Description of the event

The company announced 2024H revenue of 142.78 billion (-28.9%), net profit due to mother of loss of 9.85 billion yuan (profit of 9.87 billion for the same period last year), net profit after deducting net income from mother of 7.61 billion (profit of 8.7 billion for the same period last year), and a comprehensive gross profit margin of 8.1% (-10.8pct).

Incident comments

Revenue and gross margin both declined, and asset impairment and disposal losses dragged down performance. 2024H's revenue was 142.78 billion (-28.9%), mainly due to a year-on-year decline in development business settlement revenue of 34.6% to 111.68 billion. Significant loss of 9.85 billion dollars in earnings due to declining gross margin, accrued impairment, loss of investment in non-main business, and cash return from disposed of assets at a discount: 1) 2024H comprehensive gross profit margin of 8.1% (-10.8pct), of which the gross profit margin for development business settlement was 6.8% (-13.5pct); 2) asset and credit impairment of 4.11 billion yuan (only 0.3 billion in the same period last year); in order to quickly return funds, active disposal of assets led to a loss of 2.55 billion in asset disposal income (only 2.55 billion in the same period last year) loss 0.02 billion). Furthermore, the passive increase in the expense ratio to 6.7% (+1.4pct) during the period after a sharp decline in revenue also dragged down performance to a certain extent. As of 2024H, advance payments of 278.67 billion yuan (-35.4%) on the company's accounts, advance payments/annualized settlement revenue = 0.81X. Later settlement revenue is expected to be under pressure, and efforts are still needed to return to mother.

Sales are at the top of the industry, actively revitalizing assets and speeding up inventory removal. 2024H has sales of 127.33 billion yuan (-37.6%), sales area 9.395 million square meters (-27.6%), ranking TOP3 in the industry, and is still in one tier; the average sales price is 0.0136 million yuan/square (-13.8%), and the average price falls or is related to declining inventory structure and discount promotions. The company accelerated inventory removal, and at the beginning of the year, the existing housing/pre-existing housing/car commercial office achieved sales of 24/32/15 billion yuan respectively. From a land acquisition perspective, 2024H obtained 3 projects in Shenyang and Xuzhou, with a full-caliber land acquisition amount of 1.02 billion yuan and a land acquisition area of 0.246 million square meters. The land acquisition intensity in terms of amount and area was 0.8% and 2.6%, respectively. In 2024H, the new construction volume was 4.117 million square meters (-65.6%), and the completion volume was 8.596 million square meters (-33.4%), which completed 38.4% and 39.0% of the annual planned volume (-35.9% YoY, 31.7% completed), respectively. As of 2024H, the company's unfinished land storage was 82.135 million square meters (5085 under construction + 31.28 million square meters to be built), a year-on-year decrease of 23.8%. In an environment where capital chains are becoming increasingly marginal, it is a rational choice for companies to quantify their income and expenditure and invest prudently.

The business format is resilient, and the second curve operates steadily. In 2024H, Wanwuyun's full-caliber revenue was 17.63 billion yuan (+9.5%), deepened the Diecheng strategy, and stock expansion helped expand the chassis. By the end of the period, a total of 200 Butterfly Cities had been renovated and tested. The 2024H logistics business has full-caliber revenue of 1.94 billion yuan (1.95 billion in the same period last year), with a cumulative total leasable area of 10.439 million square meters; the business has achieved full-caliber revenue of 4.59 billion yuan (+6.7%), and has opened a total of 197 projects (11.06 million square meters); full-caliber long-term rental apartment business revenue of 1.73 billion yuan (+5.3%), and has already laid out 0.242 million rooms nationwide, with a cumulative total of operations 0.183 million rooms. The company's diverse businesses are in the first tier of the racetrack, and steady operation helps the company get through the cycle.

Investment advice: In a turbulent environment, a relatively conservative management orientation is a rational choice. The company plans to strengthen bulk and equity transactions in 2024 to achieve repayment of 30 billion or more (20.4 billion yuan signed in January-July), seize cash flow and increase safety pads; reducing leverage is the main trend in the short term. In the next two years, it plans to reduce interest payment debt by 100 billion yuan, actively use financing instruments such as operating property loans, and fully integrate into the urban real estate financing coordination mechanism to promote the transformation of the financing model. In the medium to long term, the company still has a certain competitive advantage in terms of brand and efficiency, the leading position in the development business is still relatively stable, and the stock business value is considerable. In the context of the overall pressure on the industry, the company's core priority is to maintain the balance of the capital chain. Under the premise of overcoming liquidity pressure and successfully crossing the cycle, the company's survival value is still relatively prominent. Net profit due to mother in 2024-2026 is expected to be -13.1/-1.9/2.3 billion, and the P/E corresponding to the 2026 results is 35X, giving it an “increase” rating.

Risk warning

1. Industry demand is under pressure, and sales have declined sharply; 2. Housing prices continue to decline, and asset depreciation pressure intensifies.