Key points of investment

High quality products have a good reputation and high sales conversion efficiency

In 2023, the company's sales amount was 188.9 billion yuan, +12% year over year. The sales scale entered the top 8 in the industry, 2 places higher than before 2022. In 2023, the promotion removal rate of the company's sales projects reached 71%, and the capital return rate reached 98%. The company accounts for 85% of sales in Tier 1 and 2 cities. Among the more than 70 cities where it is located, 46 cities are in the top 10 local sales. Among them, 17 cities including Xiamen, Fuzhou, and Wuxi rank in the TOP1 local sales list, and 20 cities including Hangzhou, Suzhou, and Quanzhou rank in the TOP2-TOP5 of the local sales list. The results of the deep urban cultivation strategy are showing. The company's product strength is widely recognized in the industry. Currently, there is strong demand for improvement in the market, and the company's strong product strength can help the project achieve good sales. In addition, the company's many star projects performed well, which not only supported the company's performance growth, but also highlighted the company's strong management resilience and brand image, laying a solid foundation for a long period of deep regional cultivation.

Continue to replenish stocks of high-quality land, and new inventory accounts for a high proportion of land storage

In 2023, the company acquired 78 parcels of land in 30 cities, with a full-caliber land price of 116.9 billion yuan, +42% over the same period, with a land acquisition intensity of 62%, which is at a high level in the industry; 8.54 million square meters of land storage were added, and an additional saleable value of about 218 billion yuan was added. The company focuses on the three core urban agglomerations of East China, Southeast China, and Haixi. Land prices in the top 10 land acquisition cities account for 76% of the total land acquisition amount. By the end of 2023, the company had a total of 311 projects, with a total land reserve of 15.52 million square meters and an inventory value of 266.8 billion yuan. Of these, 84% were located in Tier 1 and 2 cities, and 70% of the new land reserves were added after 2022. 2024Q1 continues to add high-quality land in Hangzhou, Xiamen, and Shanghai, respectively.

Excellent operating performance in 2023

In 2023, the company's revenue was 134.4 billion yuan, +35% year on year; net profit to mother was 5.03 billion yuan, +2% year over year; gross profit margin was 11.1%, -4.2 pct year on year; sold outstanding resources were 208.7 billion yuan, +6% year over year.

The 2023 dividend was HK$1.3 per share, with a dividend rate of 52% and a dividend ratio of 10%. In 2023, the company's “three red lines” indicators remained all “green”. Among them, the deducted balance ratio fell 1.6 pct to 61.6%, the net debt-to-equity ratio decreased by 19 pcts to 33.6%, the short cash debt ratio reached 4.7 times, stock financing costs fell 58 basis points to 3.75% year on year, the core indicators were optimized again, and the financial situation was safe and stable.

Profit forecasting and valuation

We believe that in the short-term (1-2 years) phase of the fundamentals of the real estate industry, developers who focus on core cities, have strong products, and reduced total land storage are worth focusing on. Judging from the market removal situation, the higher the removal efficiency of land acquisition projects after 2022. Therefore, if housing enterprises with rich land reserves acquire more land before 2022, sales conversion may not be efficient, while housing enterprises that focus on core cities and have controlled their total volume/sales for around 1-1.5 years will have better sales and less pressure. Looking at the long-term (3-5 years) dimension, we believe that the implementation of a two-track system in the real estate industry will lead to increased pressure on immediate needs and better sales and profit margins for improved products. C&D International's products are mainly new Chinese, have a good reputation in the market. The company's strategy is in line with the future development direction of the market, and has long-term dark horse potential. Furthermore, the controlling shareholder of the company is the Xiamen State-owned Assets Administration Commission. The company itself has a high margin of safety. We are optimistic about the company's ability to go through the cycle. We expect EPS of $2.90 in 2024, maintaining a “buy” rating. (Not specified in this article; all prices are in RMB, based on the 12-month average exchange rate, 1 HKD = 0.91 RMB)? Risk Alerts

Demand recovery is weakening; real estate policies are progressing slowly.