Profitability has improved, project reserves in the core area of Pudong are abundant, maintaining a “buy” rating. Lujiazui released the 2023 three-quarter report. Most of the assets held by the company are located in the core locations of Lujiazui and Qiantan, and rent and rental rates have steadily increased; residential development projects have sufficient marketable resources, and large-scale asset acquisition and project investment plans, so future performance release can be expected. We expect the company's net profit from 2023-2025 to be 19.22, 21.41, and 2,498 billion yuan, corresponding to EPS of 0.48, 0.53, and 0.62 yuan. The current stock price corresponding to PE is 17.9, 16.1, and 13.8 times, maintaining the “buy” rating.
The scale of revenue has declined, and profitability has increased
The company achieved revenue of 5.775 billion yuan in the first three quarters, a year-on-year decrease of 14.48%; net profit of 837 million yuan, a year-on-year decrease of 27.75%; net operating cash flow of 7.72 billion yuan, basic earnings per share of 0.17 yuan; gross margin and net profit margin of 59.7% and 19.7%, respectively (41.2% and 12.4% for the full year of 2022). The decline in the company's performance was mainly affected by the decline in the carry-over scale of real estate projects, the transformation of the trust industry, and financial market shocks.
The leasing business is rising steadily, and the projects currently being sold have been eliminated well
By the end of the third quarter, the company's main active properties had a total construction area of 3.03 million square meters, including 2 million square meters of grade A office buildings, and the occupancy rate of grade A office buildings in Shanghai reached 83%. In the first three quarters, the company achieved a real estate leasing cash inflow of 3.492 billion yuan, an increase of 30% over the previous year; equity leasing cash inflow of 2,856 billion yuan, an increase of 29% over the previous year. The company achieved residential sales volume and area of 1.04 billion yuan and 96,700 square meters respectively in the first three quarters, an increase of 1339% and 428% over the previous year. The projects currently on sale were the first batch of Century Qiantan Tianyu and Jinxiu Yunlan, and the overall removal rate of the projects was about 94% and 81% respectively.
High-quality land reserves are sufficient, and major asset restructuring is injected into core assets
In April, the company announced that the participating companies competed for 80% of the shares in the project companies of the two companies and obtained the Sanlin Binjiang high-quality asset package. The transaction price was 14.78 billion yuan, and the company's equity was built up to 130,000 square meters. The estimated saleable value exceeded 30 billion yuan.
The announcement proposed to issue shares and pay cash to purchase assets and raise supporting capital to acquire four high-quality assets in Lujiazui Financial and Trade Zone and Qiantan International Business District with $13.319 billion. The land owned by the four target companies has a planned construction area of 983,500 square meters. According to our estimates, the total saleable value of the four project companies is about 60 billion yuan, and the saleable equity value is about 43 billion yuan. The estimated annual rental income including tax is 730 million yuan for self-owned assets.
Risk warning: increased competition in office leasing, risk of fluctuations in housing prices in Shanghai, risk of litigation in Suzhou.