Incident: The company released its 2024 three-quarter report. In the first three quarters, the company achieved revenue of about 78.009 billion yuan, an increase of 2.88% year on year; net profit to mother was about 2.601 billion yuan, a decrease of 31% year on year; basic earnings per share were 0.22 yuan, a decrease of 43.59% year on year.

Performance remained stable over the medium term, and gross margin declined somewhat. In the first three quarters of 2024, the company achieved revenue of about 78.009 billion yuan, an increase of 2.88% year on year; net profit to mother was about 2.601 billion yuan, a decrease of 31% year on year, mainly due to the year-on-year decline in gross margin carried over from the company's development business projects. In the third quarter, the company's revenue was 26.737 billion yuan, up 9.64% year on year; net profit to mother was 1.183 billion yuan, a decrease of 26.78%. Revenue performance in the third quarter of a single quarter was good, maintaining a relative profit level. In the first three quarters of 2024, the company's gross profit margin was 9.95%, down 2.03 pct from 24H1 and 8.3 pct from the same period in '23; the company's sales management and research rate was 4.41%, down 0.36 pct from the same period in '23, and the financial rate was 2.11%, up 0.38 pct from the same period in '23.

Sales remained steady, and investment increased in the third quarter. On the sales side, in the first three quarters of 2024, the company achieved a total contract sales area of 6.4244 million square meters, and achieved a total contract sales amount of 145.171 billion yuan, which was -30.0% and -35.9%, respectively, ranking fifth in terms of sales volume and equity of the top 100 real estate companies in terms of sales volume. Land acquisition side. In the first three quarters of 2024, the company obtained 14 parcels of land, with a total floor area of 1.3997 million square meters, a total land price of 28.884 billion yuan. The land price to be paid by the company was 20.87 billion yuan, and the land price paid in the third quarter of 10.87 billion yuan has already exceeded the first half of the year. The investment intensity has increased. The layout of Tier 1 and 2 core cities such as Shanghai, Guangzhou, Hangzhou, Xi'an, and Zhengzhou continued in the third quarter.

Optimization of operating cash flow and listing of rental housing REITs. By the end of the third quarter, the company had cash capital of 85.842 billion yuan, an increase of 3.044 billion yuan over mid-'24. In the first three quarters, net cash flow from the company's operating activities was 12.971 billion, a year-on-year decrease of 49.58%. On October 23, China Merchants Shekou Rental Housing REIT was listed on the Shenzhen Stock Exchange. The fund finally raised 0.5 billion shares, the sale unit price was 2.727 yuan/share, and the net capital raised by the fund was 1.3635 billion yuan. By establishing infrastructure public REITs, the company effectively broadens financing channels, revitalizes assets, and enhances the company's ability to operate sustainably.

The repurchase injected confidence in long-term development, and the first A-share repurchase loan landed. On October 14, China Merchants Shekou and 8 other listed companies under the China Merchants Group announced plans to repurchase or increase their holdings. The total repurchase amount of China Merchants Shekou was 0.351 billion yuan to 0.702 billion yuan, showing management's confidence in the company's future development prospects and recognition of the company's medium- to long-term value, and promoting the company's sustainable, stable and healthy development. On October 20, the company obtained the first A-share repurchase loan. The CMB Shenzhen branch provided a loan amount of no more than 0.702 billion yuan to support the repurchase of CMB Shekou shares. The loan period is 12 months, and the loan interest rate does not exceed 2.25% and market interest rates. We believe that while boosting investor confidence, it will help optimize the company's capital structure and reduce financial risks.

Investment advice: The company's 24 profit is affected by carry-over gross margin, but sales are relatively steady, the layout of core cities, and financing advantages are obvious. We are optimistic that the company will gradually bottom out and recover in the future. Considering that the company's gross margin declined due to the impact of the industry, we slightly adjusted the company's net profit from 24-26 to 5.59, 6.21, and 7.83 billion yuan (original value: 6.825, 7.69, 8.818 billion yuan) to maintain the “buy” rating

Risk warning: changes in the macroeconomic situation at home and abroad, real estate sales falling short of expectations, market competition intensifying risks