Baolong Commercial's 2023 results are in line with market expectations
Baolong Commercial announced its 2023 results: revenue increased 3.4% year on year to 2.64 billion yuan, and net profit to mother increased 2.2% year on year to 453 million yuan, in line with our and market expectations.
Due to parent company debt restructuring clauses, the company did not pay a year-end 2023 dividend. The parent company Baolong Real Estate announced the overall solution for overseas bonds in December 2023. The options involved debt-to-Baolong commercial shares. The plan stipulates that if Baolong Commercial has actions such as dividends, it is necessary to re-agree with the creditor panel on the share conversion price. As a result, Baolong Commercial does not recommend paying a dividend for the end of 2023.
The new opening of the shopping center was generally in line with expectations; some low-quality contracts were cancelled. In 2023, the company opened 10 new shopping malls (4 of which were parent company projects), and the progress was largely in line with the market's previous expectations. In addition, the company cancelled 8 shopping center projects. Of these, 5 were consulting contracts signed for Baolong Xinghui, which was previously merged and acquired, 1 was managed by a third party, and 2 were parent company projects. Taking into account the scale, location layout, and contract form of the cancellation project, we believe that there are factors where the company actively adjusts and optimizes asset quality. Overall, by the end of 2023, there was a net increase of 2 to 95 shopping center projects managed by the company, reaching 10.77 million square meters.
Shopping center operating performance has improved under a low base. In 2023, retail sales in the company's shopping center increased 18% year on year, while the same store traffic increased 23% year on year. It can be seen that the retail sales recovery in 2023 was mainly driven by a rebound in passenger flow from a low base. The average occupancy rate in 2023 declined by 1.4ppt to 91.2% year-on-year, and the cancellation of contracts at some major stores dragged down the occupancy rate to a certain extent.
Development trends
Seek qualitative growth on the basis of a stable basic market. In the performance report, the company proposed that the average growth rate of revenue and profit for the next 2-3 years is in the 5-8% range. Among them, improving the quality and efficiency of stock projects is an important endogenous growth engine. The company uses methods such as optimizing the organizational structure of the investment side and division of labor and collaboration between headquarters and regions to vigorously optimize the operating performance of stock projects. In terms of scale growth, the company plans to open 12 new shopping centers in 2024 (including 6 parent company projects); for external development, the company aims to acquire no less than 500,000 square meters of new management area in 2024 (4 new projects with an area of 450,000 square meters in 2023).
Pay attention to the company's subsequent dividend payment policy. Considering the parent company's overall foreign debt solution terms, we expect Baolong Commercial to resume dividends after the parent company's debt restructuring plan is implemented. At the time of listing, Baolong Commercial clearly proposed that the annual dividend payout should not be less than 30% of net profit due to mother, and that the dividend payout ratio for 2019-2022 will be higher than 30%. We recommend continuing to pay attention to the company's further dividend policy.
Profit forecasting and valuation
We lowered our 2024 net profit forecast of 10.7% to 476 million yuan (+5.1% year over year) to reflect the pressure on the company's shopping center occupancy rate and the impact of cancellation of some projects; we introduced a 2025 forecast of $515 million (+8.2% year over year). Maintaining a neutral rating, the target price was lowered by 3.3% to HK$2.9 (corresponding to 3.5 times the 2024 price-earnings ratio and 9.4% upside) to reflect the profit forecast adjustment. The company traded 3.2 times the 2024 price-earnings ratio.
risks
The subsequent dividend payment policy fell short of expectations; the shopping center's operating performance declined beyond expectations.