[Core Conclusion] We expect the company's net profit to be 35.4/38.0/4.17 billion yuan in 2024-26, respectively, and 0.88/0.94/1.04 billion yuan for EPS, respectively. Considering that the company's leading regional advantage continues to be consolidated, sales are growing against the trend, the land storage structure continues to be optimized, and the resource endowment advantage is obvious under the dual state-owned shareholders' background, we gave the company 6.5 times PE in 2024, corresponding to the target price of HK$6.2, for the first time.

Sales bucked the trend, diversified land acquisitions guaranteed replenishment, and the soil storage structure continued to be optimized. During the downturn in industry sales, the company's sales achieved contrarian growth. In 2023, sales increased 13.6% year-on-year, ranking first among the TOP20 real estate companies. On the investment side, the characteristic “6+1" diversified land acquisition model can guarantee high-quality soil storage through multiple channels, and the direction is focused on advantageous regions and core cities. All of the new land storage in 2023 is located in first-tier and core second-tier cities. The company's soil storage structure continues to be optimized. By the end of 2023, Tier 1 and 2 cities accounted for 95% of total land storage, an increase of 2 pct over the previous year. The concentration of soil storage in high-energy cities has further increased, and removal is more guaranteed.

TOD+ REIT creates a unique competitive barrier, which is expected to benefit from the acceleration of urban village renovation. 1) The company's TOD project has high turnover efficiency. The TOD strategy continues to be deepened with shareholders' advantages. In 2023, Hangzhou obtained the second project, Xingqiao TOD, outside of Guangzhou, and is expected to expand further in the future. 2) The company can achieve unique dual platform interaction with Yuexiu Real Estate Trust, achieve closed-loop operation of commercial assets, broaden commercial asset exit channels, and help improve the efficiency of capital use. 3) Under policy impetus, the renovation of urban villages in Guangzhou may be accelerated. The company is expected to deeply participate in this round of urban village renovation with the advantages of deep local cultivation and rich experience in old renovation.

The three red lines have steadily maintained the green tier, and the cost of comprehensive financing continues to decline. By the end of 2023, the company's balance ratio, net debt ratio, and short-term cash debt ratio excluding advance receipts were 67.4%, 57.0%, and 2.01, respectively. The three red line test indicators remained stable and maintained the green level. Supported by the dual state-owned shareholder background, the company's financing channels are smooth, and financing costs continue to decline. In 2023, it fell to 3.82%, which is a relatively low level among key housing enterprises.

Risk warning: risk that sales fall short of expectations; risk that the pace of land acquisition falls short of expectations; risk of policy regulation exceeding expectations.