Facing downward pressure on the office market, the company's core asset operations are stable, grasping the strong rent growth trend in shopping malls, and the rapid recovery in the hotel market. Rents and rental rates in other business formats are growing rapidly. We believe that the company invests in assets and does not expand blindly. It is the asset most similar to REITs in the A-share market.

We maintain the company's EPS forecast of 1.26/1.39/1.45 yuan for 2023/24/25. Currently, the cash distribution rate for property rights REITs in 2023 is 3.9%. We estimate the company's potential dividend potential based on the dividend rate of 90% of REITs, and then value it based on the distribution yield of REITs, that is, if the company is treated as a REITs, the company's current valuation benchmark for REITs is 29.2 billion yuan. If we consider that the dividend payment rate is temporarily lower than REITs, we give the company a 10% discount. We believe that the company's reasonable value is 26.2 billion yuan, which meets the target price of 26 yuan/share, corresponding to 20.7 times PE in 2023, and maintains the company's “buy” rating.

Revenue performance increased dramatically, and core assets operated steadily. In the first half of 2023, the company announced that it achieved operating income of 1.94 billion yuan, an increase of 16.8%; gross profit of 1.17 billion yuan, an increase of 24.5%; and net profit of 650 million yuan, an increase of 14.4% over the previous year. During the reporting period, the company's various assets operated steadily and revenue grew steadily. At the same time, the company actively controlled various costs, driving the current gross margin to rise 3.7 percentage points to 60.3% year on year; the company's net interest rate fell 0.7 percentage points to 33.7% year on year. Mainly, the company received insurance claims revenue of about 100 million yuan last year, increasing the current net interest rate.

Facing downward pressure on the office market, the operating situation is good, relying on high-quality assets. In the first half of 2023, the company announced that office buildings achieved revenue of 780 million yuan, an increase of 2.4% over the previous year. According to Colliers International statistics, in the second quarter, rents for Class A office buildings in Beijing fell 3.5% month-on-month to 317 yuan/square meter/month, the vacancy rate increased to 17.7%, and the net absorption rate showed a negative value. In the face of the sluggish performance of the Beijing office market, the office assets held by the company in the core area of Beijing showed strong resilience to risk. According to the company announcement, Phase III B office buildings actively promoted lease swaps and renewals, driving an average rent increase of 1.9% to 637 yuan/flat per month, and the occupancy rate increased 0.3 percentage points to 96.2% year-on-year.

The core area is scarce in business formats, and shopping malls are growing rapidly. Looking at the entire industry, retail properties are a form of business that has performed well in real estate asset rents in recent years, and the company situation is no exception. In the first half of 2023, the company's shopping center achieved revenue of 63 billion yuan, an increase of 14% over the previous year. The main thing is that rent relief will not be applied to some tenants this year. At the same time, the increase in tenant revenue has led to an increase in the company's commission rent. According to the company's announcement, the average rent for office buildings in the company's shopping center during the reporting period was 1,257 yuan/square/month, an increase of 14.5% over the previous year, and the occupancy rate was 98.8%. In the first half of 2023, the consumer market continued to recover and customer traffic continued to recover. According to the Beijing Municipal Bureau of Commerce, 403 brands settled in Beijing for the first time in January-May. The Guomao Mall owned by the company is a scarce city-level shopping center in the CBD area of Beijing. With its heavy luxury and high-end product portfolio, it continues to benefit from market recovery. We believe there is a high probability that shopping center rents will continue to rise.

Apartment rentals were carried out in an orderly manner, and hotel operations resumed quickly. In the first half of 2023, the company's apartments achieved revenue of 90 million yuan, an increase of 18.6% over the previous year. With the accelerated flow of people since 2023, demand for apartment rental, which had been suppressed in the past, began to recover. The company announced that the average rent of apartments fell slightly by 2.4% year on year to 371 yuan/square meter/month, and the occupancy rate increased by 14.1 percentage points to 82.1% over the previous year. In 2023, business travel activities in Beijing resumed rapidly. According to the Beijing Municipal Administration of Culture and Tourism, in the first half of the year, the city's total number of visitors increased 90% year on year, and tourism revenue increased 111% year on year. However, the supply of high-end hotels was relatively insufficient, and hotel operations in the core regions owned by the company resumed rapidly. In the first half of 2023, the company announced that hotel properties achieved revenue of 270 million yuan, an increase of 132.4% over the previous year.

The financial structure is healthy, and core assets generate stable cash flow. According to the company's announcement, as of the end of the first half of 2023, the company's monetary capital was 3.71 billion yuan, an increase of 38.9% over the previous year; interest-bearing debt was 2.09 billion yuan, the company's cash on hand covered 1.78 times that of interest-bearing debt, and the financial structure was healthy. The company announced that it will repay 500 million yuan of long-term loans in July 2023. According to the estimated closing price on August 30, 2023, the company's 2022 dividend rate reached 3.5%, which is already lower than the 4.0% interest rate for this loan. Early repayment of the loan is conducive to increasing the company's ROE and shareholder income. According to the company's announcement, in the first half of 2023, the company's cash inflow from sales of goods and labor services was 2.11 billion yuan, up 19.6% year on year; net operating cash flow was 990 million yuan, up 9.4% year on year.

Risk Factors: Globally, the vacancy rate and rent performance of office assets are mostly not optimistic. China's office buildings also have huge supply problems, and the company's core holdings also face the possibility that future operations will fall short of expectations.

Profit forecasting, valuation and rating: The company holds core real estate assets in the CBD area of Beijing and concentrates on operating assets without blindly expanding. It is a “cash cow” enterprise with scarce A-shares. It is also the target of A-share listed companies most similar to REITs assets. We maintain the company's EPS forecast of 1.26/1.39/1.45 yuan for 2023/24/25. Currently, the cash distribution rate for property rights REITs in 2023 is 3.9%. We estimate the company's potential dividend potential based on the dividend rate of 90% of REITs, and then value it based on the distribution yield of REITs, that is, if the company is treated as a REITs, the company's current valuation benchmark for REITs is 29.2 billion yuan. Considering that the company's dividend payment rate is temporarily lower than REITs, we gave the company a 10% discount. We believe that the reasonable value of the company is 26.2 billion yuan, a target price of 26 yuan/share, corresponding to 20.7 times PE in 2023. We maintain the company's “buy” rating.