services: Wanwuyun achieved revenue of 17.63 billion yuan, +9.5% over the same period last year. The revenue growth rate of the segment business was good. 2) Warehousing and logistics: The logistics business achieved operating revenue (including non-consolidated projects, same below) of 1.94 billion yuan, or -0.5% year over year, including high-standard warehouse revenue of 1.07 billion yuan, -6.0% year on year, and cold chain revenue of 0.88 billion yuan, +8.4% year on year. 3) Rental housing: The rental housing business achieved operating income of 1.73 billion yuan, +5.3% year-on-year, with a net increase of 0.0033 million units opened, and the scale continued to expand. 4) Commercial operations: Commercial business revenue of 4.59 billion yuan, +6.7% year-on-year. 24H1 CICC Yinli Consumer Infrastructure REITs were listed on the Shenzhen Stock Exchange, raising a net capital of 3.26 billion yuan, during the reporting process for mortgage REITs and logistics and warehousing REITs.

Investment advice: The company's short-term cash flow is under pressure due to factors such as industry adjustments and deleveraging. The company actively promotes sales and transaction repayments, and actively uses financial support policies to mitigate potential risks. We expect it to safely cross the cycle and continue to lead high-quality transformation in the new development stage. Considering the large losses in the first half of the year, we adjusted the company's net profit from 24-26 to -8.811, -0.932, and 0.552 billion yuan (previous values of 9.19, 9.5, 10.28 billion yuan), and adjusted the rating to “increase holdings”.

Risk warning: Housing sales fall short of expectations, falling housing prices, macroeconomics fall short of expectations