Event: The company released its 2023 annual report. In 2023, the company achieved revenue of 70.44 billion yuan, a year-on-year increase of 69.7%; net profit to mother was 2.53 billion yuan, a year-on-year decrease of 32.4%. The performance was in line with expectations.
Revenue increased dramatically, and performance declined as a result of accrued impairment. Affected by the year-on-year increase in real estate delivery, the company's revenue rose 69.7% year on year in 2023; the main reasons for the decline in net profit to the mother were: (1) the company's gross margin fell 0.7 pct to 16.8% year on year in 2023, but it is worth noting that the gross margin in the Hangzhou region increased 2.6 pct year on year to 18.3% year on year; (2) the company accrued credit impairment losses and asset impairment losses totaled 4.31 billion yuan in 2023, only 860 million yuan in 2022, mainly due to bad debts on accounts receivable and reduced inventory prices due to the downturn in the real estate market; ( 3) The company's net investment income decreased by 990 million yuan year-on-year to 1.23 billion yuan in 2023. In terms of cost control: In 2023, the company's marketing and management rate decreased by 1.1 pct to 2.3% year on year, and the financial rate decreased by 1.7 pct to 0.8% year on year, hedging these negative effects to a certain extent. By the end of 2023, the company's unsettled advance payments were 143 billion yuan, an increase of 9.7% over the beginning of the year, covering 2.0 times revenue for 2022, laying the foundation for subsequent performance releases.
Sales are stable and payback is good, and the sales target for 2024 is 1% of the total size of the industry. The company achieved sales of 153.47 billion yuan in 2023, which is basically the same as the previous year. It ranked 11th in Kerry's sales ranking, 2 places higher than in 2022, and won the Hangzhou Real Estate Enterprise Sales Championship for 6 consecutive years. The company returned 73.2 billion yuan in cash from equity sales in 2023, a record high. Looking forward to the future, the company's sales target for 2024 is over 100 billion yuan, accounting for 1% of the total scale of the industry, ranking in the top 15 in the country.
Investment and development actively focuses on Hangzhou, and the soil storage quality is excellent and sufficient. The company added 33 new projects in 2023 (including 27 in Hangzhou, 2 each in Jinhua and Huzhou, and 1 each in Nanjing and Ningbo), with a land acquisition amount of 57.68 billion yuan and an equity acquisition amount of 25.59 billion yuan, with an equity ratio of 44.4%. The company's investment ratio in 2023 is 37.6%. In 2024, the company's investment amount will be limited to 40% of equity sales repayment, focusing on Hangzhou, deepening Zhejiang, and focusing on Shanghai from outside the province. By the end of 2023, Hangzhou accounted for 60% of the company's land reserves, other cities in Zhejiang Province accounted for 25%, and cities outside Zhejiang Province accounted for only 15%. High-quality land reserves provided a guarantee for the company's future development.
The three red lines have stabilized in the green direction, and interest-bearing debt and financing costs have declined. The company's debt structure is healthy: By the end of 2023, the company's interest-bearing debt was 41.52 billion yuan, down 12.03 billion yuan from the previous year; bank loans accounted for 79.8%; the company's financing costs were only 4.2%, down 0.4 pct from the end of 2022, and the company aims to drop to less than 4% in 2024. The three red lines are stable in the green zone: a net debt ratio of 15.1%, a balance ratio of 56.4% excluding accounts received in advance, and a short-term cash debt ratio of 2.4. Monetary capital can effectively cover short-term debt.
Profit forecast and investment rating: As a leading private enterprise deeply involved in Hangzhou, although asset impairment affected performance in 2023, the company's sales and investment financial situation is in a leading position in the industry, and future performance is expected to continue to recover. According to the company's latest annual report, we lowered the company's net profit forecast for 2024/2025 to RMB 2,96/3.41 billion (previous value was RMB 53.6/6.20 billion yuan), and the estimated net profit for 2026 is RMB 3.79 billion. The corresponding EPS is 0.95/1.09/1.22 yuan, and the corresponding PE is 6.8/5.9/5.3 times, maintaining the “buy” rating.
Risk warning: The recovery in gross margin fell short of expectations; the recovery in market sentiment fell short of expectations; the fall in housing prices exceeded expectations.