The 1H23 performance is in line with the forecast and lower than market expectations.

The company announced 1H23 results: operating income fell 47% year-on-year to 5.6 billion yuan, and after-tax gross profit margin decreased 6.5ppt to 9.3% year-on-year, mainly due to the carry-over volume of real estate development business (revenue-54% year-on-year) and profit margin (pre-tax gross margin of-1.8%). Affected by the loss of joint venture projects and the sale of interests in the Ritz-Carlton hotel in the same period last year, the investment income turned negative to-50 million yuan (1H23 + 730 million yuan) Driven by the high rate of financial expenses, the three expense rates increased by 12.3ppt to 24.6% over the same period last year; the final net profit of returning home decreased by 163% compared with the same period last year, recording a loss of 730 million yuan.

Actively promote the elimination of stock project sales and drive the marginal improvement of financial indicators. The total sales signed by the company's 1H23 totaled 15.8 billion yuan, an increase of 35 percent over the same period last year, including 38 percent for residential products and 28 percent for business products. The company paid close attention to sales and signed money back, and during the period, the net inflow of operating cash flow was 5.55 billion yuan (1H22 was-1.96 billion yuan), and the "three red lines" at the end of 1H23 were optimized to yellow file. The net debt ratio, deducting pre-debt ratio and cash short-debt ratio were 138.3%, 72.4% and 2.0 x, respectively. In addition, the company's debt financing channels are unobstructed, with a total of 8.07 billion yuan of corporate bonds issued and 8.2 billion yuan won during the period.

Trend of development

The holding business is gradually repaired and is expected to achieve steady growth this year. 1H23's asset management business (property leasing + property management) realized operating income and profit before interest and tax of 11.3 and 650 million yuan, an increase of 20% and 33% over the same period last year. The company actively adjusts the investment strategy of the office / commercial sector, taps customer resources, and maintains high occupancy rates and rents for key projects such as Beijing Financial Street Center, Yuetan Center and Financial Street Shopping Mall. The newly opened Shanghai Rongyue Center successfully signed key customers (Building A has been fully leased) The company grasped the tourism window period, the occupancy rate and passenger flow of the hotel and cultural travel plate increased significantly, and the revenue during the period increased by 78% to 180 million yuan compared with the same period last year. Looking ahead, we expect the holding business to continue the post-epidemic recovery trend and double-digit revenue growth for the full year.

It is expected that the settlement scale and profit margin of the development business throughout the year will be subject to periodic pressure. The total amount of the house payment received in advance at the end of the company's 1H23 is about 13.1 billion yuan, which is only 0.71 times the business income of covering the house in 2022. During the downward cycle, the company adopted a variety of strategies, including adjusting sales prices, to promote the elimination of stock housing projects, resulting in a decline in 1H23 settlement gross margin to-2.7 per cent compared with 2022. Considering the scale and quality of settable resources, we estimate that the revenue and profits of housing business in 2023 are likely to continue to be under pressure.

Profit forecast and valuation

Due to the drag of the housing development business, we estimate that the company's subsequent settlement income and profits may be under pressure, reducing the 2023max 2024 net profit to 0.04x940m (before the adjustment, it is 890,000,000 yuan respectively), and the current share price corresponds to 0.36max, 0.36x 2023x2024 PB. Taking into account the good sales during the period and the scarcity of the quality of holding properties, we maintained an outperform industry rating, but lowered the target price by 12% to 5.68 yuan per share, corresponding to 0.45 pesos, 0.44 times 2023 gambit 2024 PB and 24% upside space.

Risk

The progress of development and sales is slower than expected; the recovery rate of holding business is lower than expected.