CENTRAL CHINA NEW LIFE(09983.HK)：CONTINUED LARGE IMPAIRMENT LOSSES IN 2H2023 "NEUTRAL"-格隆汇

机构：国泰君安国际
研究员：Chunli Zhan

Maintain "Neutral" and revise down TP to HK$1.20. Central China New Life (CCNL, or the "Company") reported largely in-line 2023 results. We revise down our forecasts on the Company’s 2024F and 2025F EPS to RMB0.326 (-19.5%) and RMB0.360 (-22.1%), and introduce 2026F EPS at RMB0.397. We derive our HK$1.20 TP for CCNL by applying 3.5x 2024F PE. We maintain our investment rating as "Neutral".
2023 results were largely in line with the negative profit alert. CCNL postponed the board meeting, and announced its 2023 results on the night of 23 Apr. 2024. Largely in line with its previous profit alert, CCNL finally delivered a loss attributable to shareholders of RMB574.4 mn in 2023. The total revenue declined by 9.6% YoY to RMB2,844.7 mn in 2023. The gross profit margin declined by 6.5 ppts YoY to 26.6% in 2023, but still at a reasonable level in the sector. Due to the large impairment losses, the Company recorded net loss for the year of 2023. The net loss margin was 20.3%.
Continued large impairment loss in 2H2023. As we expected in the mid-2023, CCNL's risk from its related developer lasted for a longer time. After large impairment losses in 1H2023 (RMB641.2 mn), the Company continued to make further impairment provision for the second half of 2023 (full-year: RMB1,222.4 mn). Considering the weak property market in Henan province and liquidity pressure on Central China Real Estate (00832 HK), we believe the market concern on CCNL’s impairment loss risk remains.
Basic property management business grew solidly with improved margin. The positive thing came from its solid growth in basic property management business. By the end of 2023, the Company's managed GFA and contracted GFA grew by 16.0% YoY and 6.2% YoY to 181.8 mn sq.m. and 288.3 mn sq.m., respectively. Supported by the managed GFA growth, the Company's revenue in property management services increased by 16.0% YoY to RMB1,992.2 mn. The GPM in property management services also increased by 3.1 ppts YoY to 24.9% in 2023.
Upside risks: 1) faster-than-expected Improvement in profitability; 2) faster completion of properties in Henan; and 3) more GFA acquired from third parties or through M&As. Downside risks: 1) slower-than-expected growth in basic property management; 2) deterioration of liquidity position for CCRE; and 3) unexpected labor cost hikes.