Matters:
The company announced the 2023 annual report and the 2024 first quarter report. The revenue for 2023 was about 11.526 billion yuan, up 9.23% year on year, and net profit to mother was 390 million yuan; revenue for the first quarter of 2024 was 350 million yuan, down 89.02% year on year, and net profit to mother - 81 million yuan.
Commentary:
Profits are under pressure due to high-price settlements and depreciation. The company's net profit for the first quarter of 2023 and 2024 was -380 million yuan and -81 million yuan respectively, putting pressure on settlement profits. The main reasons were: 1) the settlement of high-premium projects outside of Shaanxi Province, with a gross profit margin of 12.5% in 2023, down 12.3 pcts from 2022; 2) Asset depreciation in 2023 of 670 million yuan, an increase of 550 million yuan over 2022. As the settlement of the company's non-deep-seated urban projects is completed one after another, the gross margin of the project is expected to improve.
Urban cultivation promoted the achievement of sales performance. In 2023, the company's sales amount increased 6.4% year on year, while Xi'an and Suzhou accounted for 89% of sales. 1) In 2023, the company achieved a contract sales area of 586,400 square meters, a year-on-year decrease of 4%; the contract sales amount was 11.495 billion yuan, an increase of 6.39% over the previous year, and the equity contract sales amount was 10.08 billion yuan, and the equity ratio was about 87%. 2) According to the sales rankings of Kerui Xi'an and Suzhou real estate enterprises, Tiandi Yuan's sales volume in the two cities in 2023 was 6.8 billion yuan and 3.4 billion yuan respectively, totaling 10.2 billion yuan, accounting for about 89% of the total sales amount. 3) The company's contract sales amount for the first quarter of 2024 was about 1.55 billion yuan, a year-on-year decrease of 40.52%, of which Xi'an sales amount was 1,065 billion yuan; the annual sales revenue plan was about 11 billion yuan. According to the inventory, the company's unsold goods were worth 30.3 billion yuan, of which Xi'an accounted for more than 50% of the unsold value.
Only one parcel of residential land was acquired in 2023, and the position needs to be filled urgently in 2024. 1) In January 2023, the company acquired the right to develop a plot of residential land in the Xi'an High-tech Zone by acquiring 55% of the shares of Xi'an Junzheng's subsidiary project company (Xi'an Jiaxing), with a consideration of about 220,000 yuan; in July 2023, the company acquired the remaining 45% of Xi'an Jiaxing's shares, at a consideration of about 130 million yuan. 2) Currently, the company only continues to develop 220,000 square meters of residential land in the High-tech Zone. It plans to acquire 510,000 square meters of land in 2024, and the estimated land acquisition amount is 5.6 billion yuan.
The deeply cultivated city of Xi'an accounts for 42% of land storage, and has a good reputation and strong trading ability in the local area. Some local state-owned enterprises account for relatively high land acquisition in the suburbs of the city, while Tiandi Yuan's land acquisition in the deeply cultivated city of Xi'an only focuses on high-tech zones with good fundamentals and real estate markets. By the end of 2023, the company's land reserves were about 2.53 million square meters, of which Xi'an and Xianyang accounted for 42% and 14% of land storage respectively.
Investment advice: The company is heavily invested in the core high-tech zone market in Xi'an, and has accumulated a good reputation and strong trading ability in Xi'an. It has strong sustainable advantages on both the land acquisition side and the brand side. In recent years, settlement of non-intensive urban projects has dragged down profit realization, but with the adjustment of the deep cultivation strategy, the company's profit is expected to gradually recover. We expect the company's EPS for 2024-2026 to be 0.30, 0.40, and 0.43 yuan respectively (the value forecast for 24 and 25 years ago is 0.58 and 0.63 yuan, respectively). According to the residual income valuation model, considering that the industry still has some downward pressure in 2024, an appropriate valuation reduction will be applied. The company's reasonable valuation is about 3.5 billion yuan, and the target price for 2024 is 4 yuan, corresponding to 13 times PE in 2024, maintaining the company's “recommended” rating.
Risk warning: The industry continues to shrink unilaterally, and the market is declining beyond expectations.