Event: The company announced its 2023 interim results. In H1 in '23, the company achieved operating income (RMB, same below) of 27.17 billion yuan, a year-on-year decrease of 8.8%; gross profit of 1.72 billion yuan, a year-on-year decrease of 29.8%.
Comment: Revenue growth and gross margin are declining, short-term performance is under pressure, sales recovery is stronger than the market, and finances are stable.
The revenue growth rate declined, and the decline in gross margin gradually narrowed: in H1 in '23, the company achieved revenue of 27.17 billion yuan, of which property development revenue was 27.06 billion yuan, a year-on-year decrease of 8.8%. The company's construction progress remained good, and the delivery scale decreased slightly; the overall gross margin was 16.3%, down 2.7 pct from before inventory depreciation in 2022. It is still in a downward channel, but the decline has narrowed somewhat. The company has calculated large-scale inventory depreciation in '22, which is expected to ease the downward pressure on gross margin in 23-24; net profit of 1.72 billion yuan Yuan, down 29.8% year on year, net return interest rate was 6.3%, down 1.9 pct year on year. Performance was lower than our expectations.
Sales repair was stronger than the market, and market share increased steadily: H1 in '23. Based on the advantages of high quality, high credit, and guaranteed delivery, the company achieved sales of 25.94 billion yuan, an increase of 24.6% over the previous year, an average sales price of 1,2092 yuan/square meter, a year-on-year increase of 15.7%. Sales repair was stronger than the market, sales price rebounded significantly, depreciation pressure was reduced, and gross margin was expected to gradually increase in the later stages; the company focused on improving housing purchase demand in second- and third-tier cities, expanding its market share in second- and third-tier cities, ranking in the top three in 17 cities., Shantou, Tangshan, etc. Nine cities ranked first in sales, an increase of 3 over the same period in 2022, steadily expanding their market share.
The intensity of land acquisition needs to be improved, and the total amount of land reserves remains abundant: in H1 in '23, the company obtained a total of 3 projects in Hefei and Yinchuan, added 471,000 square meters of land equity, added 3.55 billion yuan in land equity and land acquisition, sales ratio of 17.5%, and there is still room for improvement in the second half of the year. By the end of June '23, the company's total land storage was 21.79 million square meters, down 11.2% from the end of '22, 5.8 times the sales area in 2022, and the total land storage was relatively abundant; the total land storage was distributed in 38 cities, 1 less than at the end of '22. Of these, 6 cities were provincial capitals, and the eastern coastal region accounted for about 51% of land storage, adhering to a differentiated competitive strategy of weak second-tier and stronger third-tier core locations.
The adjustment of the financing structure was accelerated, and the three red line indicators were optimized: in '23, H1, the company issued 2.7 billion yuan of domestic bonds. The coupon interest rate was between 3.05%-3.9%, the financing channels were unobstructed, and the credit advantage was remarkable. By the end of June '23, the company's total interest-bearing debt was 48.3 billion yuan, and comprehensive financing costs were 4.4%, which remained low overall. Among them, the share of notes and bond financing rose to 15%, helping to reduce financing costs continuously; the balance ratio excluding advance receipts was 67.2%, the net debt ratio was 40.5%, the short-term cash debt ratio was 1.8 times, financial stability, and sufficient cash.
Profit forecast, valuation and rating: Considering the company's settlement scale and declining gross margin, we lowered the company's basic EPS forecast for 23-25 to 0.85 yuan (down 28.5%), 1.06 yuan (down 27.1%), and 1.29 yuan (down 23.5%). The current stock price corresponds to 23-25 PE (basic) 3.5 times, 2.8 times, and 2.3 times. As a central enterprise real estate, the company has a strategic layout of low-energy second-tier and third-tier cities. Although the sales recovery in low-energy third-tier and fourth-tier cities remains to be seen, it remains to be seen Obviously, finances remain stable, and the current stock price already partly reflects pessimistic expectations, maintaining a “buy” rating.
Risk warning: Sales and construction fell short of expectations, land storage expansion fell short of expectations, market decline exceeded expectations, etc.