Incident: On October 8, the company announced that it expects to issue convertible bonds totaling no more than 9.5 billion yuan. The issuance period is 6 years, and the conversion price will not be lower than the company's most recent net assets per share.

The company's convertible debt-for-share price is significantly higher than the current stock price, demonstrating confidence in long-term development. On October 8, the company announced the “Instructions for Issuing Convertible Corporate Bonds to Specific Targets” (hereinafter referred to as the “Prospectus”), which plans to issue convertible bonds to no more than 35 specific targets, with a total issuance total of not more than 9.5 billion yuan. Among them, Poly Group, the controlling shareholder of the company plans to subscribe in cash for the amount of not more than RMB 1 billion. The issuance period is 6 years, and the conversion period is 6 months from the end of the issuance until the maturity date of the convertible bonds. If a convertible bond holder converts their convertible bonds into shares, the transferred shares cannot be transferred for 18 months from the end of the current convertible bond issuance. The prospectus clearly states that the company's convertible debt-for-share price is not lower than the most recent net assets per share before the subscription invitation was issued (the 2024 mid-term report shows that the company's net assets per share are 16.3 yuan/share), which is significantly higher than the current stock price, demonstrating the company's confidence in long-term development and the importance it attaches to investor returns.

Issue convertible bonds to meet the company's project development capital requirements and consolidate the company's leading position in the industry. In the first half of '24, the company achieved a full-caliber contract amount of 173.34 billion yuan, achieving equity sales of 133 billion yuan, ranking first in the industry; in the first half of '24, the company's market share increased by 0.06pct to 3.68% compared to the end of 2023, with 38 core cities increasing the market share by 0.3 pct to 7.1%; during the reporting period, out of 38 core cities, 32 cities ranked first in market share, with 11 cities ranked first in market share, Guangzhou, Foshan, Taiyuan, Shijiazhuang and Sanya Eight cities, including Putian, etc., have a market share exceeding 15%. The funds raised in this release are intended to be used for 15 real estate development projects and supplementary working capital in cities such as Beijing, Shanghai, and Foshan to effectively enhance the company's sustainable development capacity and consolidate the company's leading position in the industry.

The capital structure may be re-optimized, and the ability to continue to be strengthened across cycles. 24 In the first half of the year, the average cost of the company's new financing decreased by 21BP to 2.93% compared to '23, and the comprehensive cost was reduced to 3.31%, down 25BP from the beginning of the year. During the reporting period, the company's financing channels were smooth, and the company achieved an additional debt of 93.8 billion yuan, with a cumulative net increase of 19.3 billion yuan in interest-bearing debt. At the same time, the company used its credit advantage to increase the proportion of direct financing, of which 19.9 billion yuan was direct financing, accounting for 21% of the new financing. By the end of the reporting period, the company's debt structure continued to be optimized. Interest-bearing debt maturing within one year accounted for 19.82%, down 0.99pct from the beginning of the year; interest-bearing debt maturing over three years accounted for 33.12%, up 1.52 pct from the beginning of the year; and the share of direct financing increased by 1.52 pct to 17.82%. If the convertible bonds are successfully issued this time, the company's long-term equity capital will be effectively replenished, thus better matching the company's needs to establish a new development model that combines rental and sale and enhances asset management capabilities. In the long run, supplementing equity capital is beneficial to improving the company's debt structure, controlling operating risks, and strengthening the ability to span cycles.

Profit forecasting and valuation: The issuance of the company's convertible bonds has made further progress, the capital structure may be optimized again, and the ability to continue to strengthen across the cycle. We expect the company's 24-26 revenue to be 354.99, 365.2, and 376.13 billion yuan, respectively, and net profit to mother of 11.15, 11.9, and 12.63 billion yuan, corresponding PE of 10.6, 10.0, and 9.4 times, respectively, to maintain the “recommended” rating.

Risk warning: the real estate market continues to be sluggish; policy implementation falls short of expectations; rate control is not effective