(1) The interim report accrues inventory price reduction preparations, continuing the company's past characteristics of relatively adequate depreciation, with net profit falling 319% year on year; (2) sales scale fell 58% year on year, weaker than the top 100, and no new projects were acquired in the first half of the year; (3) On the financial side, book cash shrank further; in terms of public debt, the company has paid interest as scheduled since this year, with only about 3.1 billion yuan remaining to be repaid in the next year, and the company's debt repayment pressure may decrease significantly after February next year; in terms of financing, the company actively explores various financing channels. Furthermore, in terms of valuation, the company's P/B is currently 0.26 times (August 31, 2024), which is basically the same as the median P/B of “extended group” housing enterprises. Considering that the company has passed the peak of public debt repayment stages (including accumulated domestic debt of more than 14 billion yuan in the first half of this year and about 3.4 billion yuan in US dollar bonds in August), it can be observed that the pressure on the open market will decrease in February next year. Looking back, considering that the company's investment strength continues to shrink, the total volume and structure of the company's subsequent sales may put some pressure on sales. Equity risk premium repair due to credit repair is expected to be -0.90/-0.46/0.06 yuan in 2024/2025/2026, respectively, and P/B 0.26/0.27/0.27 times, respectively, giving a “gain” rating.

(1) The interim report included preparations for inventory price declines, continuing the company's previous characteristics of relatively sufficient depreciation, and net profit to mother fell 319% year on year.

In the first half of 2024, the company achieved operating revenue/operating profit/net profit to mother of 21.1 billion yuan/-4.7 billion yuan/-3.4 billion yuan, respectively, of -42.6%/-241.1%/-319.4% year-on-year. (i) The company's 24H1 revenue showed negative growth, mainly due to a decrease in real estate business settlement revenue (-54.7% year-on-year), reflecting a decline in the company's sales scale in the past; (ii) the year-on-year growth rate of operating profit was lower than operating income: specifically, the company's gross margin of 24H1 fell 5.3 PCT to 11.0% compared to 23H1 (of which the gross margin of real estate business settlement 24H1 decreased 5.6 PCT to 9.2% compared to 23H1), and the sales/management/finance expense ratio 24H1 increased 0.6 PCT/1.5 PCT/3.3, respectively, compared to 23H1 PCT reached 3.3%/6.2%/4.8%, net investment income (-0.7 billion yuan) decreased by 1.5 billion yuan compared to 23H1, asset impairment loss of 2.1 billion yuan was first accrued in the interim report), and credit impairment losses (0.8 billion yuan) increased 0.7 billion yuan compared to 23H1. The decline in gross margin, increase in three rates, reduction in investment income, and increase in impairment caused the company's operating profit to grow lower than revenue; (iii) the growth rate of net profit to mother was lower than operating profit; (iii) the growth rate of net profit to mother was lower than operating profit : Mainly due to the increase in the settlement equity ratio in the case of loss (the ratio of net profit to net profit 24H1 increased 8.7 PCT to 75.7% compared to 23H1), while the decrease in income tax expenses (income tax expenses 24H1 decreased 1.3 billion yuan to -0.2 billion yuan compared to 23H1), there was a certain hedging effect.

Looking forward to the future, the interim report further revised the full-year construction plan. According to the interim report, the company plans to start a new construction of 0.95 million square meters for the full year of '24 (down 69.6% from the actual completion amount in '23, down 48.1% from the plan at the beginning of '24), and plans to complete 10.71 million square meters (down 20.3% from the actual completion amount in '23, which is basically the same as the plan at the beginning of '24). As of the end of June '23, the company's contract debt was 66.5 billion yuan (basically the same as the end of '23) The annual revenue guarantee factor is 0.68 (slightly higher than 0.67 in '23). Taking into account the downward pressure on housing prices in the past three years, etc., it is judged that the company's subsequent performance may still be under pressure.

(2) The sales scale fell 58% year on year, weaker than the top 100, and no new projects were acquired in the first half of the year.

In terms of sales, the company's cumulative full-caliber sales area in the first half of the year was 2.4 million square meters (-49.0% YoY); the cumulative sales volume of full-caliber was 36.1 billion yuan (-57.9% YoY), ranking 14th in the Kerry industry ranking (same as 24Q1, down 4 places from the whole year). The year-on-year growth rate (-57.9%) was lower than that of the top 100 real estate companies (-41.9%); the corresponding average sales price was 0.015 million yuan per square meter (-17.5% YoY).

In terms of land acquisition and land storage, the company did not acquire land in the first half of the year. By the end of June '24, the company had a total land reserve of 35.89 million square meters and an equity land reserve of 15.99 million square meters.

Looking back, considering that the company's investment continues to shrink, the total volume and structure of the company's subsequent marketing may put some pressure on sales.

(3) On the financial side, cash on book has shrunk further; in terms of public debt, the company has paid interest as scheduled since this year, and only about 3.1 billion yuan remains to be repaid during the next year. After February next year, the company's debt repayment pressure may decrease significantly; in terms of financing, the company is actively exploring various financing channels.

On the financial side, as of the end of June 2024, the amount of the company's interest-bearing debt was 81.7 billion yuan (-11.1% YoY), 23.1 billion yuan in monetary capital (-22.3% YoY), 60.0% (compared to the end of 23 -1.3 PCT), and a net debt ratio of 53.0% (compared to the end of 23 -0.2 PCT); in terms of term, short-term interest-bearing debt accounted for 47.4%, up 3.0 PCT from the end of 23; according to the source, the share of bank borrowing/open market financing was 88.9%/11.1%. The company has an advantage in terms of bank loan size and interest rates; comprehensive financing costs increased slightly by 2 BP to 4.38% compared to 23 years.

In terms of public debt, the company's past public bonds have all been paid interest normally (including US dollar bonds equivalent to RMB 3.4 billion due in August this year); in terms of stock debt, the company has no surviving foreign bonds. As of August 31, 2024, the company's cash flows to be repaid in 2024/2025/2026 were RMB 3.1/2.4/0.5 billion, respectively (according to the exercise scale, same below); judging from the monthly cash flow (principal amount plus interest) situation in 2024, there are only 10/11/12 to be repaid separately 0.002/1.6/1.6 billion yuan, 2025 is mainly 1.8 billion yuan in February, 2026 is mainly 0.5 billion yuan in April, and there will be no public debt after May 2026. If the company successfully pays the remaining bonds from the end of the year until February 23 next year, the debt repayment pressure may ease significantly, and the open market debt repayment schedule may gradually become clear, and conditions are in place to drive the improvement of subjects' credit expectations.

In terms of financing, on December 29, 2023, the company issued the “Notice on Related Transactions Concerning the Transfer of 51% Shares in the Shenzhen Huanwan City Project”. During the transfer of shares in the Huanwan City Project, the total transaction consideration receivable by the company was about 3.25 billion yuan, or contributed to the company's cash inflow. In addition, since 2024, the company has also carried out some external financing, including operating property loans secured by Beijing Jindi Center (4 billion yuan) and applying for credit from China Merchants Bank (2.5 billion yuan), or indicating that the probability of landing incremental capital is increasing.

If incremental financing is further implemented, the company's debt repayment and cash flow conditions are expected to improve.

Investment suggestions: (1) Preparation for inventory price reductions in the interim report, continuing the company's relatively adequate depreciation characteristics; (2) sales volume fell 58% year on year, weaker than the top 100, and no new projects were acquired in the first half of the year; (3) On the financial side, book cash shrank further; in terms of open debt, the company has paid interest as scheduled since this year, and only about 3.1 billion yuan remains to be repaid in the next year, and the company's debt repayment pressure may decrease significantly after February next year; in terms of financing, the company actively explores various financing channels. Furthermore, in terms of valuation, the company's P/B is currently 0.26 times (August 31, 2024), which is basically the same as the median P/B of “extended group” housing enterprises. Considering that the company has passed the peak of public debt repayment stages (including accumulated more than 14 billion yuan of domestic debt in the first half of this year and about 3.4 billion yuan in US dollar bonds in August), it can be observed that the pressure on the open market will decrease in February next year. Looking back, considering that the company's investment strength continues to shrink, the total volume and structure of the company's subsequent sales may put some pressure on sales. Equity risk premium repair due to credit repair is expected to be -0.90/-0.46/0.06 yuan in 2024/2025/2026, respectively, and P/B 0.26/0.27/0.27 times, respectively, giving a “gain” rating.

Risk warning: Sales growth falls short of expectations, settlement falls short of expectations, gross margin falls short of expectations, debt payments fall short of expectations, uncertainty in equity structure, impairment exceeds expectations, incremental financing falls short of expectations, decline in asset quality exceeds expectations, etc.