Demolition subsidies increased year-on-year, while core profits fell significantly
Jinyu Group realized a net profit of 1.84 billion yuan belonging to the parent company in the first half of the year,-4% compared with the same period last year. Due to the increase in compensation for demolition over the same period last year, non-operating income was + 146% compared with the same period last year. Excluding the impact of non-operating income and fair value changes, the core net profit in the first half of the year was 580 million yuan,-58.7% compared with the same period last year. We adjusted the company's 2022 / 2023x2024 net profit forecast for 2022 / 2023 to $100 million in 26-24-22, respectively, taking into account 1) higher non-operating income in 2022; 2) higher cement sales but lower gross profit per ton; and 3) higher financial expenses. The target price was lowered to HK $2.80, based on the average 0.4x2022-2023 BPS:6.2 B, which is in line with the stock's average since 2016. Although in the face of weak real estate sales and the contradiction between supply and demand of cement, we expect the company's main business to remain under pressure. But considering that the company is currently trading at 0.2xP/B, the lowest level since 2009, we believe that share prices fully reflect expectations of weak property demand. Maintain the buy rating. We believe that the public offering of REITS is expected to promote the repricing of some operating assets and is a catalyst for the revaluation of the company as a whole.
Green building materials: demand is the core contradiction, and the northern market shows resilience.
The company achieved cement clinker sales of 38.43 million tons in the first half of the year,-20.0% compared with the same period last year. The gross profit per ton is 84 yuan / ton, which is + 2 yuan / ton compared with the same period last year, reflecting the more resilient relationship between supply and demand in the northern cement market (the core area where the company is located). Ready-mixed concrete sold 5.13 million square meters,-28.8% compared with the same period last year. Gross profit per ton is-21 yuan per square meter to 28 yuan per square meter. With the arrival of the peak season, further investment in infrastructure investment, the continuation of off-peak production by cement companies, and the supply disturbance caused by power cuts, we expect cement prices and sales to achieve a marginal recovery in the second half of the year. However, given the shorter duration of the peak season in the northern market and the weak real estate investment that still depresses demand, we expect the strength of the recovery to be limited.
Real estate development and operation: carryover and presale revenue decline at the same time
The carry-over area in the first half of the year was + 1.4% to 77,000 square meters compared with the same period last year. Due to the decline in carry-over prices brought about by changes in product structure, the carry-over income was 14.9 billion yuan,-16% compared with the same period last year. Carry forward gross profit margin 12.7%, month-on-month + 0.3pp, year-on-year-0.9pp. Due to the impact of the epidemic on the push pace and the weakness of the real estate sales market, the pre-sale area in the first half of the year was 370,000 square meters, which was-58% from the same period last year, with a further increase in the month-on-month decline (2H21:-54%). The pre-sale revenue was 11.9 billion yuan,-47.9% compared with the same period last year, and the decline was narrower than the previous month (2H21:-61.5%).
The proposed public offering of REITs is expected to promote the revaluation of assets
The company plans to securitize some of the operating commercial real estate assets in Xisanqi Jinyu Intelligence Factory Industrial Park and issue a public offering REITs. We believe that on the one hand, this will help the company to further invigorate its assets and improve its cash flow; on the other hand, according to the stable cash income of the project, the issuance of the public offering REITs is expected to help the project to obtain a higher value evaluation. Considering that the company still has a number of operational commercial real estate projects with similar attributes, we expect that more assets will be repriced through this market, which is expected to promote the revaluation of the company as a whole.
Risk tips: 1) the real estate policy tightened more than expected; and 2) the coordinated implementation of the industry is not as expected.