Result first take: 3Q23 results largely in-line
- 3Q23 results largely in-line, with shortfall from lower-than-expected margins largely offset by continually strong revenue recognition
- The company noted a slight pickup in participation in the land market, having spent c.19% of its 9M23 presales on land acquisition
- Decent potential to continue its presales outperformance and its deep valuation discount vs comparable peers should gradually narrow
- Maintain BUY with HK$3.7/sh TP
3Q23 results largely in-line; shortfall from lower-than-expected operating margin offset by strong revenue recognition. COGO announced 3Q23 financial and business review after the morning trading session today. Recognised revenue came in at c.Rmb11.9bn in 3Q23, jumped 94.1% y-o-y and placed 9M23 revenue at Rmb39.1bn, up 8.8% y-o-y, locking in c.77%/71% of our and market consensus revenue estimates, which is higher than historical levels of 63-70%. 3Q23 operating profit fell 4.4% y-o-y alongside a lower operating margin at 8.5%, which brought the 9M23 figure to Rmb4.3bn at an operating margin of 11.0%, locking in c.72%/69% of ours and market’s forecasts.
Land acquisition activities slightly picked up in 3Q. COGO acquired 6 land parcels in Ganzhou, Hefei, Hohhot, and Quanzhou in 3Q23 with land costs of c.Rmb3.0bn (vs. only 2 parcels in 1H23 at cost of c.Rmb3.5bn). This brought the company’s 9M23 gross land premium spent at c.Rmb6.6bn and represents c.19% of its presales in the same period, but remains lower than 9M22/2022’s c.23%/25%. As at Sep-23, the company has c.20.7m sm of gross landbank at 84% attributable interest (vs. c.21.8m sm with 84% interest as at Jun-23). The company is currently trading at c.3.5x FY24F PE with dividend yield of >7%, which is at a deep discount to its SOE peers (c.4.6-6.8x FY24F PE and c.5.0-7.5% dividend yield). We believe concerns over its lower-tier city exposure is more than reflected in price. Its valuation is unwarranted despite their strong presales performance to date which is up c.17% y-o-y for 9M23 vs. -16% of 30 developers in the same period we track. Maintain BUY and TP of HK$3.7/sh.