Safe operation prevents risks, revenue declines, and performance is lost. In the first half of 2024, the company achieved operating income of 142.78 billion yuan, a year-on-year decrease of 28.9%; net profit loss attributable to shareholders of listed companies was 9.85 billion yuan, a year-on-year decrease of 199.8%. The main reasons for the loss in performance are: (1) the decline in the settlement scale and gross margin of the development business; (2) depreciation; (3) losses on some non-main financial investments; (4) in order to return capital more quickly, the company has taken more resolute action on asset transactions and equity disposal, and some transaction prices are lower than book value. By business type, of the company's revenue, revenue from real estate development and related asset management business was 123.4 billion yuan, accounting for 86.4%; revenue from property services was 16 billion yuan, accounting for 11.2%.

Reduce financing costs and ensure cash security. By the end of the first half of 2024, the company had a net debt ratio of 62.0% and held 92.4 billion yuan in monetary capital. In the first half of 2024, the company's net operating cash expenditure was 5.18 billion yuan. As of the end of the first half of 2024, the company's interest-bearing liabilities totaled 331.27 billion yuan, accounting for 23.3% of total assets; interest-bearing liabilities were mainly medium- to long-term liabilities, of which 101.95 billion yuan was interest-bearing debt maturing within one year, accounting for 30.8%. The company continues to optimize its debt structure and reduce financing costs through various financing instruments. The comprehensive cost of new financing in the company in the first half of 2024 was 3.60%. The weighted average debt period for interest-bearing debt at the end of the period is 5.3 years.

Sales maintain the first tier and accelerate inventory removal. In the first half of 2024, the company achieved a sales area of 9.395 million square meters, a year-on-year decrease of 27.6%. The sales amount was 127.33 billion yuan, a year-on-year decrease of 37.6%. At the beginning of the year, sales of existing homes reached 24 billion yuan, sales of approved existing homes were 32 billion yuan, and sales of cars (shops) offices (public) were 15 billion yuan.

The amount of investment in the project is an income and expenditure, promoting the revitalization of existing assets. The company acquired a total of 3 new projects in the first half of the year. The total planned construction area is 0.246 million square meters, the total land price of the project is 1.02 billion yuan, the total equity land price is about 0.78 billion yuan, and the average land price of the new projects is 3,944 yuan/square meter. Since 2022, the company has invested in 82 projects, of which the average opening cycle of active investment projects is 5.7 months, and the fulfillment rate of the first opening is about 87%. Since 2023, the company has completed resource revitalization and optimization with a total production capacity of 45.5 billion yuan, achieved revitalization and repayment of investment receivables of 8.1 billion yuan, and revitalized and optimized resources to achieve sales contracts of about 14 billion yuan.

Investment advice: Maintain an “better than the market” rating. We believe that the company has actively dealt with debt issues and received support from many parties, and that many future businesses still have potential for development. The company's net assets are expected to be $20.30 and $20.71 per share in 2024 and 2025. Considering the company's leading position, we maintain a “superior to the market” rating according to the 2024 0.4-0.5XPB level, corresponding to a reasonable value range of 8.12-10.15 yuan.

Risk warning: The industry faces a total downside risk.