Matters:

The company released its 2024 interim report. H1 revenue was 24.2 billion yuan, down 10.5% year on year; H1 net profit to mother was 1.17 billion yuan, down 28.7% year on year.

Ping An's point of view:

H1 settlement performance is under pressure, mainly due to a decrease in delivery volume and a decline in gross settlement margin. The decline in the company's H1 revenue and profit was mainly due to a decrease in volume compared to the same period last year and a decline in gross profit from delivery projects.

The gross margin of 2024H1 was 9.6%, down 7.2 pct from the end of the previous year. The gross margin for settlement decreased a lot. The main settlement projects were mainly projects obtained in 2020 and 2021, which lowered the gross profit margin due to self-ownership and other reasons. According to the company's announcement, the construction progress of the project was mainly concentrated in the fourth quarter during the year, and it is expected that H2 performance will be repaired and improved.

Financing costs continue to decline, and the investment and strategic planning are clear: the company's three red lines continue to maintain a “green file”, the total amount of bank credit was 125.92 billion yuan, an increase of 3.45% over the end of the previous year, the remaining usable account was 71% of the total, and financing channels remained unobstructed; comprehensive financing costs continued to decline. The average financing cost for 2024H1 was only 3.7%, down 0.5 pct from the end of the previous year. The company is currently one of the few high-quality private enterprises that maintain domestic debt issuance, demonstrating the company's strong credit and operational strength. In terms of sales, the company's H1 sales volume was 58.23 billion yuan, ranking 8th in the LEC list, up 3 places from the end of 2023. 2024H1 added 10 new land reserve projects, all located in Hangzhou; as of 2024H1's land reserves, Hangzhou accounted for 66%, and 25% was stored in second- and third-tier cities with a solid economic base in Zhejiang Province. The advantages of deep cultivation were further expanded, and it also provided a strong guarantee for subsequent removal. In addition, the company actively exports brands to the outside world, expands contract construction business, and actively participates in bidding for various government construction projects in the province to complement the development business; according to the company's interim report, it aims to add 5-10 contract construction projects within the year. 2024H1 has added the Yuyao, Ningbo contract construction project. As of the end of 2023, the company had 1,076 employees in the real estate sector. Based on full-caliber sales of 153.47 billion yuan for the full year of 2023, the per capita sales volume was 0.143 billion yuan. The company's lean and efficient personnel had a leading edge.

Profit forecast: The company is rooted in an advantageous region. Under the downturn in the property market and the trend of differentiation, there is a reliable guarantee for subsequent sales elimination. At the same time, the company adheres to steady operation and fine management, and is in good financial condition, demonstrating financing advantages and ability to expand against the trend, and is a leading high-quality private enterprise. We believe that the company has calculated significant depreciation in 2023 according to the market environment, and the company's current resources to be carried over are still abundant, and the 2024 performance is expected to stabilize. We maintain the company's 2024-2026 EPS forecast of 0.91 yuan, 1.02 yuan, and 1.10 yuan. The current stock price corresponds to PE 9.2 times, 8.3 times, and 7.6 times, respectively, maintaining the “recommended” rating.

Risk warning: 1) There is a risk that the company's gross margin will decline: if the sales boom continues to decline and the “price for volume” of housing enterprises increases, it will still limit the gross profit margin on the settlement side; 2) The risk that land acquisition efforts fall short of expectations: if subsequent land auction rules are adjusted or the market fluctuates, the company's expansion of land storage may be blocked, which will also limit future sales scale growth; 3) Policy improvements fall short of expectations, and property market recovery falls short of the expected risk.