Matters:
The company achieved operating income of about 23.747 billion yuan in the first quarter of 2024, an increase of 58.22% year on year, and net profit to mother of 332 million yuan, an increase of 22.22% year on year.
Commentary:
Revenue grew steadily, and gross margin declined slightly. 1) In the first quarter of 2024, the company's revenue increased 58.22% year on year, net profit to mother increased 22.22% year on year, and gross profit margin was 14.5%, down 1.4 pcts from 2023. The main reasons why the company's net profit growth rate was lower than the revenue growth rate were: 1) the increase in profit and loss of minority shareholders; the profit and loss of the company's minority shareholders in the first quarter of 2024 was 600 million yuan, up 297% year on year; 2) the decline in investment income, which was 39 million yuan in the first quarter, down 85% year on year. We believe that the rapid decline in the company's profit margin may have passed. It is expected to be one of the first housing enterprises to fall in depreciation interest rates, which is expected to guarantee the stability of net profit returned to mother in the future.
Continue to implement the core city's land acquisition investment strategy and obtain 4 parcels of land in the first quarter. 1) In the first quarter of 2024, the company obtained 4 parcels of land, with a total construction area of about 480,000 square meters, and a total land price of about 9.9 billion yuan. The four parcels are located in Shanghai, Chengdu, Hefei, and Nanjing respectively, reflecting the company's implementation of the strategy of land acquisition being highly concentrated in core cities.
2) However, even core cities continued to face downward pressure on the sales market in 2024. The commercial residential sales area of Shanghai, Chengdu, Hefei, and Nanjing declined by 48%, 37%, 58%, and 75% year-on-year respectively in the first quarter of 2024.
Affected by the downturn in the real estate market, the company's sales volume fell 44% year on year in the first quarter of 2024, and may face downward pressure in the saleable value in 2024. 1) Affected by the downturn in the real estate market, the company achieved a contracted sales area of 1.6659 million square meters in the first quarter of 2024, with a cumulative contract sales amount of 40.208 billion yuan, a year-on-year decrease of 44%. 2) According to Kerui data, the company's equity sales amount in the first quarter of 2024 was 24.9 billion yuan, a year-on-year decrease of 45%, which is slightly smaller than the decline (48%) of the top 100 real estate companies. 3) The company's saleable land storage dropped to 450 billion in 2024, and the share of land reserves in the Midwest has increased to a certain extent. Strong land acquisition efforts in the first half of 2024 are needed to guarantee the current sales scale.
Financing advantages continue to be reflected, and cash flow is abundant. 1) In the first quarter of 2024, the company issued ultra-short-term bonds totaling 4.7 billion yuan, with coupon interest rates of 2.09%-2.52%, reflecting the company's financing advantages. 2) As of the end of March 2024, the parent company had a capital of about 20.4 billion yuan in caliber currency and 83.2 billion yuan in consolidated statements, with abundant liquidity.
Investment advice: The company's high-energy urban layout supports sales fulfillment. Since 2022, it has bucked the trend and developed advantages in core cities. With the continuous digestion of heavy land storage, it is expected that China Merchants Shekou will be one of the first companies to overcome declining profit margins. Considering the reduction in the company's depreciation pressure and stable gross margin, we predict that in 2024-2026, the company's eps will be 0.81, 0.82, and 1.04 yuan, respectively. Considering the medium- to long-term value of the company as a leading central enterprise and the improvement in operational efficiency after implementing the “one city, one template”, the target price for 2024 is 14 yuan, corresponding to 17 times PE in 2024, maintaining the “recommended” rating.
Risk warning: The industry continues to shrink unilaterally, and the market continues to decline sharply.