Matters:
The company achieved operating income of 49.748 billion yuan in the first quarter of 2024, an increase of 24.51% year on year, and net profit to mother of 2,223 billion yuan, a year-on-year decrease of 18.28%.
Commentary:
The revenue growth rate is likely to slow in 2024 due to a decline in land storage that has already been sold and the planned completion area. 1) There was no increase in revenue in 2023, and the decline in gross margin and impairment loss of accrued assets were the main factors. In 2023, the gross margin carry-over ratio was 16.02%, down 5.99 pcts from the previous year, and the share of carry-over of low-profit projects increased; in addition, the company's accrued assets depreciated by 5 billion yuan. Looking at the subregions, the gross margin of the company's projects in the central, western, and northeastern regions fell by more than 10 pcts, and the gross margins of the three regions fell to 14.04%, 12.49%, and 12.56% respectively. The main reason was that the real estate market showed a trend of regional differentiation, and the flow rate and sales price fulfillment of some projects fell short of expectations. 2) The company's gross profit margin for the first quarter of 2024 was 18.64%, a year-on-year decline of 3.2 pcts. 3) By the end of 2023, the company had sold about 44.49 million square meters of land to be carried over, down 6.4% from the previous year. The planned completion area in 2024 was 34 million square meters, down 16% from the actual completed area in 2023. It is expected that the company's revenue growth rate may slow down in 2024.
Sales in the first quarter fell 45% year on year, and investment intensity was low. 1) In the first quarter of 2024, the company achieved a contract area of 3.6687 million square meters, a year-on-year decrease of 41.84%, and achieved a contract amount of 62.984 billion yuan, a year-on-year decrease of 44.81%. The decline was slightly less than that of the top 100 real estate companies (48% year-on-year decrease). The average sales price was 17,168 yuan/square meter, down 5.1% year on year. 2) The company obtained 4 parcels of residential land in Xi'an, Tianjin and Taiyuan, with a construction area of 590,000 square meters, a total land price of 5 billion yuan, and an average floor price of 8,501 yuan/square meter for the new projects.
The share of unsold land storage in the Midwest and Northeast regions has risen to 37%, and attention still needs to be paid to the digestion of stagnant stocks. By the end of 2023, the company had 146 million square meters of unsold land storage (total construction area - contracted area), of which the central, western, and northeastern regions accounted for about 37% of unsold land storage, an increase of 6 pcts over the end of 2022. The main reason was that the real estate market was clearly divided regionally, inventory removal was slow in the Midwest and Northeast regions, and it was difficult for core city land acquisition investment strategies to completely reverse the decline in soil storage quality.
Investment advice: Financing advantages guarantee that the company continues to focus on core cities, improve the quality of soil storage, and lay the foundation for future profit margins and ROE recovery, but there may be depreciation pressure on the company's existing land storage in the short term. We expect the company's EPS in 2024-2026 to be 1.02, 1.24, and 1.64 yuan, respectively (pre-forecast values of 1.00 and 1.18 yuan for 24 and 25). The company's value is calculated based on a surplus income model. At the same time, considering real estate or declining sales pressure in 2024, the company's target price for 2024 is 14 yuan, corresponding to 14 times PE in 2024, maintaining the “recommended” rating.
Risk warning: The industry continues to shrink unilaterally, and the market is declining beyond expectations.