Description of the event

The company announced that it achieved operating income of 16.08 billion yuan (+12.4%) in mid-2024, a net profit loss of 0.36 billion yuan (profit of 50.75 million yuan in the same period last year), and a comprehensive gross profit margin of 22.6% (-3.9 pct).

Incident comments

The decline in gross margin dragged down performance, and later results still require effort. 2024H's revenue was 16.08 billion (+12.4%), of which 12.44 billion (+18.6%) of the settlement revenue for development properties was 12.44 billion (+18.6%), accounting for 77%, and 2.6 billion (-3.6%) of revenue related to investment properties, accounting for 16%. The increase in revenue was mainly due to a year-on-year decline in comprehensive gross margin of 3.9 pct to 22.6%, of which gross margin of development business fell 2.5 pct to 13.7% year on year, and gross margin of self-owned business fell 1.0 pct to 61.9% year on year; net investment income fell 80.0% year on year to 0.06 billion yuan, and calculated impairment of 0.31 billion yuan (0.13 billion yuan in the same period last year) also dragged down performance to a certain extent, although the cost rate, tax, and surcharge rates were respectively year-on-year. The decline was 1.6 pct and 0.5 pct to 14.6% and 2.0%, and it is still difficult to withstand the drop in gross margin on performance. As of 2024H, advance receipts of 30.81 billion yuan (-3.7%) on the company's account, advance payment/annualized settlement revenue = 0.99X. Advance payments guarantee post-settlement revenue. The outlook for revenue remains steady, but gross margin and impairment are still under pressure in the downward cycle, and efforts are still needed for later results.

The sales scale industry ranks 21st, and soil storage is relatively abundant to guarantee later sales. 2024H has sales of 21.8 billion yuan (-14.8%), sales area 0.85 million square meters (-30.9%), average sales price 25,647 yuan/square meter (+23.2%), ranking 21st in the sales scale industry. From a land acquisition perspective, 2024H obtained a total of 4 projects in Hangzhou and Xi'an (2 in the same period last year), with a land acquisition amount of 7.7 billion yuan, a land acquisition area of 0.497 million square meters, a floor price of 15,504 yuan/square meter (-3.0%), and land acquisition intensity (in terms of amount and area) of 35.3% and 58.4%, respectively, increasing 27.7 pct and 47.6 pct year-on-year, respectively. The company's land acquisition efforts were fair against the backdrop of a sharp contraction in industry investment. As of 2024H, the sellable land storage value of the company is about 133.2 billion yuan (-20.0%), and the saleable period is about 3 years. Once the market margins improve, relatively sufficient land storage guarantees later sales.

The steady development of the commercial format shows business resilience. Domestic consumption was under pressure in the first half of 2024, with the company's investment property revenue of 2.6 billion yuan (-3.6%) and a gross profit margin of 61.9% (-1.0pct). The commercial business is new and developing steadily. The 2024H shopping center has sales of 19.6 billion yuan (+14%); passenger traffic is 0.17 billion yuan (+24%), and the average occupancy rate is 94%. It is still resilient. As of 2024H, the company has deployed 45 commercial projects across the country (30 values+15 light), and substantial progress has been made in its strategy of combining priorities. There are a total of 34 active projects (including light assets and non-standardized products), with a total commercial area of 3.74 million square meters, including 21 Joy City Shopping Centers (including light assets, 3.02 million square meters of commercial area); 11 projects under construction and preparation (including light assets), with a commercial area of about 1.2 million square meters. It is planned to open 3 new shopping centers in the second half of the year.

Investment advice: The decline in gross margin is dragging down performance, and efforts are still needed in later stages of operation. The company responds to the call to revitalize assets, actively declare public REITs for consumer infrastructure, optimize the asset structure, and release the value of mature investment property assets. However, against the backdrop of continued sluggish sales in the industry, further efforts are needed to improve the company's operations and performance. The company's net profit to mother in 2024-2026 is predicted to be -0.82/0.13/0.24 billion yuan. The PE corresponding to the current stock price in 2025-2026 is 75.3/42.8X, giving it an “increase in holdings” rating.

Risk warning

1. Sales continued to be weak, and the company's sales and cash flow repayments fell short of expectations; 2. Gross margin declined, and inventory depreciation dragged down performance.