After more than 30 years of intensive cultivation, there is plenty of room for future growth. For the first time, Longhu Group was given a “buy” rating. Longhu Group started in Chongqing in 1993. Thirty years of intensive cultivation have created a model for private enterprise operation in the industry. The company formed the three major business segments of development, operation and service to develop collaboratively, and the multi-channel business helps the company have broad scope for future performance growth. We expect the company's 2024-2026 revenue to be 158.04, 153.3, and 149.14 billion yuan, respectively, with year-on-year growth rates of -12.6%, -3.0%, and -2.7%; net profit to mother of 10.84, 12.11, and 13.18 billion yuan respectively; diluted EPS was 1.57, 1.76, and 1.92 yuan, respectively. The current stock price corresponding to PE is 6.8, 6.1, and 5.6 times. The first coverage gives a “buy” rating.

Multi-channel business collaboration to help high-quality development

The company focuses on the three major businesses of development, operation and service, covering the comprehensive layout of the five major waterways. Among them, real estate development is deeply involved in core cities, with abundant land storage to meet the development of the next 3 years; commercial investment and development have exceeded 20 years, and by the end of 2023, it has acquired and opened 141 and 88 shopping centers respectively; the number of long-term rental apartment stores has exceeded 300, with a occupancy rate of 95.5%, and 0.123 million properties have already been opened, which is the second largest in the industry; the expansion of property management and contract construction business has accelerated to help the company develop high-quality and long-term in the future.

Stable core performance and continuous optimization of business structure

The company's core performance was under pressure in the short term. In 2023, it achieved operating income and net profit to mother of 181.09 and 12.85 billion yuan, respectively, of -27.8% and -47.3% year-on-year, respectively. The short-term pressure on performance was mainly due to a decline in carry-over revenue from the real estate development business. The company's business structure continues to be optimized. From 2018 to 2023, the share of operating and service business revenue continued to rise. The operating and service business revenue in 2023 was 24.88 billion yuan, up 5.7% year on year. The 5-year compound growth rate reached 25%, accounting for 13.8% of revenue, an increase of 7.7 percentage points over 2018.

The financial market remains stable, and the debt structure is safe and stable

The company has maintained the “Three Red Lines” green level for 7 consecutive years. By the end of 2023, the short-term cash debt ratio was 2.25 times, the net debt ratio was 56%, and the company's balance ratio after excluding advance payments was 60%, reaching its lowest level in nearly six years.

The company's long-term and short-term debt structure continued to be optimized, and the average loan period was further extended from 1.18 to 7.85 years. By the end of 2026, the company had no overseas maturing bonds.

Risk warning: Sales market recovery falls short of expectations, commercial project opening progress and occupancy rates fall short of expectations.